Apple already pays $1 out of every $40 tax dollars the U.S. collects. How much more does the Senate want?

Apple already pays $1 out of every $40 tax dollars the U.S. collects. How much more does the Senate want?

Tomorrow Tim Cook and the gang head to Washington to have a chat with a Senate committee investigating the possibility of tax avoidance (or evasion, depending on how you look at it) by Apple. Here's what's at stake.

Ahead of the testimony it will be giving before the U.S. Senate tomorrow, Apple (via The Loop) offered up a nicely detailed 17-page PDF document with all sorts of good information inside. The most interesting number is this: Apple pays $1 out of every $40 of corporate income tax collected by the US Treasury. Isn’t it incredible to think that one company is responsible for 2.5% of all US corporate income tax collection?

Despite Apple being the single largest US taxpayer, Senators Carl Levin and John McCain are accusing Apple of establishing “the Holy Grail of tax avoidance”. You can read the entire argument made by the Senate subcommittee on the Financial Times website.

While this stuff is pretty dry reading for most tech people, I find it interesting because I spent over a decade as a stock analyst and I was always fascinated by how some companies managed to achieve very low tax rates ... using perfectly legal structures.

The U.S. Government’s issue with Apple stems from two arguments relating to Apple’s arrangements in Ireland, a well known low cost country. Let’s see if I can break this whole thing down into something easy to understand.

Here’s the first major item as described by Senate:

Apple’s cost sharing agreement (CSA) with its offshore affiliates in Ireland is primarily a conduit for shifting billions of dollars in income from the United States to a low tax jurisdiction. From 2009 to 2012, the CSA facilitated the shift of $74 billion in worldwide sales income away from the United States to Ireland where Apple has negotiated a tax rate of less than 2%.

Plain English? The government doesn’t like the idea that Apple’s Irish subsidiary is treated as a cost center to the US operations, resulting in less US profit and more Irish profit. Apple’s comments regarding this structure are pretty compelling. They’ve had a cost sharing arrangement in place with the Irish subsidiary since 1980. It sounds like the Irish operations are responsible for paying for part of Apple’s US-based R&D efforts, and in return it claims ownership of a certain percentage of the intellectual property that comes out of that R&D. Apple says, “These agreements were sanctioned by the US Congress in 1986 and are expressly authorized by US Treasury regulations.”

Furthermore, Apple points out that these cost sharing arrangements benefit the US because it keeps high-cost R&D jobs in the domestic market. In Apple’s own words, “Some commentators have urged eliminating these types of cost sharing agreements, but doing so would harm American workers and the broader US economy. If cost sharing agreements were no longer available, many US multinational companies would likely move high-paying American R&D jobs overseas.”

I don’t know how other readers will interpret these documents, but I think Apple presented a much stronger argument.

The second major item the Senate is focused on:

Offshore Entities With No Declared Tax Jurisdiction. Apple has established and directed tens of billions of dollars to at least two Irish affiliates, while claiming neither is a tax resident of any jurisdiction, including its primary offshore holding company, Apple Operations International (AOI), and its primary intellectual property rights recipient, Apple Sales International (ASI). AOI, which has no employees, has no physical presence, is managed and controlled in the United States, and received $30 billion of income between 2009 and 2012, has paid no corporate income tax to any national government for the past five years.

What’s this mean? The US government is saying that Apple funnels profits to Irish subsidiaries and then doesn’t pay any tax because the Irish subsidiary isn’t a US resident, based on US tax law, but isn’t an Irish resident either, based on Irish tax law. The suggestion the government is making here is one of, “Well, if you’re not a resident of any particular tax jurisdiction, you must be skipping out on taxes!”

Again, Apple puts forth a very straight-forward argument in explaining its setup. Apple Operations International (AOI) is a holding company incorporated in Ireland. Being incorporated in Ireland, that corporation is not a US taxpayer. End of story. It also just so happens that because of Irish law (which probably requires a certain number of employees or physical presence) it is not an Irish taxpayer either. So AOI doesn’t pay tax. But that’s missing the point. AOI is a holding company. All it does is collect payments from other Apple subsidiaries (payments that have already been taxed) and manage the money from a central location. The money AOI collects in the form of inter-company dividends has already been taxed.

Putting this in simpler terms, let’s say you had 3 separate companies in Ireland. Each company makes a profit and pays required taxes. Wouldn’t it be simpler to dump all of that money into one holding company so you can manage the investment of this money in an efficient manner? Of course. That’s what Apple is doing. Oh, and that money is managed by US people, held in US banks.

The bottom line is the US Senate Subcommittee is bitching about Apple supposedly not paying enough taxes, despite the fact that Apple pays $1 out of every $40 of corporate income tax collected by the US treasury, and despite the fact that the US is responsible for establishing all of the laws that Apple is now abiding by. Furthermore, the Subcommittee is putting its hands where they don’t belong. The Irish subsidiary AOI is clearly not a US resident for tax purposes, since it is incorporated in Ireland. That is where the argument should end. It is irrelevant to the US whether or not the Irish government allows Apple to consider this entity a non-resident of Ireland. Maybe Ireland encourages this practise, making it an ideal place to incorporate holding companies. But regardless, it’s none of the US Treasury’s business so long as it is not a US resident corporation. Newsflash, Senate ... you don’t get to control Irish law. You control your own law and the law is pretty clear. If AOI is incorporated in Ireland, it’s not a US taxpayer. End of story. Whatever the Iaw says about taxation in Ireland are none of your damn business.

