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Apple created offshore subsidiaries to avoid paying billions in US taxes, Senate panel says

post #1 of 132
Thread Starter 
Just hours after Apple published the full testimony which CEO Tim Cook plans to give to the Permanent Subcommittee on Investigations in the U.S. Senate, the government body issued its own findings on the company's offshore tax practices, saying subsidiaries were used to purposefully avoid paying billions of dollars in domestic taxes.

According to the subcommittee's report, Apple moved billions in profits out of the U.S. to affiliate corporations, like Apple Operations International in Ireland, where the effective tax rate is less than 2 percent, reports Bloomberg. Apple currently has $102 billion in offshore accounts.

Cork
Apple's Irish headquarters in Cork.


Of the three foreign subsidiaries Apple claims are not tax resident in any nation, primary affiliate AOI generated a net income of $30 billion between 2009 and 2012, the Senate report said. The other main Irish subsidiary, Apple Sales International, directed some $74 billion in profits away from the U.S. over the same period, and the paid a negligible amount in international taxes. For example, in 2011, ASI generated $22 billion and paid out $10 million in taxes, a rate of 0.05 percent.

?Apple wasn?t satisfied with shifting its profits to a low-tax offshore tax haven,? said chairman of the panel Senator Carl Levin (D-Mich.). ?Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.?

Senator Levin's website outlines the probe into Apple's tax practices, three of which are expected to be discussed at Tuesday's hearing:
  • Using a so-called cost sharing agreement to transfer valuable intellectual property assets offshore and shift the resulting profits to a tax haven jurisdiction.
  • Taking advantage of weaknesses and loopholes in tax law and regulations to ?disregard? offshore subsidiaries for tax purposes, shielding billions of dollars in income that could otherwise be taxable in the United States.
  • Negotiating a tax rate of less than 2 percent with the government of Ireland ? significantly lower than that nation?s 12% statutory rate ? and using Ireland as the base for its extensive network of offshore subsidiaries.

?Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among American?s largest tax avoiders,? said Senator John McCain (R.-Ariz.) in a separate statement. ?A company that has found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue.?

For its part, Apple said in the testimony published on its website today that the Irish subsidiaries are cost-sharing arrangements which helped fund research and development, leading to new U.S. jobs and bigger profits. The statement also noted that Apple paid $6 billion in taxes last year, making it one of the largest taxpayers in the U.S.

The senate subcommittee is slated to further detail its arguments against Apple in a hearing on Tuesday, which itself is part of a broader probe into how other multinational corporations use offshore affiliates to reduce tax burdens. Scheduled to give testimony from Apple are Cook, CFO Peter Oppenheimer and Tax Operations Head Phillip Bullock.

post #2 of 132
More power to them. Why should they do things to increase their expenses and decrease their return to investors! I congratulate them on avoiding taxes as any sane and lawful citizen or company should do.

If the senators and others are concerned, tell them not to itemize their own deductions first. They should take the beam out of their own eyes before removing the speck from Apple's eyes
post #3 of 132
The Senate report is a snow job, full of innuendoes. Apple has, indeed, paid all taxes owed on US pre-tax income. Problems in Ireland are Ireland's problem, not the US's. This is all fundamentally the result of a messed-up tax code created by the Congress.

But who cares.

Some of us pointed out that Cook made a mistake in agreeing to testify in front of these maroons. I hope we were not right. At a minimum, this is disastrous PR for Apple.
post #4 of 132
Not to mention they possibly pay more taxes than any other corp. in the US. That isn't enough?

 

 

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The reason why they are analysts is because they failed at running businesses.

 

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post #5 of 132
The problem isn't that Apple is doing this, the problem is that it is legal.

I think everyone and every company should pay no more than they legally have to. I do however question why the politicians allow practices that seem to wrong to be perfectly legal.

Google are under investigation for the same practices as Apple are using here. In 2011, Google made GBP3bn in revenue in the UK, but only paid GBP6mn in Corporation taxes, because all the sales were booked through Ireland. The politicians have all been complaining about how evil Google must be for doing that, but the fact is, what they are doing is perfectly legal.

