G20 economic summit targets tax loopholes used by Apple, Google & others
A global economic crisis team of 20 leading nations has endorsed a proposal that would rein in tax avoidance practices employed by Apple and other tech firms.
Headquarters of Apple Sales International in Ireland, which handles most of Apple's overseas revenue.
The 40-page action plan drawn up by the Organization for Economic Cooperation and Development was revealed as part of the G20 summit in Moscow on Friday, according to Bloomberg. It would force international companies to pay additional taxes, preventing money from being diverted offshore to a tax haven like Ireland.
"The proposal aims to develop rules over the next two years preventing companies from escaping taxes by putting patent rights into shell companies, taking interest deductions in one country without reporting taxable profit in another, and forcing them to disclose to regulators where they report their income around the world," wrote reporters Jesse Drucker and Rainer Buergin.
Apple has been accused of using a number of subsidiaries in Ireland and the Netherlands to take advantage of low international tax rates. According to the OECD, countries that normally accommodate these practices ? including the Netherlands and Switzerland?? will back their proposed plans.
Whatever profits are collected through the second company are taxed at a rate of 12.5 percent, or nearly a third of the 35 percent international tax rate imposed by the U.S. government.
Pascal Saint-Amans, director of the OECD's Centre for Tax Policy, referred to the strategy used by a number of companies as "double non-taxation." Two of the OECD's proposed regulations will make it harder for companies to move these profits offshore and would aim to keep the money in the country in which it originated.
Apple Chief Executive Tim Cook has adamantly denied that his company has skipped out on any taxes, \saying just before testifying before the U.S. Senate in May that Apple pays "every dollar" that it owes. At the hearings, Sen. Carl Levin accused the company of exploiting an "absurdity" in U.S. tax law, while Cook accused American tax codes of failing to keep pace with digital age.
Headquarters of Apple Sales International in Ireland, which handles most of Apple's overseas revenue.
The 40-page action plan drawn up by the Organization for Economic Cooperation and Development was revealed as part of the G20 summit in Moscow on Friday, according to Bloomberg. It would force international companies to pay additional taxes, preventing money from being diverted offshore to a tax haven like Ireland.
"The proposal aims to develop rules over the next two years preventing companies from escaping taxes by putting patent rights into shell companies, taking interest deductions in one country without reporting taxable profit in another, and forcing them to disclose to regulators where they report their income around the world," wrote reporters Jesse Drucker and Rainer Buergin.
Apple has been accused of using a number of subsidiaries in Ireland and the Netherlands to take advantage of low international tax rates. According to the OECD, countries that normally accommodate these practices ? including the Netherlands and Switzerland?? will back their proposed plans.
The OECD's proposal would attempt to stamp out tax avoidance, and is said to have the support of the Netherlands and Switzerland.In May, the U.S. Senate Permanent Subcommittee on Investigations produced a report outlining how Apple is able to avoid paying domestic taxes on its international sales through a process known as the "Double Irish." The method earned its name because companies are required to set up two Irish companies to utilize the loophole ? one company that owns the intellectual property rights, and another that licenses those rights and keeps its profits low.
Whatever profits are collected through the second company are taxed at a rate of 12.5 percent, or nearly a third of the 35 percent international tax rate imposed by the U.S. government.
Pascal Saint-Amans, director of the OECD's Centre for Tax Policy, referred to the strategy used by a number of companies as "double non-taxation." Two of the OECD's proposed regulations will make it harder for companies to move these profits offshore and would aim to keep the money in the country in which it originated.
Apple Chief Executive Tim Cook has adamantly denied that his company has skipped out on any taxes, \saying just before testifying before the U.S. Senate in May that Apple pays "every dollar" that it owes. At the hearings, Sen. Carl Levin accused the company of exploiting an "absurdity" in U.S. tax law, while Cook accused American tax codes of failing to keep pace with digital age.
Comments
It's very nice that the G20 summit agrees with some common sense international tax law fixes. However, getting each country, especially the US, to actually pass new tax law that would effectively increase corporate taxes owed is a pipe dream at best and a political hot air balloon at worst.
In the USA, one side will claim the international community is attempting to "take over" their sovereignty and that any new tax law like this is anti-business and would accelerate companies leaving the country. Meanwhile the other side will blast the "pro-business" party for obstructionism when in actuality, both sides are paid hand-under-desk to prevent any legislation of the type from reaching either floor of Congress for a vote. Both parties win each of their base voters' hearts for fighting over essentially a loss for the general public.
I can only hope other countries that have more than two political parties and aren't all paid by corporate lobbyists will prevail in squashing this obvious gap in international tax law.
Glad to see them try to fix the problem instead of them just complaining that some companies are not paying what they should be paying. If the tax laws are written correctly then they will collect their taxes but I am confident that they will screw this up again and just keep complaining.
Good on the governments for straightening things out.... well, lets be realistic- making them slightly less crooked. Whatever leaks they plug, corporations will find the 'next best' remaining ones.
Next up on the corporate agenda:
Dear employees, increased competition and now an increased tax burden imposed on us are making times really *really* hard. We're going to have to increase your portion of the health care contribution, we're stopping our 401k sharing plan, and there will sadly be no pay raises this year =(
<Inside the boardroom> Hahhahah Nice work, bonuses for everyone. Hey, tax guy, hows that new quadruple throople pretend our engineers are in training interns for the tax bonus plan coming along?
About time. Less talk, more action!
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Originally Posted by cnocbui
I applaud these moves, I just hope they actually do something and that it's effective.
And fair!