Back in 1999 my father encouraged me to read a book called “The Soverign Individual”. As per the Amazon description, “In The Sovereign Individual, Davidson and Rees-Mogg explore the greatest economic and political transition in centuries -- the shift from an industrial to an information-based society. This transition, which they have termed "the fourth stage of human society," will liberate individuals as never before, irrevocably altering the power of government.”

Today the U.S. government is under pressure to collect more tax revenue. They’re fighting information-based global companies like Apple who have organized themselves, legally, in the best interests of shareholders.

This is a battle the U.S. government will lose, and they better start looking at alternative ways to solve their tax revenue problems. Picking a fight with their biggest taxpayer seems utterly stupid.

Have something to say about this story? Share your comments below! Need help with something else? Submit your question!

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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Apple already pays $1 out of every $40 tax dollars the U.S. collects. How much more does the Senate want?

117 Comments

I think I learned something from this story, and I hate to be learned!!

Seriously, this was a good story.

It's not often that Dems and Reps agree, but when they do, hell is to pay. It probably explains why Apple is taking their defense to the press.

That's what happens when you have an INCOME tax. Apple pays what % of its total worldwide net taxable income in taxes? Now compare that to Joe Schmoe small business taxpayer. THAT's the problem.

I see your point but really apple bitches about everything and when it comes backto them after years of aattempted destruction of companies that obviously have failed attacks on oems over worthless patents and much more abuse apple turned a blind eye to over sees in production . I think many people have had enough of the US gov and apple to be honest I know I am . Both Google and apple use tactics stemming from old school Microsoft days it's sad like always when these companies screw up or screw around in the end the user pays more and for it by losing more innovative products etc . This case shows me apples tactics how ever legal or not is biting them in the ass..

Apple, GE, and many more of the largest corporations are the worst tax cheats on earth. Corporations pay an effective tax rate of about 11-12 percent, they should be paying around 20-30 based on what there net profits turn out to be. Please don't give me that crap line about punishing success. If Apple just paid 20 percent, I'd wouldn't even think about it at all. Apple basically pays what, 5 percent effective rate maybe? I hope congress grows a pair and goes after that money.

Totally agree.

An NYTimes figure was pretty compelling: Payroll taxes on individuals accounted for 1.1 Trillion in tax revenue, while total corporate tax revenue accounted for $118 Billion.

There should be a balance between a fair yet reasonable effective corporate tax rate that will compel all multinationals to pay for some of the benefits they enjoy from being based in the US while allowing them to remain competitive with international based companies.

The point isnt that Apple didn't pay enough taxes, it's that they went out of their way to avoid paying any taxes at all on a large portion of their income. They effectively shift the burden of paying for government services they can take full advantage of to their customers. Apple shouldnt be singled out, but as the largest corporation in the world they are the biggest example of our failed tax polices.

The R&D jobs argument is weak at best. The US still has the best engine for ingenuity and talent in the world, and we continue to draw people from all over the world to work here because of the high quality of life and wide range of education and career opportunities.

If an American company has no reason to invest its profits in American jobs, American workers, and in the American economy other than a low tax rate, the American people should have an equal lack of reason to buy that company's products.

Apple, I believe, does pay in the vicinity of 20%, but I guess that is dependent on the calculations. And Apple isn't asking for no taxes. It is asking for a better, simpler set of laws. A more fair rate than 35% to bring this money back. And to call them cheats prices you don't understand this issue at all. They are not cheating. If so, they would be breaking a law.
I share your anger with the situation. But I direct the anger at those posturing for the cameras in DC when then should be acting to change things.

A lower rate would be perfectly reasonable if the corporate tax code weren't so completely riddled with loopholes than many huge corporations pay NO TAX AT ALL. This post is packed so full of water-carrying for huge corporations that the mind reels.

1) The fact that Apple pays $x of $y total US government revenue is a totally bullshit statistic. If you're the world's largest company, OF COURSE you're going to be paying a lot of tax. The issue is what tax rate it's fair for them to pay, not what proportion of the total tax their paying. Quoting this statistic is standard class-warfare-but-on-behalf-of-rich-people stuff.
2) Per the Times article (has anyone here READ it?) the issue is that many of this Irish "subsidiaries" are companies in name only: they have no Irish employees and barely any employees at all. Their sole purpose for existing is so Apple can claim costs in the US, but income in Ireland (where the corporate world has sabotaged Ireland's tax code to their own benefit). This may be legal, but it's not exactly fair, and Congress is totally right to fix the law here.
3) The article points out the fact that by using these kind of tax shelters, Apple ensures that much of its profit is shielded from any taxation by ANY government. So much for the idea that their foreign profits have already been taxed, and Apple needs to be bribed with a tax break to repatriate them.

So, the answer to the question of "how much does the Senate want Apple to pay" is: their fair share.

@sean - regarding #2 on your list ...

Those subsidiaries with no employees are simply collecting money from other Apple subsidiaries that have already paid whatever tax they owe. This is pretty well explained in the Apple document. And I discussed this, which you may have missed.

See page 14 of http://images.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf

"It should be emphasized that AOI does not reduce Apple’s tax bill in the US. If AOI did not exist, the funds it receives from other foreign subsidiaries through dividends would simply remain in the custody of those subsidiaries and would not be subject to US corporate income tax. However, without AOI, Apple would lose the considerable risk management and administrative benefits it provides for the Company’s international operations."

My take on it is simple: The US Government's analysis should remain centered on how Apple conducts business as it pertains to potential US taxation. Once it has been established that Apple's structures pertaining to US taxation are legitimate and fair, then the US Gov't has no business looking into how Apple moves its offshore money between affiliates.