I think what they are doing is wrong, but I can see that it's the politicians who need to fix the problem, not the companies to start voluntarily paying more tax for some reason.
post #6 of 132
Unfortunately this is a political witch hunt. Because Apple is very profitable, Apple will be found guilty of hiding billions of taxes, then Apple would appeal, and end up paying a small token penalty and the show will drag on for month. Apple gain nothing to testify and should just say we are sorry and we have been doing this for years and we are ready to negotiate the price being the most valuable company.
post #7 of 132

So, they are upset because they can't compete with other countries tax laws?!

post #8 of 132
Quote:
Originally Posted by emig647 View Post

Not to mention they possibly pay more taxes than any other corp. in the US. That isn't enough?

Apple has become the lightning rod for not only the financial press but also, it seems, the US Senate. Apple, because of its size, has become a target for everybody. It would be interesting to see a fair assessment of what other corporate biggies pay as a percentage of tax of their earnings compared to Apple. I wonder if that isn't something that Apple should be looking at doing?

post #9 of 132
Quote:
Originally Posted by nealg View Post

Apple has become the lightning rod for not only the financial press but also, it seems, the US Senate. Apple, because of its size, has become a target for everybody. It would be interesting to see a fair assessment of what other corporate biggies pay as a percentage of tax of their earnings compared to Apple. I wonder if that isn't something that Apple should be looking at doing?

 

As mentioned above, Google are doing the same thing.


Amazon are doing the same thing (book all their UK sales through Luxembourg).

 

The problem is the politicians don't stop it.

 

I don't think it's right that large companies can setup such circumstances to give themselves a benefit that small companies can't afford to setup (I believe the playing field should be level), but I can't blame large companies (or small companies for that matter) for doing what is perfectly legal.

 

When will politicians understand that they create laws.  Everyone else merely abides by them (otherwise they goto prison).

post #10 of 132

And why does anyone care what anyone in Congress has to say? This is fresh... pick on the most successful American company in history and accuse them of (gasp) following the law as written. My god, are they now saying there is a "higher moral obligation" to pay taxes that are above and beyond what is required by the IRS? And if so, why are you singling out Apple and not every other corporation in America?

 

These so-called "senators" are nothing but a clown show and should be treated as such.

post #11 of 132
Like they're the only one's doing it. What they revenue they generate in other countries are subjected to THOSE other countries taxes. What? They have get taxed again? They should only get taxed on what gets sold in THIS country to the end user.
post #12 of 132
Quote:
Originally Posted by AZREOSpecialist View Post

And why does anyone care what anyone in Congress has to say? This is fresh... pick on the most successful American company in history and accuse them of (gasp) following the law as written. My god, are they now saying there is a "higher moral obligation" to pay taxes that are above and beyond what is required by the IRS? And if so, why are you singling out Apple and not every other corporation in America?

 

These so-called "senators" are nothing but a clown show and should be treated as such.

 

And, for that matter, they could also single out a lot of senators.


I'm pretty sure they are able to lower their personal rate of tax more than I can because they are rich enough to setup investment trusts and such like.  Surely it's morally wrong that they don't pay the same effective tax rate as me?

 

Still, morals don't set the tax rate - the tax laws do.

post #13 of 132
Quote:
Originally Posted by emig647 View Post

Not to mention they possibly pay more taxes than any other corp. in the US. That isn't enough?

Wrong.

post #14 of 132
Quote:
Originally Posted by PaulMJohnson View Post

The problem isn't that Apple is doing this, the problem is that it is legal.

I think everyone and every company should pay no more than they legally have to. I do however question why the politicians allow practices that seem to wrong to be perfectly legal.

Google are under investigation for the same practices as Apple are using here. In 2011, Google made GBP3bn in revenue in the UK, but only paid GBP6mn in Corporation taxes, because all the sales were booked through Ireland. The politicians have all been complaining about how evil Google must be for doing that, but the fact is, what they are doing is perfectly legal.

