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Apple's Australian arm charged with $28.5M in back taxes

post #1 of 66
Thread Starter 
The Australian Tax Office has hit Apple with a $28.5 million bill for back taxes, in what is viewed as a sign that the country may start cracking down on foreign tax havens.

Details on the $28.5 million bill are unknown, as it is illegal for the ATO to comment on individual cases. But the Brisbane Times reported on Friday that the ATO may be joining a tax push led by European governments targeting companies that shelter funds through intermediary companies in foreign countries.

Apple's Australian arm is owned by Apple Operations International, which is a subsidiary located in Cork, Ireland. Many companies have operations in Ireland to capitalize on the country's low corporate tax rate.

Last year, Apple earned $4.87 billion in revenue from Australia. Its total tax bill for its 2011 fiscal year was $94.7 million.

Sydney
Apple's store in Sydney, Australia.


European governments have been looking to collect taxes from companies that rely on foreign tax havens. This week, the French government demanded $252 million in back taxes from Amazon, which relies on a tax haven in Luxembourg.

Apple sells devices to customers in Australia, but companies such as Google and eBay won't even admit to dealing with customers down under.

"Instead, according to its most recent report, Google Australia provides 'research and development services' to its U.S parent and 'sales and marketing services' to Google companies in Ireland and Singapore," the Brisbane Times reported. "For its part, eBay Australia and New Zealand's annual report discloses its principal activities as "the recommendation of market penetration strategies and advertising and promotion activities."

Apple also came under fire from regulators in Australia earlier this year, when the company was slapped with a $2.3 million fine for falsely advertising the 4G LTE capabilities of the third-generation iPad. The Australian Competition and Consumer Commission took issue with Apple's promotional materials which claimed the device offered 4G connectivity. But the ACCC felt the ads misled customers into thinking the device would work on Long-Term Evolution networks in Australia.
post #2 of 66
If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?
post #3 of 66

And rightly so, they should pay a fair amount of tax. Having said that governments need to remove the loop holes that allow this type of legal tax dodging in the first place.

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post #4 of 66
Originally Posted by ascii View Post
If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?
 

I would imagine by removing the legality of the actions they undertook.

 

Originally Posted by saarek View Post
And rightly so, they should pay a fair amount of tax.

 

And once again we start a thread where someone pretends that there is an objective "fair amount" of tax.


Having said that governments need to remove the loop holes that allow this type of legal tax dodging in the first place.

 

Ah, you mean the "loopholes" that are perfectly legal and of which every single person and entity in their right mind takes advantage. Got it. 

 

Do you really want 70% tax on everything?

post #5 of 66
Quote:
Originally Posted by Tallest Skil View Post

I would imagine by removing the legality of the actions they undertook.

But you can't retroactively change the law, surely?

post #6 of 66
Quote:
Originally Posted by Tallest Skil View Post

Ah, you mean the "loopholes" that are perfectly legal and of which only people capable of paying an expensive account can afford and entity in their right mind takes advantage. Got it. 

 

Only entities with a large accounting department have the ability to take advantage of most of these tax loopholes. Starbucks can route its profits through a tax haven. Your local independent coffee shop cannot. It's not a level playing field.

post #7 of 66
Quote:
Originally Posted by Tallest Skil View Post

I would imagine by removing the legality of the actions they undertook.


And once again we start a thread where someone pretends that there is an objective "fair amount" of tax.

Ah, you mean the "loopholes" that are perfectly legal and of which every single person and entity in their right mind takes advantage. Got it. 

Do you really want 70% tax on everything?

Fair as in level playing field. Company A who sells the same type of product at a similar turnover as Company B should not be hit with 25% tax vs 0.1% tax (numbers purely pulled out of the air).

Apple, Starbucks and everyone else should pay the same levels of tax as the other companies within each country.

Lets face it, Apple is hardly a struggling little company that can't afford to pay tax.
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post #8 of 66
Quote:
Originally Posted by Tallest Skil View Post

 

I would imagine by removing the legality of the actions they undertook.

 

 

And once again we start a thread where someone pretends that there is an objective "fair amount" of tax.

 

Ah, you mean the "loopholes" that are perfectly legal and of which every single person and entity in their right mind takes advantage. Got it. 

 

Do you really want 70% tax on everything?