While I don't agree with many of the loopholes created for giant businesses that don't apply to others, especially smaller businesses who actually need that money to survive, not just serve shareholders... as long as apple is following the rules I don't see what the problem is. If congress doesn't like what's going on, they need to change change the rules. Otherwise stop wasting everyone's time.

They transferred their IP to this shell corporation in Ireland, which has no employees and had no direct role in the creation of that IP, specifically to avoid paying taxes on the royalties generated from that IP which was developed here in the United States. As Senator Levin said, "That IP and patents are the crown jewels of the company, and the Irish subsidiary had nothing to do with the creation of that IP.". As a result, AOI is able to charge billions in royalties to international subsidiaries and pay nothing in taxes on it. The purpose of the US corporate tax code is to ensure that taxes are paid on profits that are generated in the jurisdiction in which they are produced. The IP was produced in the US, and royalties are paid on that IP, and no US taxes are paid on it. Please explain how that doesn't constitute tax avoidance?

The US government has every right to investigate companies based in the US leveraging loopholes in the tax code to avoid paying taxes - indeed - it has the responsibility to do so when Middle Class Americans don't have the same luxury and have to shoulder the burden of paying for all of the benefits that Apple gets from being based in the US.

Chris, it's your type of thinking that has single handedly crushed the US free market and middle class over the last 20 years.

"Apple pays $1 out of every $40 of income tax collected by the US Treasury. Isn’t it incredible to think that one company is responsible for 2.5% of all US income tax collection?"

Are you serious? Regurgitating this crap shows you aren't a journalist. You're simply parroting talking points instead of understanding what they mean. So because they pay a certain amount of taxes, they shouldn't have to pay any more than that? Even if they triple their net worth? Quadruple it? They should still only have to pay 2.5% of US taxes collected?

"many US multinational companies would likely move high-paying American R&D jobs overseas.”

It's ridiculous corporate intimidation like this that pisses me off the most. We give these companies our brightest workers, we give them tax breaks to get started and succeed, not just locally, but around the world. Out government fights other countries for better and equitable trade conditions. These companies use US resources, like well paved roads and infrastructure that other developing countries can't offer them. They grow and succeed buy putting their companies in our stock market, the strongest in the world. Then they take the manufacturing jobs and ship them over seas. They take American jobs away so their few investors can reap higher rewards at the detriment of the American work force. Then they have the nerve to say they shouldn't have to pay taxes because of all the benefits WE get because they are successful. That they shouldn't have to pay (in essence) capital gains taxes on money invested by American's. The audacity and hubris of these multi-nationals that have broken the back of middle class America to raise their own profits is borderline treasonous.

"The bottom line is the US Senate Subcommittee is bitching about Apple supposedly not paying enough taxes, despite the fact that Apple pays $1 out of every $40 of income tax collected by the US treasury, and despite the fact that the US is responsible for establishing all of the laws that Apple is now abiding by. "

And this is your most offensive comment of all. Congress isn't bitching, AMERICAN'S are bitching. We've had enough of corporations fleecing the middle-class then demanding lower tax rates to ship more money and jobs over seas. American's are tired of supporting "American" companies that shit all over America because "technically" they aren't breaking any laws.

And the fact that you say Congress shouldn't discuss this because Apple isn't breaking the law is just plain stupid. By your own logic we should have never discussed women not being able to vote, or mix-race marriage being illegal, or equal rights for gays not being discriminatory, or child labor being OK, or slavery because all those things were perfectly legal at some point in our nation's history. Just because something is legal, doesn't make it right. And the whole purpose of having a Congress is to constantly question what is right and wrong. And after 20 years of corporate fleecing, American's are finally realizing just how detrimental our current tax code is to the middle-class. The fact that you're unable to se this, makes me think you have your hand in the cookie jar, and instead of using your past knowledge to help American's, you're simply trying to keep your own pockets lined with our cash. Otherwise why would you support such ruinous behavior from corporations that have been the catalyst to the lowest increase in middle class wealth while seeing the highest increase of wealth of the 1% in the history of America?

Wow, agree with everything you said. I also felt, while reading this article, that it was written with a hidden agenda.

Have you been keeping track of the technology industry? Simple facts here, if Apple hadn't moved their manufacturing to China, they would have went C7 (out of business). Apple itself isn't the root of the problem here. Traditionally, they have spent very little money even compared to technology peers on lobbying. Go after the oil companies and Koch brothers that created the abhorrent system you mentioned. Your rage and hate toward Apple is misplaced.

A company is a company is a company is a company. They're all the same and Apple saying it doesn't want to pay US taxes from money it made over seas from domestic investors shows that they are just as much a part of the problem as the Koch's or big oil or big pharma. The system is broken and they, like every other big multi-national corp are exploiting it. My rage isn't at them for doing it, my rage is at them for wanting to pay lower taxes while doing it. My rage is that they have the audacity to say they are the ones being mistreated and taken advantage of by the American people and government and that Congress shouldn't change the system to "hurt" them. My rage is towards a system that tells the middle class that we should be thankful that they are creating $10/hour jobs for us and decimating the very thing that made this country great. Apple is simply one cog in the wheel, but to pretend that tech isn't a part of the problem because they don't lobby as much as others is shoving your own head in the sand because you want the next iPhone to stay relatively cheap.