I think what they are doing is wrong, but I can see that it's the politicians who need to fix the problem, not the companies to start voluntarily paying more tax for some reason.

 

 

Well, there's the great irony. The same people calling Apple out on this issue are the same people who wrote the damned tax laws to begin with. All they need to do is legislate a fix to the "problem" they created, right?

 

Except THAT would then deprive them of income (and campaign contributions) they enjoy today, gained so often from the people and companies practicing exactly the same behavior as Apple (and Google). 

 

It's a sideshow. Apple is a convenient whipping post. They'll make a bunch of "caring about revenue" noise, then this too shall pass...

 

Anything and everything except doing what really needs to be done. Raising taxes on people like Mitt Romney for starters, so they pay a fair share of taxes (I mean, come on. Net 12%? On millions? I'd LOVE to pay only 12% on my income!). We need to close a few loopholes, and tighten up the revenue ship.

post #15 of 132

I keep hearing every April 15th that GE paid $0 in US income tax.  Why aren't they testifying?  Could it be that they have bought and paid for the very senators running this witch hunt? PJ O'Rourke was right when he titled his book "Pariliment of Whores".

post #16 of 132
Don't trust anything the government tells you on this matter. If you do, you may as well join a herd of cattle while you're at it. This is the same government that can't balance a budget (year after year), lies about healthcare, and doesn't follow ANY of the same rules and laws they make the public follow. They are going after Apple and others to find new ways (revenues) to cover their enormous, bloated, growing pension and benefits plans (this is where all you government employees chime in a chide me). And as a side note, it's the same government and their judges that are protecting foreign business interests to the detriment of US businesses. And if you don't agree, you haven't owned a business here in the US.

Phew. Now I feel better.
post #17 of 132
Quote:
Originally Posted by winstein2010 View Post

Unfortunately this is a political witch hunt. Because Apple is very profitable, Apple will be found guilty of hiding billions of taxes, then Apple would appeal, and end up paying a small token penalty and the show will drag on for month. Apple gain nothing to testify and should just say we are sorry and we have been doing this for years and we are ready to negotiate the price being the most valuable company.

Yeah, you're probably right. But I'm sure others like Microsoft, etc. are doing the same thing.

 

How does Samsung do it with the money they generate in other countries?  Are they hiding it from the South Korean government?

 

What's the tax rate if they brought in the money?  Does anyone know off the top of their heads?

 

The most they should ever charge, if they did might be 5 to 9%, which isn't that much, that's tolerable.  That's more like a sales tax if they sold the product to customer.

post #18 of 132

Senators: Blah Blah Blah

 

Tim Cook: Is that Illegal?  1smoking.gif  

 

Senators: 1mad.gif

 

Tim Cook: Are you guys done questioning?

 

Senators: 1bugeye.gif

 

Tim Cook: Now listen to me or f@uck off! I need to go and get ready for WWDC.

post #19 of 132

The worst part is, Apple isn't asking for anything outrageous. Simply to have a lower tax hit than the full 35% corporate rate on "repatriated" funds (a bit of a misnomer, since those funds were all generated abroad). They really aren't asking to avoid or eliminate the taxes altogether.

 

It makes sense to me that we shouldn't be double-taxing that money, or making it less possible to "write off" against it. They don't suffer the same "full tax" hit on domestic funds.

 

Why would the government want to damage successful companies like that by draining them of funds? 35% (on top of any taxes they already paid abroad) is pretty harsh… so much for a healthy profit margin, eh?

post #20 of 132
Quote:
Originally Posted by drblank View Post

Like they're the only one's doing it. What they revenue they generate in other countries are subjected to THOSE other countries taxes. What? They have get taxed again? They should only get taxed on what gets sold in THIS country to the end user.

