Originally Posted by PhilBoogie
Yes, and therefore they get taxed on those costs. Employee, material, outsourcing etc. So even though a French guy buying an iPod build by a Chinese person
earns the US government some money.
Companies are not taxed on costs (other than property tax on real estate, of course). They're taxed on profits.
There IS one unfair element in terms of that topic. Apple pays US tax on US income, China tax on China income, and France tax on France income, etc. Let's say that Apple France buys a phone from Apple China. They pay Apple China a certain amount of money for the phone. They pay Apple US a certain amount of money for their share of marketing, R&D, support, licenses, etc. They then sell the phone in France. Whatever is left over is clearly profit for Apple France and the US government is not entitled to any portion of that.
HOWEVER, the problem is transfer pricing. How much should they pay Apple China for the phone? How much should they pay Apple US for the IP? By setting those prices, Apple controls which country earns most of the profits - and therefore where most of the taxes will be paid. If the US taxes are very high, for example, they set the IP licensing cost low enough that the US subsidiary doesn't make money and France makes more money - where the taxes are lower.
There are rules that limit transfer pricing so that it's not TOO blatant of a tax avoidance scheme, but the window for allowable prices is very wide and there's a lot of leeway in moving income around simply by changing transfer prices.
I don't know that there's an easy way around that other than a global taxing agreement which would have more downside the upside.
Originally Posted by RobM
Guys, help an out of towner here.
What level of tax does an Internet business based in the US attract ?
Sorry for dumb question. Interested.
Too many variables to answer.
In the US, there are many types of taxes:
Federal corporate income tax. Generally based solely on profits - the more profit you make, the more you pay in taxes. This could go as high as 35% of marginal income, but more typically is in the 10-15% range at most.
You pay fees for specific services. While not taxes, they are payments to the government. For example, you pay fees to register a patent.
State income tax. Some (but not all) states have income taxes for corporate income. Typically up to about 15%, but most commonly 5-10%
Property tax. States and localities charge property tax based on the value of the property used.
Local income tax. Like state and federal income tax, but implemented by specific cities. Not particularly common except a few of the largest cities. Typically a couple percent.
Employment taxes. Employers pay a portion of the social security and medicare taxes for employees. Something like 8% of employee's gross income.
Overall, the total corporate tax burden could range from 0% to perhaps 50%. However, almost no one pays anywhere near the maximum. Few companies pay more than about 25-35% for all these taxes combined.
It's a complicated mess.
Originally Posted by vvswarup
Your claim about how very few corporations, if not none, pay much less than the marginal tax rate of 35%. But in using this fact to refute a belief that the United States has the largest corporate tax rate in the world and it should be lowered to make our economy more competitive fails to account for a key fact-HOW corporations end up paying that low tax rate. The MARGINAL tax rate represents the tax rate incurred if a company did absolutely nothing at all to lower its taxes. Corporations have a fiduciary responsibility to shareholders, though, and reducing taxes is a part of that. In order to come up with ways of minimizing taxes, corporations employ and army of accountants and lawyers to comb through the tax code and devise a tax strategy that minimizes the tax bill.
If the MARGINAL tax rate were lower, corporations wouldn't have to spend money paying accountants and lawyers to reduce their taxes. That money could be used elsewhere. In other countries, the marginal tax rate is lower, meaning that for no effort at all, companies in those countries pay less tax. This is what is meant my economic competitiveness. Taxes increase the cost of doing business relative to other countries. And people like to vilify corporations' tactics such as Apple's by saying that smaller businesses, i.e. the "little guys", are getting the shaft because since they're smaller, they can't take advantage of the loopholes like multinationals, partly because they don't have cash to spend on accountants. Well, if the marginal tax rate were lower, it would level the playing field, because all of a sudden, those lower taxes rates that could only be achieved through some complicated financial acrobatics can now be had with much less effort.
The 35% number is a red herring. Almost no business (certainly few, if any, of the largest businesses) pay anywhere near that amount. It's not uncommon for large, profitable businesses to pay no income tax at all.
Originally Posted by ksec
Again, Apple needs to think about how to use those money to its advantage and invest in things that is safe and grows, no matter it is bonds or what sort. I dont want it to return the cash to me. Apple should very much think for itself.
The US Currency is pretty low ( comparatively ), using the $100B Foreign Cash to Buy a 10 Year US Treasury Bonds would yield a yearly additional of $2B Cash. ( Correct me if i am wrong here ). Which Could have used to lower the production cost of its Mac Product, iCloud improvement or what other things that brings "value" to its Apple Product Users.
Or what others solution. I think dividends, brings back cash are just for short term investors.
Apple is already investing everywhere that it thinks it can improve products or create value. Getting 2% return isn't going to change that.
Note also that they can get similar returns by leaving the money overseas.
The only way that money will be repatriated is if Apple has a major investment in the US that requires it or decides to increase the dividends. Otherwise, bringing the money back to the US makes no sense at all for the reasons given earlier.