Threats against the American people usually don't go over too well. Go ahead, take all Apple R&D away and ship it over seas. But also take all the manufacturing, and Apple stores as well then. See how well Apple will do. Apple has a tiny world wide percentage of smartphone sales when you take away American sales. Let's see just how supportive the American people would be if pouty Apple completely left America and the only place we could buy their products were at Best Buy and online. No longer being an "American" company, I think sales US sales would plummet, but we'll never know because Apple isn't suicidal. If it was a financially viable thing for Apple to do, they would have done it years ago.

@BibloTeabaggins - you say "And the fact that you say Congress shouldn't discuss this because Apple isn't breaking the law is just plain stupid. By your own logic we should have never discussed women not being able to vote, or mix-race marriage being illegal, or equal rights for gays not being discriminatory, or child labor being OK, or slavery because all those things were perfectly legal at some point in our nation's history."
I don't think Chris means the Congress should not be taking about the issue. I think he means that they should stop puffing up their chests, vilifying and making people and/or companies that are following the laws that they themselves enacted out to be criminals and, this may be hard to understand, actually focus on fixing these laws.
I would also argue that you are the delusional one if you think this act by Congress is anything more than a 'photo op' to show the American people they are tough on the rich. In essence, promoting the recent trend of class warfare.
If these distinguished ladies and gentlemen ACTUALLY cared about making things better, they would focus on changing the laws they have problems with.

I think we have to let Chris speak for himself. For now, that's how his piece read to me. I think us and Congress has every right to get frustrated when companies find loopholes to exploit the system and the American people. Then when Congress does make harsher laws so people can't exploit them, people scream of government overreach.

Of course Congress is putting on a show. It's how the American people respond to the show as to how long the show will run for. If people stay interested and invested, then laws start to get written up. That's the way it's always worked. Calling people like Cook in, helps them solidify their position for when it comes time to get specific with new bills.

Again, the loopholes they (the members of Congress) put in place. If the REALLY were convinced that Apple and others were doing something wrong, they would REALLY do something about it.

Sadly, this sorry will be forgotten in a few days. It will become political talking points during the next election cycle when asked if they are tough on corporations.

If you know anything about Congress (it's online, so I really don't know anything about you) you'll know that most of these bills nowadays are written by special interest groups. The average Congress person doesn't even read their own bill or understand it. Not until the laws are passed and the special interest groups start exploiting the bills they wrote does everyone understand just how detrimental they are. That's the reality. So now, we have to go back and fix it. It's out job.

I agree that may be true (written by others and not read).

Changes zero. Did they vote for the laws? Did the POTUS sign them? If you answered yes, the buck stops there. They don't get to pull off "we have to pass it to understand it" with me. If you don't understand it, perhaps the bigger issue is that.

Of course it's the larger issue! But it's not the issue before us today. We have to fight the issue before us today and then start calling out our Congress people when future bills are being voted on. It's our responsibility, not Congress'. We voted for them, they represent us! We hold all the cards, not them. If we don't like how they are doing something, WE have to do something about it. Everyone on here "blaming" Congress sound like a bunch of 6 year olds. We elected them! So who ultimately is responsible? WE ARE.

I agree that it is on us. My "blaming" of Congress is to stop talking and start doing. Today was a joke. Nothing came of it. McCain made sure to hammer home how "important" this was by? Asking why he has to constantly update his apps. Seriously, I can take a joke and mood lightener as well as the next guy, but to hammer Apple on how they handle their taxes, then to say "I'm running out of time so, why do I have to always update these apps?" is making a mockery of the whole thing.

(EDIT: I do agree with him, though. Would like to see auto app updates, but today wasn't the day for that)

Tax avoidance through the exploitation of loopholes is not illegal. I would do the same thing. As the long the law is not broken, no company, be it small or big, should pay more taxes than they have to. If you have a problem with that, blame your politicians who enacted the laws in the first place.

"And the fact that you say Congress shouldn't discuss this because Apple isn't breaking the law"

I learned a long time ago not to debate with people who change the debate. If you aren't able to stick to what I actually said then I'm unwilling to engage with you. Not useful.

And by "changing the debate" you mean someone who calls you on what you say? I see. It's nice when iMore hires people who are too scared to stand behind what they say.

Apple is operating within the rules laid out for it. If you don't like what they're doing, you have a problem with congress and the rules and loopholes they created. If you don't expect apple and others to take advantage of them, you're living in a fantasy world.

My last reply on this. Read what I wrote. You aren't going to find anywhere that I said this topic (Apple taxation) should not be discussed.

Consummatum est

I love when Blow-hards draw a line in the sand so they can run away and not have to defend their ridiculous comments. Actually, almost every thing you wrote IMPLIED a purpose for writing this blog post in the first place.

"The bottom line is the US Senate Subcommittee is bitching about Apple supposedly not paying enough taxes, despite the fact that Apple pays $1 out of every $40 of corporate income tax collected by the US treasury, and despite the fact that the US is responsible for establishing all of the laws that Apple is now abiding by. Furthermore, the Subcommittee is putting its hands where they don’t belong."

"Newsflash, Senate ... you don’t get to control Irish law. You control your own law and the law is pretty clear."

"This is a battle the U.S. government will lose, and they better start looking at alternative ways to solve their tax revenue problems. Picking a fight with their biggest taxpayer seems utterly stupid."

So, if "Congress is wasting their time talking to Apple" ISN'T your argument, then please enlighten me as to what it really is. Your remedial attempt to use the "technique of redirect" so you don't actually respond to what a critic says may work on the uneducated, but please don't waste our time if you don't want to discuss what you wrote.