The point is (and this is the crux of the problem), Apple and many other companies are recognizing revenue in Ireland that there is no way they actually generated in Ireland, and they are recognizing the revenue there purely because Ireland have a very low rate of Corporate tax.

 

There is no chance Apple actually did $30bn of revenue in a country of 4.6 million between 2009-2012 (especially considering the Irish economy was dying at the time), but that is what they reported and it would equate to $1630 per year over that period for every person in Ireland.  That is in a country with an average pre-tax income of $45,000.  It's just not sensible to believe that every person in Ireland is spending 3.5% of their income on Apple products every year.

 

I don't doubt Apples reporting was perfectly legal and above board, because within the European Union, you can book sales in one country even if they are made in another (Starbucks, Google, Amazon all do the same).  The question is, why do our politicians allow it to be legal?

post #21 of 132
I have a feeling that if I were to incorporate a foreign subsidiary of myself and licensed my intellectual property rights to that entity, and then start deducting license fee payments to that entity from my gross income on my tax return, I would get in serious trouble with IRS. Why do corporations get a break?
post #22 of 132
I hope someone makes an app that teaches regular people how they can get their own zombie corporation that doesn't pay taxes and have their salary be funneled through it. That way every American citizen can avoid paying taxes.
post #23 of 132
Quote:
Originally Posted by macshark View Post

I have a feeling that if I were to incorporate a foreign subsidiary of myself and licensed my intellectual property rights to that entity, and then start deducting license fee payments to that entity from my gross income on my tax return, I would get in serious trouble with IRS. Why do corporations get a break?

Even if you didn't get into trouble, at the amount an individual makes, the cost to set it up and manage it would be more than you save.

 

Once you get into the billions, the running costs of doing it are insignificant in comparison to the savings.

 

Same reason Mitt Romney was doing nothing illegal in having a much lower effective tax rate than most of us.  Once you get to be mega-rich, the tax code can be manipulated in your favor.


Hell, I pay less tax as a percentage of income than people poorer than me because I earn enough to have a massive mortgage and poorer people have to rent.  I'm thankful for that, but I'm not convinced it's right.

post #24 of 132
Quote:
Originally Posted by PaulMJohnson View Post
  The question is, why do our politicians allow it to be legal?

 

If it was Illegal, politicians would have spend the money like it has always done to create nothing. It is better that corporations hold money than our government. I would love to get the same preference but our power is so small in front of these Criminals (government). At least we can invest in companies who win against government!

 

Has government ever made money? They only created one thing in US    "HUGE DEBT- Made In America"

 

I do not like either party. They are all criminals in one way or the other :)


Edited by helicopterben - 5/20/13 at 4:03pm
post #25 of 132
Quote:
Originally Posted by winstein2010 View Post

Unfortunately this is a political witch hunt. Because Apple is very profitable, Apple will be found guilty of hiding billions of taxes, then Apple would appeal, and end up paying a small token penalty and the show will drag on for month. Apple gain nothing to testify and should just say we are sorry and we have been doing this for years and we are ready to negotiate the price being the most valuable company.

What are you talking about?

Apple has broken no laws. They've not been accused or charged with breaking any laws. They've not been indicted on anything. And there is no trial.

Am I missing something here?

post #26 of 132
Quote:
Originally Posted by isaidso View Post

What are you talking about?

Apple has broken no laws. They've not been accused or charged with breaking any laws. They've not been indicted on anything. And there is no trial.

Am I missing something here?

 

It's a tried and tested route that the political system follows.  Apple has broken no laws, but Standard Chartered Bank had broken no laws either (they never had a trial), but the political system made such a noise and caused them such reputational damage that they paid a large "fine" just to make the whole thing go away.

 

What's going on is little more than extortion.  "Give us more money or we'll wreck your reputation".

 

Politicians in this country are entirely immoral.

post #27 of 132
Quote:
Originally Posted by PaulMJohnson View Post

The problem isn't that Apple is doing this, the problem is that it is legal.

 

The problem is that that should have to.

The state is nothing more than a criminal gang writ large.

