84 replies to this topic

[jeremx]

Dutch Sandwich.

Mexican waffle.

[Rize]

How Apple Avoids Paying Its Fair Share


Apple looks downright patriotic next to master tax dodgers like General Electric and Boeing, but it still pays far less than it should.
May 31, 2011


I’m an Apple fan. I’m writing on my third Mac laptop in a decade. I’ve purchased over $100,000 of Apple products for my staff over the same period. Plus all those iTunes gift cards for my teenage daughter.

So I was disappointed to learn that Apple is a tax dodger.

Sure, Apple pays some U.S. corporate income taxes. It looks downright patriotic next to master tax dodgers like General Electric and Boeing that have paid zero U.S. taxes for years. But Apple pays far less than it should.

Here's how: Apple shifts patents and intellectual property, which are among its biggest assets, to subsidiaries in other countries that are low- and no-tax havens. These include Ireland and the Netherlands, which have especially favorable tax rates on royalties from intellectual property.

When Apple sells an iPad or a MacBook, it allocates a portion of the profits to the offshore subsidiary that owns the patent. This tax dodge is sometimes referred to as the “Irish Two Step” or the “Dutch Sandwich.” But for Apple, we should call it the “Offshore Tax Haven Shuffle.”

Last year, Apple claimed that just 13.9 percent of its profits came from U.S. operations. This is a fantastic fib. Consider all those Americans walking around with iPhones, iPods, iPads, and MacBooks. Think of all those folks buying music on iTunes, sending a buck to Apple for each song. Think of customers lined up at those glitzy Apple stores, like the three-story iPlex down the street from me in Boston.

How is it possible that less than 14 percent of this company's profits come from the United States? Is it because Europeans and the expanding middle-classes of India and China are snatching up Apple products by the boatload?

Nope. That low percentage is an accounting fiction that goes to the heart of the tax dodge. Apple methodically shifts its U.S. profits off shore.

Another clue that Apple is ethically rotten is that it's spearheading a national coalition to lobby Congress for a “tax holiday” for offshore profits.

Apple has teamed up with other technology companies like Google, Oracle, Cisco, Microsoft and Adobe, drug giant Pfizer, and utility leaders including Duke Energy to form “WinAmerica,” a slickly messaged campaign to press Congress for an $80 billion tax cut.

U.S. firms have stashed over $1.2 trillion in profits offshore. They want Congress to allow them to “repatriate” these profits at a 5 percent tax rate rather than the 35 percent rate that's legally due when foreign earnings are brought back stateside. If Congress approves this “tax holiday,” Apple alone will dodge an estimated $4 billion in taxes.

Given the budget cuts our communities are facing, it seems reckless for Congress to even consider another tax giveaway to companies playing offshore games. It’s unfair to individual taxpayers and small businesses that have to pick up the slack for tax shufflers like Apple.

In 2004, Congress passed a similar tax holiday — with Apple dodging $255 million at the time. These tax dodgers argue they will create jobs if they’re allowed to bring their profits home lightly taxed. But independent studies show that the 2004 tax holiday did little to create jobs. In fact, profits mostly went to boost stock prices and CEO pay, and enable companies to buy back stock.

Apple should disclose more information to its shareholders, customers and the public. At a time of huge public service cuts and fiscal austerity, why should we the taxpayers give Apple a $4 billion tax break?

Congress should reject the corporate tax holiday for the obvious reason that it encourages bad behavior. If these global companies know that every six years Congress will bail them out with a tax holiday, they’ll continue their offshore games.

I used to think as follows:

Other countries are competing with us by lowering their tax rates and providing legal loopholes for companies to save money. What is unethical about giving as little money to governments as possible? Every major government in the world has more than enough money for the basic services it should be rendering. All the extra money gets churned through inefficient and corrupt government systems. I think it's far better for the world economy for any private entity to pay as little tax as they can get away with.

I still think this is generally true, but there is a mitigating factor I didn't consider before. The preceding paragraph assumes that at any given moment there is useful work that can be done by any individual. However, with more and more automation, changing demographics and cheaper labor available in poorer countries, this is less and less true with each passing year.