And "Consummatum est." Seriously? Did you study Paul Ryan's played out handbook? Give me a break.

Why don't you discuss the issue instead of putting your hands to your ears and running away? This article came up on my HTC One's Blinkfeed, and this ridiculously opinionated article convinced me to join the discussion.

strato - I'm happy to discuss it and you'll see my replies to lots of other people. I won't continue debating with those who create straw man arguments. When people misrepresent what I wrote, I'm not engaging. Total waste of time. Regarding my piece being opinionated ... or course it is.

$1 of every $40 Corporate Tax collected..... Personal income tax collected is over a trillion, corp income tax is about $250 billion, big difference. Your first paragraph, last sentence is incorrect.

Congress is deflecting attention from their own dysfunctional institution. Instead, if they don't like the tax laws that they approved then they should change them.

Amen! This is nothing but a show. A scripted reality show that, unfortunately, underlines the direction this country has been heading for a few years now. Lets vilify successful people/companies. How dare they be so successful?
This is a show so politicians in 2014 and 2016 can say, see? We are tough on the rich. Never-mind that they are following the laws we created. Never-mind that this is distracting us from actually doing something about these laws.
As Walt Disney said, "The way to get started is to stop talking and start doing."
Too bad our government just love to hear itself talk.

I just finished watching the second half of todays questioning. It was two professors and it was pretty insightful. It seems like today was actually a fact finding mission and they were very clear to point out that Cook wasn't legally bound to be there. They invited him and he chose to show up. More importantly, they showed that the tax law ISN'T written that way, that Apple had found a hole outside US and Irish tax laws that allowed Apple to use the two countries laws against each other for corporate gain. (Apple created a dummy corp which allows them to pay zero taxes on stuff sold outside of North and South America, and only has to pay 1/25th of 1 percent taxes on the rest of world sales to Ireland, in essence paying zero taxes on wealth accrued on international sales. So thy do the research and have their main head quarters here, and sell over seas and don't pay taxes on that money to anyone.)

Like with all laws, smart people will find a way to get around them "legally." All this was, was an attempt to bring this new tax evasive tactic to light to the American people so Congress can try to change it. They were appreciative of Cook being there and simply stated that Apple is gaming the system legally and that the system needs to be adjusted to get rid of the loophole. If GE was the major "it" company right now, I'm sure it would have been them instead of Apple up there.

Unfortunately, government change takes time. But the more light we shine on these evasive tactics that hurt our country in the long run, the easier it will be down the road to change them. It may seem like government is slow, but if you look back over the last 4 years, they've actually passed a ton of stuff.

It's a charade. They don't care about tax law and no one will ever truly pursue any major corporations for tax evasion. Apple is this week's convenient punching bag.

Should Apple be forced to pay double or triple the taxes, where do you think that money will come from? Apple has a fiduciary responsibility to the shareholders to maximize profits. They won't just throw their hands up and accept the loss. That cost will be passed along with higher product costs, lower wages, and less charitable contributions. If the opposite should happen, and the government isn't able to squeeze a few billion extra out of Apple, what do you think the chances are that they'll throw their hands up and say "oh well, I guess we'll just spend less this year."? None. The bottom line is this. Either way this shakes out, the money is coming from us. They're just fighting over who has to collect it. The only difference is one of them will eventually come out with a MacBook Air with Retina, at which time I will run down to their collection point, spread my wallet wide, and pour the contents into their hands as quickly as I can. The other will quietly take my money before I even see it with the promise of fixing that pothole by my mailbox. (3 years and counting btw) But hey, at least all this gives the lawyers something to do.

They aren't being asked to pay double or triple...just what they owe... And really, not even that. The government is essentially just saying, 'huh. Well whaddya know? A clever & legal way to avoid taxes. Hey, everyone look at Apple and ignore the fact that the intransigent congress has accomplished very little.'

I agree with the latter-half of your comment. Apple did nothing illegal, however, so I don't believe they haven't paid what they owe. If they broke a law? Make them pay. If not? Stop wasting more of my tax dollars on this charade.

I've said it before, and I'll say it again... corporations do not pay any taxes... they transfer costs onto the consumer. If the government increases corporate taxes, they are simply compelling an increase in the price of goods. How much of the cost of that iPhone are you paying in corporate taxes? That new car? That bag of chips? THERE IS ONLY ONE TAXPAYER. It is the individual who can no longer transfer the cost of taxation. That would be YOU. Because of all these "hidden" taxes, you have no idea how much you pay. By increasing corporate taxes, you are simply increasing what you pay for something without knowing by how much. How can you force the government to spend your money more responsibly when you don't even know how much of it they take?

"THERE IS ONLY ONE TAXPAYER. It is the individual who can no longer transfer the cost of taxation"

Perfectly stated. Anyone shouting "businesses must pay more taxes!!!" is really asking for everything to cost more. This is the sad result of politically induced ignorance.

Whenever the government doesn't get even more your earnings, your labor, YOURS, it's called a loophole. Ever notice that? A loophole. A word used to confuse the masses, just like "assault weapon".

Let me clear up the confusion. When a "progressive" gets the benefit, it is a "deduction"... when "greedy corporate America" gets the benefit, it is a "loophole".

We've had a lot of this in the UK too, with enemy no.1 being Google (although Apple, Amazon, Starbucks and others have also had to testify). The argument used here is that while aggressive tax avoidance is technically legal (although in Google's case, that may not be true), it's immoral, and worse, destroys a company's reputation. Starbucks recently volunteered to pay tax in the UK after they were outed as having paid no tax for many years, although the notion of volunteering to pay tax, instead of just doing it, didn't go down well.