Reply

The state is nothing more than a criminal gang writ large.

Reply
post #28 of 132

Please investigate these senators for hiding money.  I bet some things would be uncovered.

post #29 of 132
Quote:
Originally Posted by helicopterben View Post

Senators: Blah Blah Blah

 

Tim Cook: Is that Illegal?  1smoking.gif  

 

Senators: 1mad.gif

 

Tim Cook: Are you guys done questioning?

 

Senators: 1bugeye.gif

 

Tim Cook: Now listen to me or f@uck off! I need to go and get ready for WWDC.

 

                                                                                                                                                                                                                        !

Lol that pretty accurately sums it up :)   Apple hasn't done anything wrong but hopefully after 1bugeye.gif the senators will 1confused.gif and come up with 1biggrin.gif that will let them figure out how to ensure revenue whose source is inside the US stays in the US.  All the legitimate revenues overseas can stay overseas.

 

I like a sales/consumption tax myself.  Fair, but inherently progressive- the rich do tend to buy more stuff. 

 

It would be freakin' awesome if Apple proposed legitimate ways to improve the tax code, but its a little bit like the hens are asking the fox for advice on how they can build a more secure henhouse.

post #30 of 132
"Now of course I am minimising my tax. And if anyone 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 so well that we should be donating extra."

- Kerry Packer
I always appreciate an Android fan who puts his energy into advertising Apple products.
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I always appreciate an Android fan who puts his energy into advertising Apple products.
Reply
post #31 of 132
Quote:
Originally Posted by winstein2010 View Post

Unfortunately this is a political witch hunt. Because Apple is very profitable, Apple will be found guilty of hiding billions of taxes, then Apple would appeal, and end up paying a small token penalty and the show will drag on for month. Apple gain nothing to testify and should just say we are sorry and we have been doing this for years and we are ready to negotiate the price being the most valuable company.

Yep. The laws allow this to happen but Congress doesn't want to admit they created this mess.

And I'm still waiting for their proof of Apple's motives or that the money overseas came from the US

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

Reply

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

Reply
post #32 of 132
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post #33 of 132
Quote:
Originally Posted by anantksundaram View Post

The Senate report is a snow job, full of innuendoes. Apple has, indeed, paid all taxes owed on US pre-tax income. Problems in Ireland are Ireland's problem, not the US's. This is all fundamentally the result of a messed-up tax code created by the Congress.

But who cares.

Some of us pointed out that Cook made a mistake in agreeing to testify in front of these maroons. I hope we were not right. At a minimum, this is disastrous PR for Apple.
nothing Apple can do about the morons who believe everything their government tells them. Had Cook not testified the the media meme would be wondering what Apple has to hide. I hope Cook goes there and runs circles around these blowhards.
post #34 of 132
Quote:
Originally Posted by PaulMJohnson View Post

The problem isn't that Apple is doing this, the problem is that it is legal.

I think everyone and every company should pay no more than they legally have to. I do however question why the politicians allow practices that seem to wrong to be perfectly legal.

Google are under investigation for the same practices as Apple are using here. In 2011, Google made GBP3bn in revenue in the UK, but only paid GBP6mn in Corporation taxes, because all the sales were booked through Ireland. The politicians have all been complaining about how evil Google must be for doing that, but the fact is, what they are doing is perfectly legal.

I think what they are doing is wrong, but I can see that it's the politicians who need to fix the problem, not the companies to start voluntarily paying more tax for some reason.

Quote:
Originally Posted by tribalogical View Post

The worst part is, Apple isn't asking for anything outrageous. Simply to have a lower tax hit than the full 35% corporate rate on "repatriated" funds (a bit of a misnomer, since those funds were all generated abroad). They really aren't asking to avoid or eliminate the taxes altogether.

It makes sense to me that we shouldn't be double-taxing that money, or making it less possible to "write off" against it. They don't suffer the same "full tax" hit on domestic funds.

