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Apple does not count foreign tax savings in its reported profits

Whether you're voting for Romney or Obama tomorrow, neither candidate comes close to offering a tax rate sweet enough to sate the appetite of Apple, Inc. (AAPL), the world's most profitable technology company, and most valuable firm in terms of present market capitalization.

In 2011, Apple made a fortune on foreign earnings, paying a lowly 2.5 percent on the $25B USD it earned outside the U.S.  Financial documents filed last week indicate that the company's fiscal year, which concluded in September, saw an even bigger revenue boom outside the U.S.

Apple in calendar Q4 2011-Q3 2012 paid a mere 1.9 percent in foreign taxes, while ballooning foreign earnings to $36.8B USD.  That's a pretty hefty sum considering Apple's full-year reported earnings were $41.7B USD on revenue of $156.5B USD.

Here's where things get a little confusing.  The $41.7B USD is a post-tax figure that assumes Apple's effective U.S. tax rate extends to its foreign earnings.  Apple is currently hoarding that cash overseas -- an estimated $82.6B USD, but it breaks from some in not reporting all of it as earnings.  

It also has avoided spending the massive profits, gained by using tax shelters like the Cayman Islands, Ireland, and small European tax-haven nation states.  It is estimated that Apple's decision not to include the tax-sheltered earnings in its bottom line cost it an extra $10.5B USD of profits (on paper, at least) over the last three years).

Apple money
Apple paid less than 2 percent in taxes on its overseas earnings.
[Image Source: SomanyMP3s]

Apple's decision to not report the gains as profits is interesting, and perhaps a reflection that Apple believes that the U.S. government will eventually force technology companies to "pay up" amid growing scrutiny of corporate tax sheltering practices.

Apple, which almost exclusively manufacturers its products in China, is not alone in its smart-sourcing of profits to tax shelters and manufacturing to cheap Asian labor sources.  Google Inc. (GOOG), Apple's perennial smartphone foe has engaged in similar practices, although not to such a massive extent.

The on-paper general corporate tax rate in the U.S. is 35-percent, however, that figure is misleading as the complex U.S. tax code typically leaves a wealth of loopholes available for big businesses to lower their rates.  With loopholes considered, the average for Fortune500 tech companies is around 16 percent [source].

Apple does indirectly contribute a great deal to the U.S. economy, directly and indirectly creating 304,000 U.S. jobs, plus an additional 210,000 U.S. iOS developer jobs.

Source: Daily Mail

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nation states?
By Murloc on 11/5/2012 12:07:20 PM , Rating: 0
Apart from Ireland, there are no small nation states with low taxes in Europe.
Monaco is not a nation state, Liechtenstein isn't either.

Anyway I don't see why this is unethical, if they make money abroad and spend it abroad to make their phones, why should it be taxes in the US?

change the law if you don't like it.

RE: nation states?
By DNAgent on 11/5/2012 12:17:24 PM , Rating: 3
You know what wins elections? $$$ does.
You know what determines how Congress votes? $$$ does.
Who has that $$$? Corporations do.

The law is what corporations want it to be. The idea that individual American citizens still have the power to 'change the law' is generally preposterous.

RE: nation states?
By ebakke on 11/5/2012 12:51:40 PM , Rating: 5
Lame. When you're ready to stop sulking, stand up and join the adults actually trying to enact the changes you've written off as unattainable.

Peel back another layer of that onion. Ask the simple question: Why? Why does money influence elections? Why do wealthy individuals, corporations, unions, and interest groups lobby Congressmen for special favors? The answer is trivially simple: Because it works.

We peel back one more layer and ask again, why? Why does it work? Because we keep giving those elected officials more and more and more power. Pull the power, and suddenly your lobbying goes kaput. If giving Candidate A or his Super PAC $5M wouldn't get me an exemption to some new regulation, or a new tax rate, or whatever, then I wouldn't do it any more. If you want less corporate influence in governmental policies, start voting for candidates who will reduce the size, scope, power of the government. It's really that simple folks.