Not 70%, but,  doesnt' less than two percent seems a bit low to you? I pay about 30% in income tax.. and then, I pay 15% sales and service tax on everything I purchase. I wish I had made 4 billion dollars only to pay 2% 

I dont believe in strangling companies. They need initiative to develop, grow, create employment. But I believe there is a civic duty for corporations.

post #9 of 66
Quote:
Originally Posted by ascii View Post

If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?

There are often different ways to interpret legislation.  A taxpayer will try to interpret to their favor, while the Govt will interpret in their favor.  I don't know about Australia but court determined interpretations are not uncommon.  Back taxes would then be paid or refunded based on the judgement.  Unless there was fraud involved there shouldn't be any penalty.  I was personally involved in one where we won to the tune of $13M. We are less than 5% the size of Apple so a $28M assessment is pretty small.

post #10 of 66
Quote:
Originally Posted by ascii View Post

Quote:
Originally Posted by Tallest Skil View Post

I would imagine by removing the legality of the actions they undertook.
But you can't retroactively change the law, surely?

Ex post facto laws are prohibited by the Constitution in the USA, but I think I remember that some parliamentary governments allow them.
post #11 of 66
Originally Posted by ascii View Post
But you can't retroactively change the law, surely?

 

Oh, no; but they can repeal whatever allowed Apple to do this and then go after Apple if they continue to use those methods.

 

Or maybe they can retroactively change the law. The UK did it.


Originally Posted by RichL View Post
Only entities with a large accounting department have the ability to take advantage of most of these tax loopholes.

 

Funny how I as an individual am capable of taking advantage of tax loopholes every single year.


 Starbucks can route its profits through a tax haven. Your local independent coffee shop cannot.

 

I question that, but we'll move on from it: But they can take advantage of tax loopholes.


Originally Posted by saarek View Post
Fair as in level playing field. Company A who sells the same type of product at a similar turnover as Company B should not be hit with 25% tax vs 0.1% tax (numbers purely pulled out of the air).

 

The bigger you are, the more resources you have. That's sort of how it works. Should Lesotho have military bases in the US? No. First, they can't afford it, just as the independent coffee shop in the example above cannot necessarily afford an international tax haven. Second, they don't need it. 

 

Lets face it, Apple is hardly a struggling little company that can't afford to pay tax.

 

"All money deemed 'extra' should be given to the state" doesn't seem to work very well.

 

See, Apple IS paying taxes. There's no such thing as not being able to afford to pay taxes. It's a contradiction in terms.

post #12 of 66
Would the Australian tax be the same if Apple Operations International was simply located in the US? Apple would probably have to pay more US taxes but would they have to pay more Australian tax as well? Does Australia feel an Australian company should own Apple Operations International, which would end up being called Apple Operations Australia? There are many companies who sell in the US that are owned by "foreign" companies so what's the difference and what's the problem?
post #13 of 66
This is a very complicated issue. Corporate tax codes are significantly more difficult and require judgement. It is rarely clear cut. to the extent taxing authorities devise tax incentives to direct behavior, it creates opportunities for gaming. Just look at the U.S. code in terms of capital investment or using green technology for tax credits.

International issues are even more complex. The concept of transfer pricing becomes critical. What is the true "cost" of a product when determining gross profit? Say the IP for the iPad resides in Ireland. Then the commercial value of those patents are added to the cost of the product sold in Australia creating more revenue for licensing In Ireland but a higher cost and lower profit in Australia.

In aggregate, it makes no difference on a pretax basis but to the extent IP is held in a low tax country it allows for a reduction in aggregate income taxes. Foreign currency hedging, mark to market measurement also create timing differences in terms of when income or expense should be recognized. If a taxing authority makes different assumptions, or believes IP value is overstated, they can argue for a change in cost basis of a product and adjust taxable income.

All perfectly legal and very complex. These issues exist between our states when calculating state income taxes. State tax compliance is extremely complex
post #14 of 66
Quote:
Originally Posted by Tallest Skil View Post

 

I would imagine by removing the legality of the actions they undertook.

 

 

It's more likely that they presented it in a way that suggested legality, yet it was never legal, and the Australian government decided to allocate the resources necessary to target big companies. Such audits would take a huge number of man hours, so it's not like they would do so unless they expected a sizable net gain over their expenses. This is still obviously conjecture, but your theory there is far less likely.

 

Quote:
Originally Posted by ascii View Post

If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?