I agree with you though, this is an excellent move. Rather than complaining about companies doing something that is perfectly legal, if they don't like it, they are there to change the laws to achieve their aims.
True and I hope we start addressing all the other iniquities in the tax system here in the US too. Such as those to enable billionaires to pay little by only taking investment income for example while hard working folks pay far higher levels on earned income.
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Originally Posted by digitalclips
True and I hope we start addressing all the other iniquities in the tax system here in the US too. Such as those to enable billionaires to pay little by only taking investment income for example while hard working folks pay far higher levels on earned income.
The US system isn't just skewed in favor of billionaires. I'm in the process of buying a house in downtown San Jose. The mortgage is going to be enormous, so I'm going to have a massive amount to write off on my taxes. I should be able to get my effective tax rate down to well below that of someone who can only afford to rent in San Jose.
It's an act of doublethink that I'm thankful for this, but I'm not convinced it's fair.
The whole socialist attitude that people and companies who work hard and are successful should pay for all the slackers and whiners is pathetic and un-American.
Ultimately, even if they got the low tax countries to agree to raise taxes (highly unlikely) they will just wind up in a soviet type situation where economic activity slows down as it become economically inefficient to continue paying the higher taxes.
I agree with the poster who says that the U.S. will never agree to impose higher taxes on their businesses. The Republicans at least recognize that this will only hurt domestic industry. Now if they're really smart, they will lower their taxes to match Ireland so the U.S. can collect the taxes rather than Ireland.
More regulations rarely translate into a better tax code. In general, it creater more opportunities for loopholes. It's a matter of time before giant corps figure out how to get around this. Think about it, the talent and expertise that a government salary can get is less than what large corps can hire...
...and the other multinationals who use the same techniques?
Pharmaceuticals, food and others?
Phillips, Nestle etc
Are US tech companies the only ones being targeted?
Now the interesting thing is, will the media groups who started all the whining about legitimate taxation strategies take responsibility over the effect on the bottom line of increased production and distribution costs and what it will do to share prices.
Here's a thought, government should stop wasting taxpayer money on stupid shit and giving it away to countries that hate us anyway. What would happen? We would get out of debt and there would be no need to raise taxes or find new ways to tax. PERIOD.
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Originally Posted by bryand
The way to "fix" the problem is to lower corporate taxes in the other countries. If they just try to foist higher taxes on their businesses, it will only lead to more business moving to lower tax jurisdictions.
Ultimately, even if they got the low tax countries to agree to raise taxes (highly unlikely) they will just wind up in a soviet type situation where economic activity slows down as it become economically inefficient to continue paying the higher taxes.
I agree with the poster who says that the U.S. will never agree to impose higher taxes on their businesses. The Republicans at least recognize that this will only hurt domestic industry. Now if they're really smart, they will lower their taxes to match Ireland so the U.S. can collect the taxes rather than Ireland.
There are already so many subsidies, loopholes, and deductions written into our tax law by politicians for personal friends and professional lobbyists that only the poorest individuals and smallest businesses among us pay the regular tax rate. All the fluff of our tax code needs to be fixed at the same time or before any regular rate reduction occurs. That way larger corporations that took advantage of the broken tax system would pay only slightly less, while smaller businesses would pay substantially less.
The problem is all those friends and lobbyists are still around, influencing our current governmental body to not change anything. No one wants to see their tax kickback disappear and no politician wants to lose support from their business donors/supporters.
The end result will be a more and more complicated tax code where increasingly the most wealthy and well connected get the biggest breaks and the lowliest suffer.
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Originally Posted by ytseman3
Here's a thought, government should stop wasting taxpayer money on stupid shit and giving it away to countries that hate us anyway. What would happen? We would get out of debt and there would be no need to raise taxes or find new ways to tax. PERIOD.
It's easy to say we need to stop wasting money, but when it comes time to cut no one wants to lose money for their cause or pet project. And as far as foreign aid is concerned, that's a whole other debate that requires much more thoughtful discussion than "NO MOAR FOREIGN AID." When we give aid, equipment, and training to foreign countries or militaries that don't particularly like us or our influence, that aid alone helps stabilize the region, establishes some form of governmental heirarchy. Even when these countries do or propose terrible things on their people or promote agendas opposite our own, without the structure we help provide, it could be a lot worse (e.g. Syria). Obviously it doesn't always work out, but we have a vested interest in global stability (see imports and exports of goods, services, and investments). In other words, the US can't live in a bubble.
Over time, the federal government gets a higher cut anyway, via dividend paybacks (15-39.3%),
capital gains (15%+ AMT), estate tax, etc. Even heirs of folks who die with their stock,
as Jobs did with AAPL and DIS, triggering a "step-up" basis, will spend/squander
resulting in more tax. If you raise corporate tax and keep "personal" rates high too, at least
the dividends (a company's worth over time using the dividend discount model) would be
double taxation.
You really think billionaires have mortgages?
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Originally Posted by PaulMJohnson
The US system isn't just skewed in favor of billionaires. I'm in the process of buying a house in downtown San Jose. The mortgage is going to be enormous, so I'm going to have a massive amount to write off on my taxes. I should be able to get my effective tax rate down to well below that of someone who can only afford to rent in San Jose.
It's an act of doublethink that I'm thankful for this, but I'm not convinced it's fair.
Most billionaires don't really do that. I'm not sure of the exact cap, but home loans are unusual above 10-20 million or so. That isn't the case with commercial real estate, but that's totally different. I'm not sure of the entire breakdown on sales and income gain vs capital gains in cases of multiple home ownership, so I can't comment there. Someone lend me a hand with this topic.