RE: nation states?
By Jeffk464 on 11/5/2012 1:06:19 PM , Rating: 2
Unfortunately the adults that are succesfully making changes are big money interests. Seems like every year they lock it down more and more. The corporations are people allowing unlimited money to buy elections was the nail in the coffin.

RE: nation states?
By Jeffk464 on 11/5/12, Rating: 0
RE: nation states?
By ebakke on 11/5/2012 4:43:34 PM , Rating: 4
You have missed the point entirely. WHY do people spend money on elections? They only spend money because it's effective. They only do it because they believe it will benefit them. And history has shown that belief to be accurate.

If we take back the power/authority we've given them (or maybe more accurately, they've taken without any contest from us) then it won't matter who spends whatever amount of money on the election. Sure, spend $5B convincing the electorate that John Doe is the best would-be Senator on the planet. Great. Good for you. Seems like a big waste of money when Sen Doe's authority isn't more than the true enumerated powers listed in our Constitution.

But as long as we're willing to accept a strong central government, we also must tolerate individuals seeking to take advantage of this power, as well as individuals seeking to gain the favor of those in power. Corporate, individual, and interest group lobbying is symptom; it is not the problem!!

RE: nation states?
By tayb on 11/5/2012 2:47:25 PM , Rating: 2
Americans can't agree on anything. The idea that we'll all band together for campaign finance reform is a joke in my opinion. There's no way there would be a consensus.

Congressional approval ratings are in the toilet. People are mad and upset with Congress. So what do they do? Continue voting for incumbents.

RE: nation states?
By ebakke on 11/5/2012 5:00:07 PM , Rating: 3
I didn't advocate campaign finance reform. Or getting all of us to band together, for that matter.

The only thing I'd like Americans to agree upon is that we're not going to have consensus on the issues that dominate political discourse. So instead of swings of power where we're constantly using the force of government to oppress the other 49%, let's stop turning every damn thing into an issue for the federal government. It's hard enough to get agreement in a neighborhood. How we expect to get agreement with 311 million people is beyond me.

RE: nation states?
By someguy123 on 11/5/2012 5:45:50 PM , Rating: 2
Your ranting makes no sense. In order to remove authority from politicians abusing their position you would need some form of majority consensus. If you cannot obtain any sort of consensus how are you going to strip people from power? A group of people who can't agree on anything aren't going to suddenly agree about abuse of political power in general or which political figures are actually corrupt.

Our system ultimately relies on popularity and willingness to vote. You will not be able to magically retract political power or prevent lobbying without other people by your side.

RE: nation states?
By ebakke on 11/5/2012 6:21:13 PM , Rating: 3
The argument I'm making is that the "issues" we fight over on a daily basis will never be resolved. You're not going to get pro-lifers to become pro-choicers. You aren't going to get free-market proponents to suddenly endorse a single payer healthcare system. You aren't going to get gun control activists to start buying handguns. But all of the grievances, regardless of which side of the issue you're on, can be minimized. And without even trampling on others' rights in the process!

Yes, I'm arguing that we form a consensus for a single purpose/task, with the premise that it's a one-time only thing. The alternative being discussed is that we somehow "band together" for completely competing interests, and do so repeatedly. That isn't happening, and it won't happen. But I'm arguing there's an alternative other than throwing our hands up in the air and accepting defeat.

I hope you can see what I'm advocating and how it differs from getting Americans to "all band together for campaign finance reform".

RE: nation states?
By Jeffk464 on 11/5/2012 1:04:45 PM , Rating: 1
Yup, I agree 100% this country is a corpratocracy.

RE: nation states?
By Uncle on 11/5/12, Rating: -1
RE: nation states?
By MadMan007 on 11/5/2012 4:39:17 PM , Rating: 2
I'd say plutocracy is more accurate, with some oligarchy on the side for good measure.

RE: nation states?
By rdhood on 11/5/2012 5:09:10 PM , Rating: 1
The right word is "Fascism".


