How Apple Sidesteps Billions in Taxes • Hacker News Board

Re: How Apple Sidesteps Billions in Taxes

#121

Post by DanBC » Sat, Apr 28, 2012, 11:37 PM UTC

Drbble wrote: post #118

eps wrote: post #88

Similarly IKEA pays zero tax by channeling all it's profits through a very complicated setup to an Irish non-profit. GE not only pays zero tax, but also manages to extract tax refunds from the US government. The big question if an evasive tax setup makes sense at lower profit levels, or if the costs of setting up and maintaining it are prohibitive. Does anyone know?

If governments wanted to solve this problem, they could do so trivially by setting wealth taxes on the human owners of those corporations

Rich people can afford good accountants and lawyers. Tax avoidance[1] skirts the edge of tax evasion[2], but that's what the good accountants are for.

Putting different taxes on the owners of some corporation just means that no-one owns the corporation and that everyone is an employee.

[1] Avoidance is legally using loopholes to reduce a tax bill.

[2] Evasion is illegally using loopholes, or just plain not paying tax.

Re: How Apple Sidesteps Billions in Taxes

#122

Post by Klinky » Sat, Apr 28, 2012, 11:37 PM UTC

yummyfajitas wrote: post #29

TheEzEzz wrote: post #25

Earlier quoted context omitted.

> If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. Until Ireland further lowers its taxes. Your argument leads to a race to the bottom. The problem with only taxing dividends is that corporations only pay out a small portion of their profits in dividends. I may theoretically be a billionaire in my holdings, but I only need a million in dividends per ye…

Ireland can't lower it's taxes to the point of unprofitability, so it will lower it's taxes until revenues raised == cost of services + small margin. That's a good thing. Don't complain that others provide the same service at lower cost, try to innovate and outcompete them.

Don't complain that others provide the same service at lower cost, try to innovate and outcompete them.

This is assuming that others are providing the exact same services for lesser cost. Right now on the front page of HN there is a story about a cheap iPod charger that can burn your house down or kill you because of the corner cutting done to make it so cheap.

Re: How Apple Sidesteps Billions in Taxes

#123

Post by byrneseyeview » Sat, Apr 28, 2012, 11:38 PM UTC

ianterrell wrote: post #96

Zak wrote: post #84

Earlier quoted context omitted.

I'm not sure it's that simple. I live in the US. The vast majority of the US Federal budget goes to the military, income redistribution (welfare) and insurance programs (social security, medicare). I do not believe most of those expenditures enable me to make money, and I think a significant segment is actively harmful. I also feel that I don't have a meaningful say in how that money is used because the political sys…

I'm not saying I agree with all of it in practice, but there's a strong argument against your thoughts here, especially in principle. The military keeps foreigners from invading/suicide bombing and thus creates stability which lets you make money. Social safety nets including welfare, social security, etc, create the same sort of stability since there's less of a likelihood a starving person or angry elderly woman wi…

Right, but they may not be the most effective means to do so. If I mow your lawn, then break into your house to steal $20, I might justify that on the grounds that your mowed lawn is worth $20. But in most sensible economic relationships, we do things in the opposite order: figure out if the service is worth the cost, and then perform it in exchange for payment.

Re: How Apple Sidesteps Billions in Taxes

#124

Post by byrneseyeview » Sat, Apr 28, 2012, 11:40 PM UTC

_delirium wrote: post #111

grellas wrote: post #66

The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles. The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multip…

What's annoying to me is not that companies choose jurisdictions based on taxes, but that they get away with playing shell games to fake moving between jurisdictions entirely on paper, which also gives them an advantage over smaller companies and individuals that can't do that. I lived in California for some years. If it were possible for me to open a P.O. box (or even rent a small office) in Reno, book all my non-Ca…

The maneuver you describe is equivalent to incorporating in Delaware (or Nevada, I suppose). You can compound your wealth in the low-tax environment, but you will pay taxes when you try to transfer it to yourself.

Just like Apple, in this case. Under the current legal regime, they have successfully deferred taxes, not evaded them. It's the same way I carefully evade sales taxes by saving some of my money instead of spending every paycheck.

Re: How Apple Sidesteps Billions in Taxes

#125

Post by bceagle » Sat, Apr 28, 2012, 11:42 PM UTC

I don't feel any ill will for Apple. Companies are always going to try and do what is best for them and that makes sense. What is crazy is why the idea of a flat tax has never gained more traction. I understand that there are some potential issues with a flat tax, but at the very least it simplifies things and levels the playing field.

Re: How Apple Sidesteps Billions in Taxes

#126

Post by byrneseyeview » Sat, Apr 28, 2012, 11:45 PM UTC

jacquesm wrote: post #30

acslater00 wrote: post #19

There is a really important lesson from all of this, and it is not that Apple is wrong for rationally exploiting global tax laws to avoid paying US taxes. The fact that California has no tax jurisdiction in Nevada, and that the US has no tax jurisdiction in Ireland, is an unassailable fact of life. Tax laws are subject to regulatory competition like many other things, and ignoring that -- insisting that this is an is…

Of course it is an issue of morality. I could choose to avoid paying taxes in the society that I'm a part of. It would be in my economic interest to do so. But it is morally wrong because it is that same society that enables me to make my money in the first place. Simple, right?