Go do some reading on tax law. For a given country, you could sink hundreds of hours into learning about it. You don't know what method they used to push cash or assets onto subsidiaries. You don't know how it was claimed. It's fully possible that they were just called out on something. While the article here only mentions Apple, if you click through, Google is another target. It's not letting me paste the quote for some reason. Anyway we'll find out soon enough if this is just a fishing trip.


Edited by hmm - 11/16/12 at 9:47am
post #15 of 66
Quote:
Originally Posted by saarek View Post

And rightly so, they should pay a fair amount of tax. Having said that governments need to remove the loop holes that allow this type of legal tax dodging in the first place.

I agree with this completely. No exemptions or deductions for anyone or any corp. I like the word fair in the same sentence as tax also.
post #16 of 66
Quote:
Originally Posted by Tallest Skil View Post

 

Oh, no; but they can repeal whatever allowed Apple to do this and then go after Apple if they continue to use those methods.

 

Or maybe they can retroactively change the law. The UK did it.

 

Funny how I as an individual am capable of taking advantage of tax loopholes every single year.

 

I question that, but we'll move on from it: But they can take advantage of tax loopholes.

 

The bigger you are, the more resources you have. That's sort of how it works. Should Lesotho have military bases in the US? No. First, they can't afford it, just as the independent coffee shop in the example above cannot necessarily afford an international tax haven. Second, they don't need it. 

 

 

"All money deemed 'extra' should be given to the state" doesn't seem to work very well.

 

See, Apple IS paying taxes. There's no such thing as not being able to afford to pay taxes. It's a contradiction in terms.

I think you are missing the point everyone can not employ 50 people to review tax laws by country to ensure that tax loops can be coordinated to ensure money is moved from one to country to another to lessen the company's tax burden.

Also the entity/subsidiary relationship is very complex and no small business company, can develop such companies and link them to save tax. I used to work with GSK and their  company entity/subsidiary relationship had roughly 154 companies linked to the GSK holding company.

You maybe taking advantage of tax loops, but I can bet you are not maximise the potential benefits available because it takes time and a lot of effort. In addition, to spent 20-30 hrs try save $10 (argument sake) is waste of time, but same % compared to Tax burden of a company is highly feasible solution.

post #17 of 66
Major corporations are alwys getting their tax returns audited. This looks more like a dispute of the calculated tax than a push to close loopholes. If $95 million is a 2% tax rate, this is a 1/4% adjustment that may be subject additional steps by Apple. Based on what was reported, it's just another instance of using Apple notariaty to garner page hits or sell papers.
post #18 of 66
Quote:
Originally Posted by ascii View Post

If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?


Well in the case of Australia, they have a long history of retrospective tax legislation.  If they feel companies have been exploiting loopholes in artificially contrived ways to 'legitimately' evade tax, they have been known to to close the loophole and charge tax retrospectively.  I don't agree with the practice, but you did ask.

post #19 of 66
Quote:
Originally Posted by saarek View Post

And rightly so, they should pay a fair amount of tax. Having said that governments need to remove the loop holes that allow this type of legal tax dodging in the first place.


Wrong.

You want to pay more taxes than legally necessary, or what you believe is to be "fair", go right ahead if you feel the need to get all gung-ho about it. No one will stop you.

If you don't do everything, and anything you can do to minimize your tax liability in a legal, government-authorized way then the only person you can blame is ignorance, whom will then point the finger right back at you.

Now the details of this article is lacking, but in general terms Apple (or any other corporation) did nothing wrong or illegal.  Blame the governments.  They approve and make laws.  

post #20 of 66
Quote:
Originally Posted by Tallest Skil View Post

Funny how I as an individual am capable of taking advantage of tax loopholes every single year.

You can certainly take advantage of some loophes but I doubt that you earn enough to hire such a creative account as Starbuck's accountant. How much tax did you pay last year? Was it more or less than 2%? The less tax Starbucks pays, the more tax you pay.
post #21 of 66
We in America are so effing greedy. The rich complain about Obama and taxes; yet collectively the plutocrats have a whopping 40 trillion plus stash overseas. OMFG!
Enough to pay off our national debt, credit card debt and stunt loan debt. That of course is wishful thinking.
post #22 of 66
Quote:
Originally Posted by ascii View Post

But you can't retroactively change the law, surely?

 

Yes you can.

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post #23 of 66
Quote:
Originally Posted by Tallest Skil View Post

 

Oh, no; but they can repeal whatever allowed Apple to do this and then go after Apple if they continue to use those methods.