I can envision and a future scenario where nearly all routine work is accomplished by automation and there is really no useful work for the average individual to do. At that point you still need to entice the best and brightest into science and development to keep progress going (by giving them rewards for their skills and effort), but governments will have to provide more and more for citizens who have no useful things to do. Work weeks ought to get shorter so that work is divided among people equally.

I wish I could find a manifesto of some kind where someone more thoroughly explores such ideas and looks at how the whole global economic system interconnects and where we're heading.

[joe.distort]

paying as little tax as possible should be reserved for the lower class, not multi billion dollar coporations. the claims that their savings create jobs is ludicrous when the heads of these companies are making all time high amounts of money which is also being kept out of the MUCH NEEDED tax coffers through the tax code changes of the Reagan Disciples that have run things since the 80s.

i know from previous dealings with you that you arent changing your mind soon, but the fact of the matter is that wealth is being funneled to the top 1% at a rate that is destroying the US economy. it just baffles me that this logic is so clear, yet people still diffute it. maybe these companies will all care when theyve bankrupted everyone and their exorbitant rates arent protested because no one can pay them anymore anyway.

[Rize]

I see no evidence that you actually read my reply there. Yes, I have a reputation for being fiscally conservative, but I always consider new arguments and am always looking to change my mind whenever warranted by good evidence or arguments.

I was envisioning a future period were pure capitalism will no longer work because most people will not be capable of doing meaningful work (or even semi-meaningful work such as providing entertainment and entertainment related services) due to a lack of jobs and skills (simple jobs will be automated out of existence and remaining jobs will be few and require a high level of training and/or intelligence).

I was envisioning that future period as inevitable and wondering how far along the path to it we currently are. To the extent that we have gone down that path, we will need to mix socialism with capitalism for the average Joe to survive.

As for rich people and what they do with their money... if they spend it all on yachts, then we're probably better off taxing them now regardless. That suggests that we should focus on luxury sales tax not income taxes. States should be allowed to tighten up sales tax on internet purchases.

[joe.distort]

i actually did read it and i totally misunderstood where you were going. its alright, im not sayin youre a dick; we just disagree on a lot of economic stuff. on things for example like luxury tax replacing income tax: hoarding wealth, which doesnt create any sort of economic spend-through, would be totally legally exempt. and essentially encouraged! i cant agree with that idea at all. but we actually agree on internet purchases, because that is hurting local budgets a LOT. not only are people watching local businesses disentegrate, but the city and state budgets are all getting fucked too? terrible.

[Rize]

My days of trying to convert people to my beliefs are long behind me. My goal these days is to test my beliefs against others with the goal of refining them.


If hoarding wealth is exempt from taxes, that is only a problem to the extent that people hoard wealth. I never got the impression that very rich people hoard most of their wealth. Rather I always got the impression that most of a rich person's wealth is in the form of already invested capital. Middle class people may hoard some wealth as retirement, but even hoarded wealth provides the basis for bank loans (not to mention whenever you liquidate your retirement assets they tax it anyway).

but we actually agree on internet purchases, because that is hurting local budgets a LOT. not only are people watching local businesses disentegrate, but the city and state budgets are all getting fucked too? terrible.

What gets me about the sales tax situation is that it's so uneven. If things continue maybe sales taxes will just be phased out and replaced with other taxes (property taxes and so on). A few states don't have any sales taxes to begin with.

But I'm not so worried about local businesses competing with online businesses. There are still benefits to dealing locally, and there's nothing stopping a local business from selling their wares on the Internet as well (and so making up for some lost local business by poaching business from other states). It's a shift in the way of doing business, but you've got to evolve or die in the market.

And I think it's a good thing for states to have to evaluate their budgets and make cuts. There are tons of examples of wasteful government programs out there and wasteful divisions within existing systems. If we've really come to a point when we've cut too much, then we can always raise taxes and grow government again.

[John MFer]

I can envision and a future scenario where nearly all routine work is accomplished by automation and there is really no useful work for the average individual to do. At that point you still need to entice the best and brightest into science and development to keep progress going (by giving them rewards for their skills and effort), but governments will have to provide more and more for citizens who have no useful things to do. Work weeks ought to get shorter so that work is divided among people equally.