Clearly international tax law needs to change, and these loop holes closed forever. I also really don't buy the argument that because company A does some good deeds elsewhere (be that employing local people or whatever), that somehow means that them dodging tax is okay. That's not how the world works. A good deed does not make a bad deed okay. The bad deed is still wrong, and you'll go to jail because of it.

This will apparently be raised at the G8 soon, but with the ruling elite having so many friends and interests in big companies, I doubt anything good will come of it.

I won't retread what's already been said, but perhaps a journalist shouldn't label his opinion as an informative piece. This reads much more like the work of a rogue Apple PR rep.

Especially when the title of the article is a talking point from one of the side's argument.

Oh and I'm pretty sure Chris has stated he's an Apple shareholder, so perhaps disclosing that could be useful for readers.

mrobertson ... 1) I'm not a journalist and I have absolutely no journalist credentials; 2) My opinion stands. Apple is going to win this one, too. The US gov't is fighting a battle it can't win, and they're going to have to change the repatriation laws.

Chris - Your opinion is yours -- as you said -- and I take no issue with that. It did seem, however, that the purpose of this article was to explain these legal proceedings to people who may not be as well-versed as you are in the subject matter. In my opinion, it follows that at least a portion of your article should consist of unbiased analysis.

mrobertson - the purpose was to explain the issue as well as my opinion. I think it would benefit you to read again with fresh eyes. Much of what I wrote is fact based, particularly the explanation of what Congress is saying vs. what Apple is saying.

what exactly is Apple going to win or lose? It was a testimony, not a trial. Apple gave their side of the story to the accusations made by various university law professors and members of the senate.

First time I have had to disagree with an article Chris has written. All this tax avoidance crap has to stop.

i'm a CPA that does his share of tax avoidance for clients. There's nothing immoral about this. It's what everyone does. Even the good senators who are pointing fingers.

Try not to get all caught up in the politics on display here. Another area this is being done is sequestering of federal employees. Again, politics. My wife, a federal school teacher, is constantly hearing she and her fellow teachers will lose 30 days or so of pay. After the fear mongering and deadline comes up, guess what? They're kicking the can forward and may do it next year. It's all scare tactics of one party vs the other.

The IRS can't do as many audits. Who knows how much money they're not bringing in now due to sequestering. Hey, fed government, you don't sequester the folks who actually bring in tax revenue.

Back to the main issue. It's all about the tax code. Cook is pitching for simpler. We all want simple but they can't do simple unless they chuck it all out and start over. Any reforms or changes now just ADDS to the complexity of the bulging tax code rifled with special interests or social agendas. Even reducing taxes just ADDS to the complexity of it. It ensures demand for my CPA services and teams of tax lawyers for the corps.

I agree with Cook. US corps should pay something to the US. But 35% just to repatriate your cash holdings? That's ridiculous. The smart thing to do is lower that and get those funds back over here.

I agree with everything you said except that it isn't immoral. I think it's highly immoral to build your business on American infrastructure and then find loop holes so you don't have to give back to that infrastructure that helped you become highly successful. Is it illegal? Technically not. Is it immoral, definitely

Tax evasion is illegal. Tax avoidance is not only legal, but just common sense.

When you file your income taxes, how do you decide whether to itemize or take the standard deduction? If you use common sense, you decide based on which gives you the greater deduction. This is tax avoidance in one of its simplest forms. Are you immoral because you itemize in order to reduce your tax liability?

Or does this only apply to businesses? Or maybe just large business? On second thought maybe just to businesses grossing over $1 Billion? Or only when you avoid more than $10 million in taxes? At what point does the argument that tax avoidance is immoral kick in?

Seriously, I'd like to know when you feel tax avoidance becomes immoral.

Tax avoidance becomes immoral once you start creating dummy tax shelters over seas to hide the amount of money you make. Or create a dummy company in Ireland that isn't an American company OR an Irish company so you don't have to pay taxes in either.

Come on, I don't think I'm being that much of a dick to say we need to restructure our tax code to not allow companies like Apple to avoid paying a reasonable percentage of their profits.

Apple and other companies should move everything back to America, where they belong. It would be nice to have a truly American company, with American workers.

@pappy53 cost of operations in america is way too much for any tech company to make any product and earn a decent profit.

True enough. I read a study comparing the cost of a China made iPad 2, about $335 with a gross margin of 54% for Apple, against a $617 American made iPad 2, with a gross margin of 15.25%, assuming same sale price. I guess Apple would just increase the final price to keep its margins high.

But it would give hundreds or thousands of American workers jobs, which would be more money in the economy, and more taxes collected. Sure, Apple would probably be at a 15-20% profit instead of 55%, but they could live with that. Same thing with Motorola etc. The only tech companies that should be sending their jobs and manufacturing overseas is Samsung, HTC, LG, Nokia...........:)
Apple is not an American company, it is a company based in America. Do they manufacture anything here? I don't know, but I do know that their bread and butter products are not made here. And I am not just slamming Apple, but any "American" company that outsources jobs. They are just greedy, and could have more empathy for the American worker.

"They effectively shift the burden of paying for government services they can take full advantage of to their customers"

For any company not running at a loss, this is all every business does. Taxes are an expense. If a company is turning a profit, their customers, by reason of simple math, are paying every dime if that company's expenses including taxes. The company may "write a check" to the IRS, but math dictates that the money comes from the sale of their goods and services, i.e., the customer.

