Apple pays China $71M in back taxes, $10M fine after misinterpreting law
The Chinese Ministry of Finance announced this week that Apple paid out 452 million yuan ($71 million) in back taxes and was slapped with a 65 million yuan fine for understating sales in 2013.
China's government-owned Xinhua reported Apple did not account for sales worth 8.8 billion yuan ($1.4 billion) in 2013, while overstating profit by 5.4 billion yuan in that same year, according to CNET. In response, China's finance ministry leveled a 65 million yuan fine on top of the 452 million yuan tax bill Apple owed.
For its part, Apple maintains the error was unintentional and resulted from a misunderstanding of Chinese tax law.
"During an audit of our 2013 operations, a difference in interpretation of a tax rule resulted in a balance due, which we paid with interest," said Apple spokesman Josh Rosenstock. "We pay all the taxes we owe wherever we do business and we will continue working closely with the Ministry of Finance."
Apple's tax strategies have come under fire in multiple jurisdictions as the company continues to see unprecedented growth that translates into billions of dollars in revenue each quarter. Of particular interest is Apple's operations in Ireland, the hub of a complicated, but legal, international revenue processing network designed to avoid high U.S. tax rates by keeping cash overseas in low tax countries. Apple has more than $190 billion in offshore monies.
The European Union is looking into what it considers Apple's exploitation of tax loopholes, while the U.S. government floats its own solutions for getting a piece of the huge Apple pie. Australia is also targeting Apple in a crackdown on tax avoidance practices.
In spite of government scrutiny, Apple's products are extremely popular among Chinese consumers, an important demographic for future growth. CEO Tim Cook in a rare mid-quarter update last month said China sector growth is strong, dispelling rumors that a struggling economy was negatively impacting sales.
China's government-owned Xinhua reported Apple did not account for sales worth 8.8 billion yuan ($1.4 billion) in 2013, while overstating profit by 5.4 billion yuan in that same year, according to CNET. In response, China's finance ministry leveled a 65 million yuan fine on top of the 452 million yuan tax bill Apple owed.
For its part, Apple maintains the error was unintentional and resulted from a misunderstanding of Chinese tax law.
"During an audit of our 2013 operations, a difference in interpretation of a tax rule resulted in a balance due, which we paid with interest," said Apple spokesman Josh Rosenstock. "We pay all the taxes we owe wherever we do business and we will continue working closely with the Ministry of Finance."
Apple's tax strategies have come under fire in multiple jurisdictions as the company continues to see unprecedented growth that translates into billions of dollars in revenue each quarter. Of particular interest is Apple's operations in Ireland, the hub of a complicated, but legal, international revenue processing network designed to avoid high U.S. tax rates by keeping cash overseas in low tax countries. Apple has more than $190 billion in offshore monies.
The European Union is looking into what it considers Apple's exploitation of tax loopholes, while the U.S. government floats its own solutions for getting a piece of the huge Apple pie. Australia is also targeting Apple in a crackdown on tax avoidance practices.
In spite of government scrutiny, Apple's products are extremely popular among Chinese consumers, an important demographic for future growth. CEO Tim Cook in a rare mid-quarter update last month said China sector growth is strong, dispelling rumors that a struggling economy was negatively impacting sales.
Comments
They never use multi-national loopholes either. No, they draw the line at that. "We use no complicated tax breaks," these CEOs agree, "that are not available to Pop's Bike Repair." Yes, it is amazing how companies such as Amazon, Apple and Google are always careful to pay more than their fair share of taxes.
Their kindness does not end there. If they set up a server farm in some economically depressed community, they never ask for tax breaks. No, not them. Instead they promise millions for the local schools. Their generosity is most impressive. Hearts of gold and all that.
That generosity then provides them with the moral high ground to lecture the rest of us about how we should sacrifice to fight this or that fashionable ill. Yes, it's traveling the world in private jets for them, but weekends a nearby state parks for us.
Gotta save the world you know, one poor, much-put-upon smuck at a time. What would we do without them bearing such a heavy burden.
/sarcasm
This is important, because if you are less savvy and pay more than you should, it's not a problem and you can get a refund; but were it your duty to pay the most possible given the interpretation of existing law, if you made any mistake, you'd already be in massive trouble.
Thus: if government wants more taxes, they need to change the law, not bedevil those who find an interpretation of the law that allows them to pay less than the government or the public would like to see paid.
In this bit of news, what's interesting is that Apple overstated profits, but underreported sales, thus owing more taxes.
So likely they get a refund on income taxes, but owe more than that refund in sales taxes, which results in the penalty.
If Apple had been trying to be malicious, they certainly would not have overstated profits...
Better to ask forgiveness than to ask permission. Just the cost of doing business.
Plus, if you don't get caught, you never have to ask...
That should fix their stock market problems.
And the scandal doesn't end in Ireland. I've heard that Tim Cook deposits a portion of his income into a 401k plan which REDUCES the amount of personal income tax he has to pay each year!!! While this may be technically legal - he has lots of money and he should be looking for ways to transfer more of it to the government.
I also heard a rumour that when Tim Cook goes shopping and the store has some items on sale, Tim actually pays the SALE PRICE instead of insisting on paying the regular price even though he can certainly afford to pay full price! What a scumbag thing to do! He should most certainly be investigated for this blatant attempt - driven by personal greed - to pay less than the maximum possible for these sale items!
(/heavy sarcasm throughout)
Today the elected members heading the city's maintenance arm (sewers, streets, parks etc) gave themselves a 100% pay raise i.e doubling their salaries.
My Taxes at work. In the last few years they raised my property tax 30% not counting reassessing my house 10% last year (although I did no renovations for 10 years... ).