I wish I could find a manifesto of some kind where someone more thoroughly explores such ideas and looks at how the whole global economic system interconnects and where we're heading.

I would like to see a similar manifesto. I feel like it's all right there but I can't quite piece it together into something coherent.

Your future scenario seems to be be plausible on the surface. However, if people have nothing to do, they'll have no money to afford these automated processes, let alone feed themselves. So, demand for the automated mechanisms will be lower, and there will be less of them, so people will end up having more stuff to do. It's like anything else, equilibrium is inevitable, though the point at which equilibrium is achieved is a moving target as things change.

As technology has changed, the human race has adapted and come up with new jobs for people to do. The entire field of IT work has emerged in the last 40 or so years. How many thousands or even millions of people work in IT? Computers have replaced many things people used to do (see comic below), but people fixing computers and making them do new things is an entirely new industry. Who knows what will emerge in the next 40 years?

[Rize]

I can envision and a future scenario where nearly all routine work is accomplished by automation and there is really no useful work for the average individual to do. At that point you still need to entice the best and brightest into science and development to keep progress going (by giving them rewards for their skills and effort), but governments will have to provide more and more for citizens who have no useful things to do. Work weeks ought to get shorter so that work is divided among people equally.

I wish I could find a manifesto of some kind where someone more thoroughly explores such ideas and looks at how the whole global economic system interconnects and where we're heading.

I would like to see a similar manifesto. I feel like it's all right there but I can't quite piece it together into something coherent.

Your future scenario seems to be be plausible on the surface. However, if people have nothing to do, they'll have no money to afford these automated processes, let alone feed themselves. So, demand for the automated mechanisms will be lower, and there will be less of them, so people will end up having more stuff to do. It's like anything else, equilibrium is inevitable, though the point at which equilibrium is achieved is a moving target as things change.

The demand for, say food, will always be there. The question is, will people be needed to produce food? At some point the cost of producing food may approach zero. At that point, no one ought to have to pay for food (or they're paying so little it's not worth talking about).

Let's take a limited resource. Let's say we've got limited housing, but not because we can't build anymore but because we choose not to. People have to make do with existing housing even though we'd like more. There's no meaningful work anyone can do to earn more or better housing.

I'm trying to imagine a world where capitalism no longer works.

[raubhimself]

It's certainly a complicated issue, and the trend could easily grow toward full automation of jobs to the point where no human is required to work. At this point it's hard to see what will happen with rich and poor classes (at least for me, I don't know enough about sociology and economics to make a guess). Since nobody will work, nobody will be providing value and thus not obtaining money in our traditional sense. But resources will always be limited, so how do these get doled out? If resources weren't limited we'd all be driving the best cars or just doing whatever we want, but this won't happen. There would have to be a socialistic state to support this (not communistic as the idea of work is gone). But really this socialistic government would have to be minimal, or as is the case with all other work, automated. Computer data analysis can decide what is best for all of us, and we will no longer be required to make judgements on any aspect of our lives.

Maybe that's a little far fetched, but I also don't see us getting to that point. The thing is, humans like to work and we are problem solvers. It's just unfortunate the most of us aren't doing the work we'd like. There's already small but growing trends that support buying local, organic, hand-made/grown products. There's a strange satisfaction in enjoying the fruits of another individual's labor just as there is seeing someone else enjoy the products of one's own labor. It affirms quality and worth.

Instead of a manifesto that explores a future of automation and elimination of jobs, I'd like to see one that really digs in to what work means to us as humans. The building blocks are there: Maslow's Hierarchy of Needs, Zen and the Art of Motorcycle Maintenance, the Four Hour Workweek, Self-Culture Through the Vocation, Thomas More's Utopia, and the list could go on and on. So much has been written and said about what works and what doesn't and why in regards to our work habits, but I've personally never encountered anything that really connects the dots on all these ideas. In short, I think our work culture needs to be less restrictive and more prohibitive. Maybe not every job allows this, but I think most do. People accept that they must work, but I don't think most people realize they could be happy at work, and even less know how and an even smaller population has actually made that reality.

[Rize]

That would all be interesting, but I'm more concerned about the practical side of things right now.

It's all a big mess. I can't nail this down with words any further than I have.