What do you call it when Government directs 1/6 of the economy (healthcare)? FASCISM

What do you call it when Government picks private enterprise winners and losers in energy? FASCISM

Obama openly laments that his government can't direct the economy like China. Wishes for total FASCIST state.

RE: nation states?
By FITCamaro on 11/5/2012 2:59:44 PM , Rating: 3
I guess your point would be valid if people weren't the one's who elect politicians.

No matter how much money corporations spend on elections, it is still up to citizens to be informed and decide for themselves how to vote. In that way, we have the power to change laws.

RE: nation states?
By Jeffk464 on 11/5/2012 3:21:04 PM , Rating: 1
Except for the fact that to be informed you need information. Over the last couple decades all the news outlets have been bought up and are controlled by about 3 mega corporations. Fair and balance, ha, has changed to you hear what they want you to hear.

RE: nation states?
By ebakke on 11/5/2012 5:04:57 PM , Rating: 2
You're implying that more information exists than is presented by the news media. Yet for you to know this, you must have been able to attain this information from another source. That directly contradicts your argument that our access is controlled.

So clearly the information is available. Maybe you were attempting to make the argument that it isn't spoon fed to you. Fine. I'll concede that. But it still doesn't change the fact that it's your power to vote, and your responsibility to be informed before doing so.

RE: nation states?
By Jeffk464 on 11/5/2012 11:52:20 PM , Rating: 2
Ah yes but you have to reach the average jane who spends most of her attention watching dancing with the stars.

RE: nation states?
By ebakke on 11/6/2012 12:14:17 AM , Rating: 2
So most people are stupid and lazy, but somehow you and I managed to figure it out? And you want to cater to the stupid and lazy?

Why don't we a) give people some credit. If you can figure it out, so can someone else. And b) let's stop these stupid "ROCK THE VOTE!!!!" campaigns that encourage the most uninformed among us to vote. Educate yourself and vote if you care. Don't, if you don't.

RE: nation states?
By FITCamaro on 11/5/2012 5:11:30 PM , Rating: 2
Yes because the only information in the world comes from major news corporations.

It's not like we have this giant repository of data at our fingertips that is from thousands of different sources all over the world. If only we did. We could call it.....the world wide web....shame....

RE: nation states?
By ebakke on 11/5/2012 5:16:41 PM , Rating: 2
That sounds like a brilliant idea! I'd suggest the backbone to this repository be a massive series of tubes.

Hmm... what to do when they are filled?

RE: nation states?
By MadMan007 on 11/5/2012 4:40:03 PM , Rating: 2
Doesn't work when every candidate is bought, or if not the few who aren't are too outnumbered to mean anything.

RE: nation states?
By FITCamaro on 11/5/2012 5:12:30 PM , Rating: 3
And who's fault would that be? You're not intelligent enough to think and vote for yourself?

RE: nation states?
By jimbojimbo on 11/5/2012 7:30:50 PM , Rating: 2
If you're talking to the typical American, yes. We really are too dumb to think for ourselves. In fact most of us will vote one way just because one of the candidates is black, not only blacks but other so called progressives because they think they're being hip. Sure, another group will vote one way because one of the candidates is white but no blacks will vote thinking it'll be cool to vote for someone white.

Also, many people will vote one way because they know it's more likely the welfare checks will keep coming. This basically means their votes are bought.

As long as the ignorant and dumb are allowed to vote, and breed like crazy, this country will continue going to hell.

RE: nation states?
By Jeffk464 on 11/5/2012 11:55:08 PM , Rating: 2
Yup, when they do studies on why people vote the way they do its very discouraging. By the way the political machines spend a huge amount of attention to these things to manipulate the voting public.

RE: nation states?
By Noonecares on 11/5/2012 11:59:07 PM , Rating: 2
Hrmm. I like how you are missing the real point of elections. The average person's votes only matters to the lesser people on the ballots. Presidential ballots are done by electoral college votes. Popular vote can't vote in a president. It just makes the less informed (you) think they did something about it. You can't run a country like a business if your business made money off of restructuring companies. You can't build a super government to fix everything. Bush Jr and Cheney's company made lots of money in Iraq/Afganistan. No one ever mentions that. Or why we went to Iraq in the first damn place(hoping for lower gas prices I bet). Last time I checked Iraq didn't have a WMD... oh well. Dem or Rep is a system made to make you feel you are choosing between two different things. But in reality they are the same puppets for the corporations. Also in regards to welfare checks, some people do need the help I believe. But like everything else, it gets abused like the tax code.