 

Or maybe they can retroactively change the law. The UK did it.

 

Australia has done it too.

 

(From my previous link)

 

Taxation (Unpaid Company Tax) Assessment Act 1982

 

The Taxation (Unpaid Company Tax) Assessment Act 1982 went further, allowing for the recovery of tax avoided under bottom of the harbour tax schemes between 1 January 1972 and 4 December 1980. The retrospectivity in this act was even more controversial than making the avoidance a crime.

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post #24 of 66
Quote:
Originally Posted by RichL View Post


You can certainly take advantage of some loophes but I doubt that you earn enough to hire such a creative account as Starbuck's accountant. How much tax did you pay last year? Was it more or less than 2%? The less tax Starbucks pays, the more tax you pay.

According to Starbucks, they don't make a penny of profit on their UK sales.

 

Their generosity is astounding. 800 not-for-profit retail outlets.

 

Bless 'em.

post #25 of 66
Quote:
Originally Posted by maccherry View Post

We in America are so effing greedy. The rich complain about Obama and taxes; yet collectively the plutocrats have a whopping 40 trillion plus stash overseas. OMFG!
Enough to pay off our national debt, credit card debt and stunt loan debt. That of course is wishful thinking.

OMFG!!!!! They should just write a check to every family in the country!

 

Are you sure it's only $40 trillion? I heard it was $400 trillion.....1rolleyes.gif

post #26 of 66
Quote:
Originally Posted by ascii View Post

If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?

I don't know about the Europeans but in Australia the ATO has provisions in the legislation that allow for it to determine if a particular scheme of arrangement has been entered into primarily to avoid paying tax, even years after the fact. If they decide yes it was setup and used primarily to avoid tax they can go back and bill the company (or individual(s)) for the tax thus avoided. Apple Australia being "owned" by a shelf company in Ireland might be considered such a tax avoidance scheme under certain circumstances I suppose.
post #27 of 66

From what I've read, Apple only pays 2% in corporate taxes outside the US.


And they want tax AMNESTY on all those billions made overseas.

 

Most of their billions are overseas because they would have to pay taxes.

post #28 of 66
So they were off by 0.59%? That hardly seems noteworthy to me. That's probably less than 1¢ per device.

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post #29 of 66
A fair amount of tax to pay is as little as possible. In the words of Australia's richest man in the eighties and nineties (he has passed on, now) at a government inquiry
Quote:
Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"

The only people that rail on about a 'fair' amount of tax are the ones that have plans to use Other People's Money (OPM) for stuff that they give a higher priority for than the majority of the population. It is most certainly not money they earned themselves.

In this particular case, Australian governments generally try to not spend more money than they have. You know, actually ensure expenditure is related to tax revenue, something quite unfashionable amongst most western countries these days. It's called living within your means. The current mob in power lost track of spending a ways back and now are trying to claw out new sources of revenue from under every rock they can find in order to live up to the promise of a balanced budget. Hence poking around and making adjustments to tax law to increase revenue from other sources like foreign corporations.

But in the larger picture, you yanks have a problem. You are wanting to impose high rates of taxes on money your corporations have earned overseas, where they have already paid tax in the country the money was earned. Sure, it is netted out, but it is definitely a disincentive to bring that money back where it would do your country some good. That money will instead get invested in my country, so your stupid tax laws are to my benefit.
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post #30 of 66
Quote:
Originally Posted by ascii View Post

But you can't retroactively change the law, surely?

You can say they violated existing laws if the tax structure and business structure/operations are not in alignment. Much of the tax "law" is more about policy than legislation, which is why there are so many grey areas.
post #31 of 66
Quote:
Originally Posted by maccherry View Post

We in America are so effing greedy. The rich complain about Obama and taxes; yet collectively the plutocrats have a whopping 40 trillion plus stash overseas. OMFG!
Enough to pay off our national debt, credit card debt and stunt loan debt. That of course is wishful thinking.