If I live off of my savings, and generate no taxable income, am I also immoral for driving on roads? What if I work part-time, but pay less in taxes than the average person? Once you have a theory that it's morally wrong for people not to pay taxes given that they benefit from the government, you run into the problem that the most effective tax avoidance scheme, by far, is to not have anything taxable.

Oddly enough, New York has implemented an effective Henry George-esque tax system: to merely exist in the city, you have to live in fairly pricey real estate, and the taxes your landlord pays are effectively passed through to you by market rents. Other places have much cheaper real estate, so they don't have the same dynamic.

Re: How Apple Sidesteps Billions in Taxes

#127

Post by [deleted] » Sat, Apr 28, 2012, 11:45 PM UTC

yequalsx wrote: post #87

grellas wrote: post #66

The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles. The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multip…

Your first sentence of your last paragraph shows one of the problems with globalization. We have seen in the U.S. municipalities competing with each other to see who can give the most subsidies to large corporations. The effects have not been so desirable. Now we are seeing this played out on a grand, global scale. It's potentially a race to the bottom. I think globalization without a proper international regulating…

[deleted]

Re: How Apple Sidesteps Billions in Taxes

#128

Post by _delirium » Sat, Apr 28, 2012, 11:46 PM UTC

byrneseyeview wrote: post #124

_delirium wrote: post #111

Earlier quoted context omitted.

What's annoying to me is not that companies choose jurisdictions based on taxes, but that they get away with playing shell games to fake moving between jurisdictions entirely on paper, which also gives them an advantage over smaller companies and individuals that can't do that. I lived in California for some years. If it were possible for me to open a P.O. box (or even rent a small office) in Reno, book all my non-Ca…

The maneuver you describe is equivalent to incorporating in Delaware (or Nevada, I suppose). You can compound your wealth in the low-tax environment, but you will pay taxes when you try to transfer it to yourself. Just like Apple, in this case. Under the current legal regime, they have successfully deferred taxes, not evaded them. It's the same way I carefully evade sales taxes by saving some of my money instead of s…

Afaik, incorporation in Delaware isn't usually tax-related; most Delaware corporations don't actually book their income in Delaware, but are registered there because of favorable corporate law and a business-friendly civil trial system.

You're right on the deferral/transfer with regards to international income (e.g. income Apple books in Ireland and later uses to pay for something in Cupertino), but I don't believe Apple ever pays California income taxes on the income it books in Reno, even if it immediately turns around and uses that income to pay Cupertino salaries. There's no state-to-state equivalent of repatriating income.

Re: How Apple Sidesteps Billions in Taxes

#129

Post by byrneseyeview » Sat, Apr 28, 2012, 11:47 PM UTC

acslater00 wrote: post #27

TheEzEzz wrote: post #25

Earlier quoted context omitted.

> If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. Until Ireland further lowers its taxes. Your argument leads to a race to the bottom. The problem with only taxing dividends is that corporations only pay out a small portion of their profits in dividends. I may theoretically be a billionaire in my holdings, but I only need a million in dividends per ye…

That's great. If apple makes $1b, if the bulk of the money is held by a foreign SUBSIDIARY, my stock will go up, and I will pay capital gains. If they give it to me as a dividend, I will pay taxes on that. If they reinvest it in the company and the investment makes money, my stock will go up even more. And if they reinvest it in the company and squander it all, no taxes will be collected on the income, but they won't…

The value of your stock is the net present value of the future dividends you should expect. If you put a billion dollars in cash on a rocket and launch it into space, the value of that billion dollars is not one billion. It's near zero, depending on the odds and cost of recovering the currency.

Re: How Apple Sidesteps Billions in Taxes

#130

Post by byrneseyeview » Sat, Apr 28, 2012, 11:57 PM UTC

This indirectly brings up the point that it's hard to make the case for directly taxing corporations at all, aside from the fact that it's convenient. Ultimately, all corporations are owned by tax-paying people (or nonprofits). So why not tax their distributions as income? If I forgo working, and instead develop some skill that I could use to raise my income, nobody taxes me on the increase in notional wealth I have from being more skilled; I get taxed when I get paid in a form that I could use for consumption.

Meanwhile, corporations:

a) Get taxed on their profits

b) May pay lower notional levels, but only by paying people to game the rules

c) Get taxed on their dividends (essentially a 15% surtax on the 35% tax on their profits)

d) Also get taxed through capital gains--which is a change in the (un-inflation-adjusted) net present value of future dividends (which, remember, are taxed when they're earned, then taxed when they're paid).

If you give our tax code enough credit, the 35% tax rate is a lower bound. If the government is willing to let you pay $X less in taxes for doing Y, they're saying that the benefit of Y exceeds the forgone tax income of $X. So if I get a $5K tax credit for installing solar panels, the amount of tax-equivalent benefit the government has derived from my behavior is at least $5K.

You could argue that the tax code is imperfect, and that action Y is not always worth $X. But then you're suggesting that we transfer money from a competent rule-follower to an incompetent rule-writer. If governing skill is constant across tax collection and other government behaviors, then exploiting tax loopholes is just in proportion to how exploitable they are--a government so screwed up that it can't manage to legally tax you for anything is a government that definitely shouldn't have its hands on your money.

Obviously, the government has other core competencies besides taxation. But corporate taxes are worth reconsidering. I'd much rather have dividends taxed as regular income--turning corporations into a pure savings vehicle. Taxing corporation-generated wealth four times--when it's generated, when it's calculated, when it's distributed, and when ownership is transferred--is at least three times too many.