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Apple is accused of hording money and dodging taxes.
Corporate tax-dodging: not just a U.S. problem

In America Fortune 500 corporations pay 12.1 percent in taxes, on average, on their profits [source] versus the default rate of 34 to 35 percent that any small-to-midsize business (SMB) making over $335,000 USD per year in profit must pay.  With corporate tax rates plummeting in half over the last three decades, individuals and SMBs in America are increasingly left to shoulder the difference.  

The crippling inequality was highlighted in 2011 when General Electric Corp. (GE) pocketed $14B USD in profit, plus received a "generous" $3B USD tax refund from the federal government.  GE was a key donor to U.S. President Barack Obama and was repaid by its CEO being anointed head of America's "Council on Jobs" which helps advise Congress on corporate tax policy.

I.  Apple Pays Virtually No Taxes in Britain, While it Makes Billions

However, it's important to remember the U.S. isn't the only country struggling with the increasingly parasitic nature of politically active corporations.  Britain is currently grappling with similar issues.

American and domestic companies in Britain and other European Union states have been cleverly positioning their regional headquarters in the handful of member states with the lowest corporate tax rates.

For example Apple, Inc. (AAPL) made an estimated £6B ($9.50B USD) in Britain last year, but paid only £10M ($15.8M USD) in taxes.  That astounding figure, which has many British natives grumbling, comes thanks to the British tax code's rule that largely exempts companies based in Ireland from paying British taxes.

Apple has installed its regional headquarters in Cork, Republic of Ireland.  Thus it enjoys the low Irish 12.5 percent tax rate (which the British newspapers consider "ultra-low", but is ironically in line with the aforementioned current effective American rate for Fortune 500 firms), versus the 24 percent it would pay in Britain.

The Irish branch of Apple -- a subsidiary itself -- runs a series of shell companies that log British sales in "tax haven" regions like Ireland or the British Virgin Islands despite the fact that the physical point of sales is in Britain.  Apple Retail UK Ltd -- one of these shell companies -- made a reported £500M ($791.8M USD) in 2010, but only paid £3.79M ($6.0M USD) in taxes.

Experts cited in a report by The Daily Mail estimate that of the $99.8B USD (£63B) Apple made globally in 2011, 10 percent of it came from the UK.

Apple iPad Launch UK
Apple's loyal legion dutifully lines up for the iPad launch in London.  Apple is estimated to have to have only paid $15M USD in UK taxes, despite earning almost $10B USD from the island nation. [Image Source: Tim Ferguson/]

This figure is hinted at in Apple's U.S. tax filings.  While Apple pays well above the current hyper-evasive rate of the Fortune 500, it only paid an effective rate of 25.3 percent -- below the supposed tax rate of 35 percent.  Apple credits this good fortune to "undistributed foreign earnings", which it plans to hold "indefinitely".  Such commentary might draw greater scrutiny by auditors in the U.S., except that Apple wisely based its U.S. financial operations in Nevada -- a state known for a lax approach to tax enforcement.

Apple, which recently announced a dividend for shareholders, is hoarding $97.6B USD (£60B) in cash -- more money than the entire gross domestic product of Serbia.  Valued at $590B USD (£370B), Apple is the world's most valuable company, and some experts it expect it to soon become the world's first company to be valued at a trillion USD.

The situation for Apple could soon be changing -- the U.S. Internal Revenue Service (IRS), has reportedly audited the company's 2007 to 2009 figures and has "suggested" "certain adjustments".  Those adjustments could be in the form of forcing Apple to pay millions in unpaid taxes -- either to Britain's HM Revenue & Customs or to the U.S. IRS.

II. Apple is Not Alone, U.S. Companies Enjoying Field Day of Tax Evasion

While Apple draws the brunt of the scrutiny given that as the world's largest and most valuable corporation it is a beacon of corporatism, other American companies are following in a similar line., Inc. (AMZN) has placed its headquarters in the tiny European Union nation of Luxembourg -- the same nation where deceased North Korean tyrant Kim Jong Il reportedly sheltered his $4B USD fortune. Google Inc. (GOOG) -- makers of the world's most used smartphone operating system and the world's most used search engine -- based itself in Ireland and has subsidiaries in the Caribbean and Luxembourg for more tax dodging gains.

Google told The Daily Mail that this scheme -- which many would call "tax dodging" -- is necessary in today's corporate atmosphere, as responsibility to shareholders.  States a Google spokesperson, "We have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate."