Why would the government want to damage successful companies like that by draining them of funds? 35% (on top of any taxes they already paid abroad) is pretty harsh… so much for a healthy profit margin, eh?

I agree this amounts to nothing more than politicians, who wrote the law, looking to make the average person think they actually care about "corporate greed"

Sure beats actually trying to fix the laws that Apple isn't breaking anyway.

As the great Walt Disney said "The way to get started is to stop talking and start doing."
post #35 of 132
Quote:
Originally Posted by mactoid View Post

I keep hearing every April 15th that GE paid $0 in US income tax.  Why aren't they testifying?  Could it be that they have bought and paid for the very senators running this witch hunt? PJ O'Rourke was right when he titled his book "Pariliment of Whores".

I believe that GE has received a pretty hefty tax refund rather than paying any taxes

post #36 of 132
Quote:
Originally Posted by mrrodriguez View Post

I hope someone makes an app that teaches regular people how they can get their own zombie corporation that doesn't pay taxes and have their salary be funneled through it. That way every American citizen can avoid paying taxes.
I'm curious do you take any deductions when you file your taxes? If you do, based on your argument, you're avoiding paying taxes.
post #37 of 132
Ireland is being unfairly singled out.

Ireland is one of many many countries that competes for the business of multinationals. It does so open and fairly. Other countries are free to follow suit.

In most cases it is not the Irish tax rate that is the main issue. Google for example made 9 billion in Europe last year. Those sales are predominantly organised through the European HQ in Dublin, which I should add employs 3,000 people, and before there's a tax cut they send 95% to Bermuda to a subsidiary that owns their IP for search, as allowed by US law.

Apple employs 4,000 people in Ireland. Yes, Ireland has a flexible corporate tax rate, but we are entitled to do so. Just as the US is entitled to change it's own rules to make it more difficult for US companies to avoid billions in tax.

Ireland is just lucky in that unlike other tax havens, Ireland is in the EU, speaks English and has a young well educated workforce. People can say what they like, but if it's just tax avoidance Apple wants, then there are many other places better suited to it.
post #38 of 132
Quote:
Originally Posted by Rogifan View Post

I'm curious do you take any deductions when you file your taxes? If you do, based on your argument, you're avoiding paying taxes.

Shoot, I avoid paying taxes every day. I rather pay for something on amazon and wait for it to ship to save on paying sales tax.

I legitimately want to pay as low a percentage of my income as Apple pays. The government will just use it to buy more drones to kill people
post #39 of 132
Quote:
Originally Posted by AppleInsider View Post

Just hours after Apple published the full testimony which CEO Tim Cook plans to give to the Permanent Subcommittee on Investigations in the U.S. Senate, the government body issued its own findings on the company's offshore tax practices, saying subsidiaries were used to purposefully avoid paying billions of dollars in domestic taxes.

According to the subcommittee's report, Apple moved billions in profits out of the U.S. to affiliate corporations, like Apple Operations International in Ireland, where the effective tax rate is less than 2 percent, reports Bloomberg. Apple currently has $102 billion in offshore accounts.

Yeah, Apple simply created subsidiaries in different countries for tax reasons. It had nothing to do with legal requirements in different countries or trying to serve their customers.

US Senators are, by and large, idiots. The entire premise (that Apple's entire business belongs to the US government and anything Apple does elsewhere is evil) is absurd.

The really sad thing is the hypocrisy. With GOP politicians are arguing that they should get the government out of our lives, they're also arguing that they have a right to Apple's entire business - even that which has absolutely nothing to do with the US.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
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post #40 of 132
Quote:
Originally Posted by mrrodriguez View Post

I hope someone makes an app that teaches regular people how they can get their own zombie corporation that doesn't pay taxes and have their salary be funneled through it. That way every American citizen can avoid paying taxes.

I really wish that people who don't have any concept of subjects would stop posting ridiculous comments like that.

There is no legal way for you to do what you're describing. Furthermore, it's absolutely nothing like what Apple does.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
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