(People always complain corporations are evil but when you live in a small town and things are easier to understand you realize politicians who want to tax everything are worse. In a small town you can see them awarding lucrative contracts to their friends , relatives using tax money to 'build roads to nowhere'. In national politics it's just as bad, just better hidden ).
All tax breaks are available to everyone, just the complexity, time and sometimes even language barriers make it something that the average person wouldn't save any money at. These often involve multiple companies. Basically you create a business that "you" own and are also an employee of, and "your" business pays you an amount that puts you in a lower tax bracket, and when you temporarily need more money (eg buying a house or condo) you have your business loan it to you, and then the business gets to write off the loan, and you never "own" the money needed to buy the property. At least that's the generalized gist of what I hear. When scaled up to complete corporations, there are staff who only exist to "operate" the shell companies but their only role is rubber-stamping activity by the parent company. So all this effort isn't without it's own costs.
When dealing with billions of dollars, it is in the company and shareholders best interests to pay as little tax as possible, and that has been possible because of all the corporate loopholes that exist in the US and foreign countries. As long as Apple is "doing business" in Ireland, it can make use of that tax rate, even if it only ever sells one iPod per year. Either Ireland needs to raise their taxes, or the US needs to prevent double-taxation gaffs in the existing tax laws. (Where a corporation pays taxes to two countries for the same purchase.)
Like as far as I'm concerned, If the money made from European or Chinese customers stays respectively in Europe or China, that's perfectly fine and seems legal enough.
What I find irritating is how "software" gets to skirt this by having a company like Adobe or Microsoft make ALL Worldwide software purchases "originate" in the country with the lowest tax rate (eg Ireland) even though the customers are NOT in Ireland, and the prices are in the foreign currencies. There's also services (eg like how everyone was outsourcing support to India) that blur this problem because your sales and support staff might be in a country that is not the US, but are still taking sales for US software/products. (If it costs a 200$ commission to a sales person in a US store, but only 2 cents to a sales person in India, of course the company is going to try it.)
The laws should be based entirely on who purchases the product/service/software, and if a company doesn't actually have an office in that country, then it's legal obligations to pay taxes in that country should only extend to what the taxation office in that country tells the company it's sales taxes are, and if it doesn't have sales taxes, it's not obligated to pay a business income tax because the company doesn't exist there, and doesn't support it's own products in that country.
If you're not in the US, and pay in US dollars, you get to deal with US English support, and if you need to return the product for repair, you need to ship it back to the US at your cost. Virtual items (eg apps, games (steam, app store, origin, etc)) should give the customer the option of buying the US "version" or any other countries "version" of an intangible product, even if it costs them more or less, because it's not always the case the customer in one country can speak or read the "foreign" country's language. Like good grief, people who live in Puerto Rico or Quebec may actually prefer English, but their IP regionalization tends to lock them out of the English market. People in go "teach" English in Asian markets tend to get very annoyed by this because they may still want to play their English games, but they can't because the store and software available is only available in the local language, once you travel outside the market you purchase, all your purchases are unavailable.
You realize everything you said had no barring on this story? This was about Apple owing taxes in China, not the United States.
The European Union is looking into what it considers Apple's exploitation of tax loopholes, while the U.S. government floats its own solutions for getting a piece of the huge Apple pie. Australia is also targeting Apple in a crackdown on tax avoidance practices.
Notice the politically-charged terminology used here.
"exploitation of tax loopholes", which really means "taking advantages of features of the tax code that the politicians deliberately put there in order to benefit other organizations". They're all about giving massive tax breaks to people and organizations they like, but they get really pissy if someone else tries to use those same laws to their own advantage.
Note also the complete contradiction in the phrase "crackdown on tax avoidance". Tax avoidance is perfectly legal. It is taking actions that, according to every interpretation of the law, is perfectly legal, for the purpose of lowering the amount of tax paid. It is NOT tax "evasion", which is criminally lying about facts in order to reduce taxes paid,
If these countries are upset that their laws are allowing corporations to pay less tax than they'd like, then let them change the laws. And face the political fallout when the other corporations (that lobbied for those laws in the first place) cut off the campaign funding.
People always complain corporations are evil but when you live in a small town and things are easier to understand you realize politicians who want to tax everything are worse. In a small town you can see them awarding lucrative contracts to their friends , relatives using tax money to 'build roads to nowhere'. In national politics it's just as bad, just better hidden.
It's worse in national politics because you can use all the power of the Federal government to suppress criticism. A small town may control the local press, but it can't do a thing to stop a large media outlet from exposing the corruption, should they decide to take an interest. Not so when it's on a national scale. (Oh, you wrote that story? I guess your reporters won't be able to attend the next 6 months worth of official press conferences....)
About 1/2 day of net profits based on last quarter...
As the US Supreme Court properly stated, it is citizens duty to pay the least amount permissible under the interpretation of existing tax law.
This is important, because if you are less savvy and pay more than you should, it's not a problem and you can get a refund; but were it your duty to pay the most possible given the interpretation of existing law, if you made any mistake, you'd already be in massive trouble.
Thus: if government wants more taxes, they need to change the law, not bedevil those who find an interpretation of the law that allows them to pay less than the government or the public would like to see paid.
In this bit of news, what's interesting is that Apple overstated profits, but underreported sales, thus owing more taxes.
So likely they get a refund on income taxes, but owe more than that refund in sales taxes, which results in the penalty.
If Apple had been trying to be malicious, they certainly would not have overstated profits...
These Governments put the loopholes in, and then later bitch about it when they get used. These governments are broke. Spending is out of control, and what's the solution? Look around and see who's making a bunch of money and attack them!!!