Google Ice Cream Sandwich
Google also successfully dodged British taxes. [Image Source: Main Device]

In the U.S., Britain, and other wealthy nation states, change over such inequity is slow coming.  After all, increasingly corporations are responsible of paying federal candidates' way into office -- regardless of their political affiliation.  In office, these candidates inevitably look to serve their masters -- not the populous, but the corporations.

A recent University of Kansas School of Business study [PDF] found that $1 given to a federal politician was worth $243 USD of tax breaks, if you contributed over $1M USD.

Source: The Daily Mail

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Corporations don't pay taxes
By corduroygt on 4/10/2012 6:46:44 PM , Rating: 3
They pass them onto the consumers and shareholders.

It's pointless to tax corporations, the owners should be taxed instead, simple as that. And of course legislation should be such that you can't have corporations that are not owned by anybody and they are not people and do not enjoy the freedoms in the constitution. Basically treat corporations the same way you'd own a business or rental property.

Fix this and the economy will be both fair and improve.

RE: Corporations don't pay taxes
By Penti on 4/10/2012 10:47:08 PM , Rating: 2
I'm pretty sure everybody does tax dividend, it doesn't help if they do like Microsoft and Apple and just pile up the money though. Money is pretty much useless if not in circulation. Bush and others have argued against dividends tax on the same premise that you already tax corporations (which disappear in loop holes).

RE: Corporations don't pay taxes
By TSS on 4/11/2012 4:23:59 PM , Rating: 1
In theory it's simple. You tax the people, as it's the people that earn money. You don't tax the corperations because the corperations are what is providing the people with money to pay those taxes with. If you tax the corperations, indirectly you tax the people.

The problems don't enter into who, but rather how much everything should be taxed. To us poor it's simple, tax the rich more because they can afford more. But we also seem to forget that 10% of $100 is alot less then 10% of $1000. Also what incentive is there to get really rich and employ lots of people when you're putting in top tax rates of 90% or something.

The only arguement you could use is to question wether it's right or not for a person to earn so much money. On the one hand, people will argue that they will have so much left that they can still live a comfertable life, which is true. On the other hand, people will argue that if a person *earns* so much money, he should *get* so much money. And this is also true, for we should never discourage people trying to *earn* more.

This is where the problem lies. In trying to deal with the issue, which one is more right then the other, we end up with the current systems everywhere in the world. With everybody trying to protect their interests.

Maybe there's something to be learned from that though. Maybe the perfect tax brackets aren't ever increasing. Say, everybody under $100,000 pays 15%, everybody under $500,000 pays 25%, everybody under $1,000,000 pays 35%, everybody under $5,000,000 pays 45%, everybody under $10,000,000 pays 30%, and everybody above pays 20%.

After all, 20% of $10 million is $2 million. 30% of 5 million is $1,5 million and 45% of $1 million is $450,000. So the higher you get the more you pay, but the exponentially higher you get the less you pay because you're already paying more money then everybody else. But at a certain point people have to pay less because they don't have more. But i do belive everybody should pay something.

Warren buffet asked why his secretary who earns $60,000 pays 35%, while he with his many millions pays only 17%. It's cause that 17% of him will buy a heck of alot more then her 35%.

BIG EXCEPTION: this should not apply to the stock market or any other "virtual" way of earning money. Earning lots of money because you bought a stock low and sold it high should be viewed as gambling and taxed apropriately - very high. With an exception to the exception being IPO's; you want to limit sale from seller to seller not the ability of the company to earn money from offering stock as an alternative to loans or whatnot.

RE: Corporations don't pay taxes
By wangkom on 4/11/2012 4:43:04 PM , Rating: 2
That's not the whole point of Warren Buffets argument.

He pays less because capital gains has a lower tax (15%). This is money that has already been taxed.

In any case, Buffet is the last person that should be speaking about paying taxes as he is being sued for not paying his...

RE: Corporations don't pay taxes
By corduroygt on 4/11/2012 6:43:17 PM , Rating: 2
As we've seen in the case of Apple, corporations can't hoard cash forever and end up paying dividends, which are taxed.
If this is such a big concern, you can make a legislation such that there is a limit on hoarding money and it has to be eventually distributed to the shareholders as dividends. However I think the free market can take care of that just fine.

"When an individual makes a copy of a song for himself, I suppose we can say he stole a song." -- Sony BMG attorney Jennifer Pariser

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