Hyperbole and hypothetical numbers don't really move discussions in a good direction. My opinion is simply that by setting up shop in that country, they are bound by the tax laws of that country. I have very little sympathy for these companies. Tax laws aren't supposed to be accommodate corporations routing funds through multiple companies. Most of the laws used for such things are in place for legitimate purchases. You can write off costs incurred setting up foreign subsidiaries, but this relies on profits being taxed later upon return. It's not like these laws don't exist for a reason. They just don't always operate in the way they were sold to the general public. This makes it difficult to close theoretical "loopholes" at times, as you risk hindering legitimate uses and can squeeze smaller companies that cannot afford or benefit from an army of accountants to navigate these complexities.

post #32 of 66

Australian tax law has general anti-avoidance provisions. If the tax office can look at a company structure and say that in essence it has been set up that way to avoid paying tax, it can reject that company return and substitute its own tax assessment.

 

Obviously it's more complicated than that (the structure may provide other benefits such as simplified administration which may make the tax benefits incidental, for instance) but in a nutshell that's how it is. 

post #33 of 66
Yes one of the reasons Australia has virtually no foreign debt is efficient tax collection, and a level of tax that pays its way. 21 years since the last recession, they must be doing something right.
post #34 of 66
Quote:
Originally Posted by ascii View Post

But you can't retroactively change the law, surely?

"Sovereign nation" is a very expansive term.

 

Cheers

post #35 of 66
Quote:
"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

by Lord Clyde in: Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Case 754, at 763,764

 

Cheers

post #36 of 66

In UK, we have just had a very amusing Parliamentary committee investigating tax paid by multinationals.

What Starbucks said to the Parliamentary committee:

Troy Alstead said Starbucks paid almost no tax in the UK because it made no money here. With one exception, they had made a loss for 15 years. "We are not at all pleased about our financial performance here. It is fundamentally true everything we are saying and everything we have said historically."

What Starbucks said to their investors:

For 2008 (a 'loss-making' year), Starbucks CEO Schultz told an analysts' call that the UK business had been so successful he planned to take the lessons he had learnt there and apply them to the company's largest market - the United States. He also promoted Cliff Burrows, former head of the UK and Europe, to head the U.S. business. Schultz said he looked forward to Burrows "now applying that same drive and business acumen to leading our U.S. business."

post #37 of 66
if a company wasn't making money prior to 2008 there would have been a real problem....Good ol' Cliffy was just ridin' the wave, and fooling his CEO.
Four years later reality has bitten.

Same in Australia, Starbucks has closed almost all its stores. And so it should, it makes crap coffee anyway.
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post #38 of 66
Quote:
Originally Posted by See Flat View Post

Not 70%, but,  doesnt' less than two percent seems a bit low to you? I pay about 30% in income tax.. and then, I pay 15% sales and service tax on everything I purchase. I wish I had made 4 billion dollars only to pay 2% 

I dont believe in strangling companies. They need initiative to develop, grow, create employment. But I believe there is a civic duty for corporations.

"They need initiative to develop, grow, create employment". They already have a perfect incentive- namely profit. The corporate line- "we need lower taxes so that we can create jobs" is BS. There are many firms who employ people and pay taxes: Starbucks pay bugger all, Costa pay real taxes, both manage to employ lots of people,

 

MNEs want to take advantage of the ammenities in countries without contributing to the system that put them there in the first place. Why should I as a tax payer have to subsidise the "unfair" profits earnt by shareholders?

 

Distance selling muddies the water even further. UK iTunes customers pay an extra 3% more in VAT so that Apple can enjoy lower corp taxes in Ireland. In short, not only do taxpayers subsidise these forms of tax avoidance, customers also lose out.

post #39 of 66
Quote:
Originally Posted by dave2012 View Post

In UK, we have just had a very amusing Parliamentary committee investigating tax paid by multinationals.

What Starbucks said to the Parliamentary committee:

Troy Alstead said Starbucks paid almost no tax in the UK because it made no money here. With one exception, they had made a loss for 15 years. "We are not at all pleased about our financial performance here. It is fundamentally true everything we are saying and everything we have said historically."

What Starbucks said to their investors:

For 2008 (a 'loss-making' year), Starbucks CEO Schultz told an analysts' call that the UK business had been so successful he planned to take the lessons he had learnt there and apply them to the company's largest market - the United States. He also promoted Cliff Burrows, former head of the UK and Europe, to head the U.S. business. Schultz said he looked forward to Burrows "now applying that same drive and business acumen to leading our U.S. business."

 But Starbucks are only able to make a "loss" because they buy coffee very cheaply and sell it to their stores at an inflated price that enables the store to make a loss. 

 

It might be legal but it ain't moral...

post #40 of 66
Aw yeah this is how we roll "down under"...
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