Liberals have yet to learn that people make rational choices in response to intrusive tax policy. The real problem here is the onerous and obscene lengths the federal government will go to to wring more and more money out of law abiding businesses and citizens to fund their obscene levels of spending.

Here's a tip for the good Senators: don't treat citizens and businesses like a bottomless ATM because you spent money like a 15 year old girl in the mall with daddy's credit card and they won't need to go out of their way to find LEGAL loopholes to avoid paying taxes.

This "tip" completely ignores the real problem. Agreed, the statutory corporate tax rate is too high, but the effective corporate tax rate has nearly halved in the past 20 years. Congress' problem, if they have one, is that they budget against the statutory rates, rather than what can be reasonably expected to come in after the (ethics aside, totally legal) measures taken by most corporations are taken. Point taken.

However, the bigger problem is not our Congress, it is us. People may howl about runaway spending, but when it comes time to find something to cut, we elect Representatives who vow to cut total government spending to 3.8% of GDP while leaving military spending (currently at 4.4% of GDP) untouched. We elect Senators who thunder against un-offset storm relief in other states while demanding un-offset funds when a tornado hits their own. (Senator Coburn a notable exception.) We elect governors who ridicule FEMA funds for earthquake preparedness while demanding the same for hurricane watch.

The point is, our elected representatives are acting just as rationally as the businesses you cite. Their motivation *has to be* to get re-elected, and the way to do that is to decry spending as the other guy's problem while doling out as much out to your constituents as possible. And election cycle after election cycle, we Americans reward this behavior. This past election, we *barely* held accountable a candidate who could not even name the third department he vowed to cut.

Railing against "the good Senators" is just another way to claim the problem is somebody else's fault instead of taking responsibility. Your "tip" means precisely bupkiss to somebody who gets elected, and re-elected, based on the promise of low taxes but high services.

Our elected officials are rational. *WE* are selfish.

The US government wants whatever is in Apple's bank accounts. They will stop a nothing to take it all and could care less if there's nothing left to invest in R&D, people, etc.

Washington, we have a problem.

You left out the word "corporate" in your retelling of how much Apple pays as a share of total taxes. Apple is not "responsible for 2.5% of all US income tax collection". Not by a long shot. The feds collect trillions in taxes each year.

From Apple's document; "These payments account for $1 in every $40 in corporate income tax the US Treasury collected last year."

On a side note, how come when I respond to a person who was responding, I look as if i was responding to the original post?

Two gigantic problems with this article and it starts straight from the title.

1.) "Apple already pays 1 out of every 40 dollars." So what? Just because you're uber successful is not an argument for paying less taxes. If you had a system made up of three people, and one person made 90% of all profits and the other two made 5% each, you wouldn't think it unfair that the 90% person was paying the lion share, it makes sense. There's a reason they're already paying that much and it's because they make that much.

2.) "Achieving low tax rates through perfectly legal structures." This goes more to the "spirit" of the tax code and not law. Just because lawyers can find loopholes in the tax structure to make it legal does not mean it's right. I remember a few years ago Marriott talking about having "clean coal plants" under their name for the tax write off. A hotel company with a power plant. Why? Because they said they found that in the tax code by realizing it was cheaper to hire 100 lawyers to look for loop holes than to just pay their taxes outright.

I hope you realize that these "gigantic problems" you've identified are: 1) you mind reading, which is never a good idea; 2) me relaying a piece of personal history in terms of how I came to be interested in this topic.

Serious infractions ... sorry.

"Apple already pays $1 out of every $40 tax dollars the U.S. collects. How much more does the Senate want?"
Are you kidding me? How is that in any way relevant to how much they 'should' be paying. The only thing that matters is that they are paying their fair share, but I'm not going to enter that argument. All I'm saying is that your argument makes no sense. That's like saying a billionaire pays his fair share of tax, regardless of tax rate, because it's 1000x more than the revenue the IRS gets from someone on hourly wage.

I hate the term "fair share". The definition of fair would make taxes be done this way: amount of money the government needs divided by number if taxpayers = fair share. If people would use the word they mean, which is "more" we could then have a discussion.

"...Despite Apple being the single largest US taxpayer, Senators Carl Levin and John McCain are accusing Apple of establishing “the Holy Grail of tax avoidance”.

And I accuse the Senate of establishing "the Holy Grail of 'wasteful' spending"!

Holy sh*t that was the best YouTube video on this topic one could have possibly asked for. Thanks for sharing that link. Seriously loved it.

Folks - regarding the tax debate, here are a few figures you might want to keep in mind:

Apple's 2012 pre-tax profit was $55.8 billion Sales in the US were perhaps 40% of total, say that's $22.3 billion Apple paid $6 billion in US income tax.

That's tax evasion? Serious?

(Edit: Adding source. http://images.apple.com/pr/pdf/q4fy12datasum.pdf)

I edited my comment to add the source ... but these are publicly filed numbers. I didn't dig into 10K filings to get the exact US revenue (if disclosed at all), so I approximated based on FY2012 and Q42012 percentage revenue splits.

An international company has an international presence and different countries have better understanding on how to support big business so smart companies take advantage of these. The US realizes they have loopholes and rather than update the laws they cry and try to break their own laws and force companies to pay more tax. Update your tax laws!

We can lower corporate tax rates when we stop them from hiding money offshore, taking advantages of loopholes regular people don't have. And that's not going to happen because most republicans and a hell of a lot of democrats either like the loophole or disagree on what is a loophole or both.

