http://www.forbes.com/sites/timworstall/2012/11/04/is-apples-foreign-tax-rate-really-below-2/
http://www.bbc.co.uk/news/business-20197710
UK tax authority:
"Non-resident trading companies which do not have a branch in the UK, but have UK customers, will therefore pay tax on the profits arising from those customers in the country where the company is resident, according to the tax law in that country. The profits will not be taxed in the UK. This is not tax avoidance: it is simply the way that corporation tax works. [lol emoticon]
Most major economies operate corporation tax in the same way as the UK, so UK-resident companies are treated in a similar way in other countries. In other words, UK companies do not pay corporation tax to another country on the profits from sales in that country, unless they trade through a branch based there. Instead, they pay corporation tax in the UK"
By basing foreign subsidiaries in tax havens, companies only pay corporation tax rates of the tax havens. They are all doing this:
http://www.dailymail.co.uk/news/article-2220907/eBay-avoids-50m-corporation-tax-channelling-payments-Luxembourg.html
Apple pays some tax in the form of sales tax and employee tax but this is not really paid by Apple, it's paid by customers and employees. The tax in question is the tax on their profits.
- UK customer A earns a salary, they get paid and a chunk is taken in National Insurance and Income Tax (~20% for average UK workers).
- customer A walks into an Apple Store and buys an iPhone. 20% is paid in Sales Tax by the customer.
- customer A is served by Apple employee B who pays Income Tax and National Insurance (~20%).
- Apple deducts costs of making the products from the sale and what they are left with is profit on which corporation tax is due (24%, not 2%).
Through Apple's avoidance of corporation tax, the weight of services paid for by the government such as the fire service if an Apple Store goes on fire, the police if an Apple Store is broken into, the health service if an employee is taken ill - the weight of that expense is taken by customers and employees. This redistributes wealth from the poor to the wealthy.
Apple has bases in Ireland and Luxembourg for this. As far as US income tax on these foreign profits, Apple states themselves in the 10-K p61:
http://files.shareholder.com/downloads/AAPL/1700096589x0x610219/112dd7d2-e33a-44ad-b4ea-8870c5dd9281/AAPL_10K_FY12_10.31.12.pdf
"The Company’s consolidated financial statements provide for any related tax liability on amounts that may be repatriated, aside from undistributed earnings of certain of the Company’s foreign subsidiaries that are intended to be indefinitely reinvested in operations outside the U.S. As of September 29, 2012, U.S. income taxes have not been provided on a cumulative total of $40.4 billion of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $13.8 billion.
As of September 29, 2012 and September 24, 2011, $82.6 billion and $54.3 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S."
So they don't pay tax until they repatriate the money, which they won't until they get a tax break. They avoid foreign tax through havens and US tax by avoiding repatriation.
There will always be a conflict between business and government because businesses earn through work and have to compete for success whereas government takes some of it without competition or accountability and spends without the consent of those who earned it. It is a necessary conflict however because there are services government provides that cannot be held to the rules of business simply because their profitability is in direct conflict with their service. It is necessary for businesses to pay the appropriate tax because it is necessary for their employees and customers to pay it.
I think the most certain way of fixing this is by taxing based on the shipping address (point of supply) and not the tax haven address (point of sale). The repatriation tax will still need to exist because otherwise legitimate companies selling exlusively overeas would pay no local corporation tax but it should be very low because it's only needed to cover the government services provided to aid the base of operations (the tax can also be linked to local job creation).
This is easy to enforce on physical goods through customs. Digital goods are not so easy as some digital sales won't have an address recorded for the point of supply but they can be based on the point of sale where no address is recorded - most major retailers have records of cardholders or operate location-specific online stores.