RE: nation states?
By Schadenfroh on 11/5/2012 6:11:56 PM , Rating: 2
We the people can still vote for politicians that promise us free things and politicians that promise to persecute groups / people that we do not like...

As a matter of fact, those two options are the basis of our two party system.

RE: nation states?
By BZDTemp on 11/5/2012 12:22:22 PM , Rating: 5
The thing is Apple is doing what many(all?) multi-national companies do - they move their profit to locations with low or no tax. Thus in effect cheating everybody except perhaps the tax shelter where some lawyer is making a little money doing the work.

As it turns out Apple is not only being dicks with regards to how they make their money they are also dicks when it comes to paying taxes. Just one more reason to shop elsewhere.

RE: nation states?
By xti on 11/5/12, Rating: 0
RE: nation states?
By Solandri on 11/5/2012 1:03:11 PM , Rating: 3
Tragedy of the commons. Once one company starts doing it, other companies have to do it too just to remain competitive. Even if they don't want to do it. Punishing random companies that do it to make an example out of them won't change this, and so won't reduce the number of companies which do it. The tax laws need to be changed so there's no longer an incentive to do it.

RE: nation states?
By Schrag4 on 11/5/2012 2:31:49 PM , Rating: 2
How is NOT bringing profit from overseas to the US cheating anybody? If I'm not mistaken, Apple has already paid taxes on those profits where they were earned. What you're ask them to do is to pay a second tax on what's left in order to bring those dollars back to the US. If foreigners gave Apple money in exchange for products, how are US citizens being cheated out of taxes on those profits?

If I'm misinterpreting the situation, please let me know. Otherwise, what makes you think the US should be entitled taxes on foreign profits? It's not like Apple can spend that money in the US without first paying taxes to bring it here, right? Is it better to tax foreign profits again (already taxed overseas), incentivizing corporations like Apple to leave it overseas? Or would it be better to let them bring it back without a second tax hit so they can spend it on jobs/research/etc here?

And no, I'm not an Apple fan. The corporation in question is irrelevant to this argument. I happen to feel the same way you do about Apple, but for different reasons.

RE: nation states?
By Jeffk464 on 11/5/2012 3:31:40 PM , Rating: 2
Well, when you put it that way.

RE: nation states?
By Ringold on 11/5/2012 6:07:57 PM , Rating: 1
If I'm not mistaken, Apple has already paid taxes on those profits where they were earned.

Exactly. We're the only OECD nation that even tries to confiscate profits companies make overseas. It's the height of liberal arrogance to believe that the US can tax profit no matter where on the planet it is made. Money made in other countries and already taxed in other countries is not ours to tax.

It's worth noting that every time the US enacts a tax holiday when companies can move that money back in to the US without paying those taxes, hundreds of billions flow back in.

This whole thing always has been nothing but thinly veiled anti-corporate propaganda, preying upon the ignorance of the public.

RE: nation states?
By Reclaimer77 on 11/5/12, Rating: 0
RE: nation states?
By Jeffk464 on 11/5/2012 1:01:43 PM , Rating: 3
It just goes to show nobody should have any loyalty to apple like the apple fan boys do.

RE: nation states?
By KCjoker on 11/5/2012 5:48:15 PM , Rating: 2
This is so funny because people always complain about Microsoft. Look at Hollywood how they act like Apple is so cool, they always use Apple over Microsoft. Yet most of those same people are all about higher taxes and companies paying their "fair share." Think they and everyone else will stop buying Apple products because of this...nope.

RE: nation states?
By jimbojimbo on 11/5/2012 7:33:22 PM , Rating: 2
Nope, because image in America means more than anything.

"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA

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