Lowering tax rates is fine but the reality is they pay for services, and not just FEMA when a tornado or hurricane hits. They pay for soldiers and cops and clean water enforcement. They pay for us like it or not to curry favor with other goverments. They pay for our ridiculous defense budget, Social Security, Medicare for seniors, maintaining federal roads power infastructure, border security etc. It's going to get paid for. And the average person's pay hasn't risen nearly at the rate of corporate profits nor at the rate of rising costs of living. I don't think putting the burden on the average person when they get less than before is a good idea.

I have an idea. Fine lower the tax rates. But then give all benefit to the most needy first. Before EVERYTHING. That is money is allocated first for education in the poorest neighborhoods to bring them up to snuff, prenatal care, police, fire, hospitals, public services for those neighborhoods. Medicaid for the most needy. Fully fund social security for the elderly.

Then if they have anything left over military. Whoops no corporate welfare leftover in the budget.

Great article Chris, ... Rand Paul nailed it today, we should apologize to apple and pull out a mirror. Congress should be scrutinized not apple.

You do-gooders are worse than those a-holes in Congress. Calling Apple a tax cheat?

Hmm, lets see.

You ever cheat on your taxes? Excessive right offs for that so-called office in your home ? And yes, you are breaking the law OR exploiting the tax system as it exists today. Apple is breaking no laws. Period.

Look in the mirror, fools.

Congress wants the tax rate they feel should be applied to Apple's off shore cash horde. No more no less. This isn't about any policy. Tim Cook could better spend his time tomorrow speaking to a wall. They see budget deficits. Across the street they see one of the most valuable companies in the world. That company happens to be American and have a massive horde of cash. Dragging CEOs to Washington for a tongue lashing looks good on TV to their voters. It makes it appear like they are working for them against the big bad tax evading corporations.

Google is facing the same thing in the UK. Apple won't be the last here in the US. Tomorrow the sun will rise. The next news cycle will begin. Everything will be the same.

Read the article and others. Read all the comments. Apparantly I'm missing a lot because this is my analysis:

Apple made a lot of money. Apple put a lot of that money into Ireland. Apple won't bring the money back to the US unless the tax on that money will be reduced.

So Apple put money somewhere knowing that to bring it back to the US would incur a tax that they don't like. Now they're telling Congress that Congress needs to give them a lower tax rate so they can bring the money back to the US. Apple made a business decision to put that money in Ireland for some reason or another KNOWING that they'd have to pay a high tax to get it into the US.

Where's Apples gripe?

Worldwide, Apple has moved money and products from country to country to avoid paying $17 million of taxes EVERY DAY for the last 10 years.
It's not just a problem in the US, but Australia and many other countries as well.
It's not just Apple, but many other multinationals as well, and conservative parties worldwide want to help them.

The headline is inviting the kind of commentary we see above which is exactly the kind of thing Apple wants. It detracts and distracts from the underlying debate.... it sounds like 2.5% is a lot but who knows without a comparative chart... it's also ultimately, totally irrelevant. If the tax code results in them paying $30 of every $40 dollars collected so what... it's a completely misleading statement and I think a lot of people have been suckered into debating around that statement.

The bigger issue is the one regarding the handling of global corporate structures taking lawful advantage of the differences in tax codes for different territories and whether or not it's fair. The complexities involved are enormous; those that understand them are usually working for or advising the large multinationals because there are huge incentives and costs savings to be had (where taxes are costs).

Chris's points re: looking at the US only first then maybe extending that elsewhere are exactly the reason why large multinationals can take advantage of tax codes in different territories. Many territories focus on their own tax laws which makes sense but when you have a large multinational in the room with very smart people its won't get the territory anywhere. Anything that myopically focuses solely on the US or US based operations/tax revenue etc is bound to fail as a solution. You need a multi-national solution to deal with multinational corporations. That's not easy or quick.

In Europe there is a discussion going on around the area of multinationals involving inter-state co-operation but who knows how long that will take to reach any consensus. Like the US, in Europe the companies are simply being very smart about their 'use' of the tax code. Nothing illegal even if it's potentially immoral.

I don't know what fair is but if changes are to be made it should be towards harmonizing/simplifying tax codes and revisiting the original intents of the many different tax breaks available in different territories that were never designed or intended for use by large multinationals. Lawfully I might add. This means nations need to talk with nations rather than witch hunting corporations.

The tax codes have evolved over hundreds of years when change was slow and moving money/assets and people slower still.

But now everything is rapid and very very global.

Most governments have a national outlook first and national tax codes with local special interest breaks. Tax auditors have a national outlook and knowledge of the same. But multinationals have a global outlook.

It should not be surprising to anybody that multinationals take advantage of these breaks and even pit one break against another in a different territory.

Have a look at the EIC ( http://en.wikipedia.org/wiki/East_India_Company ) the solution for that company wasn't great and took many years and Acts of Parliament to sort out. Different time and world order maybe.

$1 in $40 meh bfd, I paid $6 in $10 for our bar tab last night......what does that mean? ... nothing.

Apple is one of the worst companies in America. They sell a product that rots peoples brains and wastes countless hours to Americans, but they use Chinese children to build it and send the profits to Ireland. The amount of money consumers give to this company explains exactly why the country is in the condition it is in.

I agree with that. There must be a better way than the way we're going.
But what do you do if you are Apple? They're competing with the rest of the IT world and everybody else is doing pretty much the same thing, it's just that apple is winning the game.
But it's the game itself that is the problem, not necessarily Apple.