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  (Source: Reuters)
Ireland also blasts U.S. criticism of "tax sheltering"

The Democratic-controlled U.S. Senate has turned its attention to Apple, Inc. (AAPL) by focusing on the low effective tax rates paid on the profits hauled in by the tech industry's most profitable firm.  Today as Apple's CEO Tim Cook -- who once suggested Apple has more money than it knows what to do with -- was grilled by Congress on his so-called "Double Irish With a Dutch Sandwich," which allows Apple to cut taxes by directing profits through low-cost Irish subsidiaries, the Netherlands and the Caribbean. However, Irish officials and some U.S. conservatives returned fire.

I. Irish Say Senate's Numbers Are Wrong

Apple's cash pile may grow to $170B USD by the year's end which is about 1 percent of the national debt of the U.S. Officially, U.S. tax rates on corporate profits hover around 18-20 percent after deductions, but Apple is accused of paying far less via using shell companies in low tax regions.

But in an interview with Irish news agency RTE Deputy prime minister Eamon Gilmore slammed accusations of wrongdoing, remarking, "They are issues that arise from the taxation systems in other jurisdictions, and that is an issue that has to be addressed first of all in those jurisdictions." 

A spokesman for Ireland's finance department said the nation's system was fully transparent and statute based.  He stated resolutely that there was "no possibility of individual special tax rate deals for companies."

A spokeswoman for Ireland's Office of the Revenue Commissioners adds, "All companies in Ireland pay the standard 12.5 percent rate on their trading profits arising in Ireland, and they pay a corporation tax rate of 25 percent on their Irish non-trading income."

Apple Operations
Apple Operations Inc. (A.O.I.) in Cork, Ireland reportedly received $29.9B USD in profits between 2009 and 2012, and paid less than 2 percent in taxes. [Image Source: Reuters]

Irish citizens are also defensive about the country's strategy of snagging multinational companies' outposts via low tax rates.  They say the nation's unemployment issues would be worse if it were not for companies like Apple.  Comments one worker to Reuters, "We're a small country and feel we can't say no. We know they'll just go off to one of these Asian countries ... They're a law unto themselves."

Apple maintains a three-story office building in Cork, which is currently receiving a shining new glass-and-steel expansion, funneling money to local builders and contractors.  Apple also directly employs 2,800 in Cork, and has promised to add another 500 employees shortly.

But according to the 40-page Senate memo released before the hearing, Apple hides much of its income in a trio of Irish subsidiaries that have no official tax residency in Ireland.  The Senate memo claims Apple has paid an effective rate of around 2 percent for the last ten years, versus the aforementioned "official" rate of 12.5 percent.  The report claims that between 2009 and 2012 Apple affiliates funneled $29.9B USD in profits -- or roughly 30 percent of profits -- into the Cork subsidiaries.

The average tax rates of the Organisation for Economic Co-operation and Development (OECD) -- whose member states include most of the nations Apple operates in -- had an average tax rate of 24 percent in 2012, yet Apple only paid 1.9 percent that year on its $37B USD in overseas profit that year, thanks to its clever positioning.  The memo comments, "Ireland has essentially functioned as a tax haven for Apple."

Ireland's European Affairs minister Lucinda Creighton claimed the Senate's figure of a 2 percent rate in Ireland was flat-out wrong.  She comments, "There is no such deal. There is no deal for any company to pay 2 percent corporate tax in Ireland - that is erroneous."

But Apple's accounting firm Ernst & Young LLP refused to confirm or deny the number, saying it was confidential information.

II. Conservatives in the Senate Blast Hearings

Scrutiny picked up steam in April 2012, following a report in The New York Times accusing Apple of dodging millions of dollars in taxes in California and 20 other U.S. states (and dodging billions of dollars in taxes worldwide).  Over the past year, British Parliamentarians have held hearings regarding Apple's behavior.

According to their figures Apple pocketed £6B ($9.50B USD) in profit from the British market last year, but paid only £10M ($15.8M USD) in taxes.  Apple in a statement denied it engaged in "tax gimmicks" and said it would pay $7B USD in the U.S. in taxes in fiscal 2013.

The Congressional hearing took place this afternoon.

In the hearing Tim Cook -- accompanied by Apple's Head of Tax Operations Phillip A. Bullock -- admits, "I have no current plan to bring them back at the current tax rate."

On Apple Operation Int'l, Tim Cook said, "[A.O.I.] is nothing more than a holding company — it’s not an operating company.  [A.O.I.] is nothing more than a company that has been set up to provide an efficient way to manage Apple’s cash from income that’s already been taxed.  In my view A.O.I. does not reduce U.S. taxes at all."

Tim Cook
Apple CEO Tim Cook defended his company at the hearing. [Image Source: Reuters]

He says Apple pays tax on profit from every single product it sells in the U.S.

Senator Carl Levin (D-Mich.) remarked, "The only reason you’re not bringing them home is because they were transferred to these three Irish companies.  That’s the reason why they’re there. It’s your decision not to bring those profits home, so now $100 billion plus is stashed away in those three Irish companies that you control but is nonetheless in their legal name. The question is, will you bring them home?"

He points to an Apple subsidiary to paid only $5B USD back to Apple's U.S. operations, but received a reported $74B USD in profit -- a net tax loss of almost $70B USD in taxable income for the U.S.

Sen. Levin suggests Congress should play debt collector, trying to recoup the lost taxes from Apple's cash pile.  And he believes it is possible to do so under the current law.  He comments, "It is possible to penetrate an entity’s corporate structure for tax purposes and to collect U.S. taxes on its income, [if it is shown that a foreign subsidiary is] nothing more than instrumentality of its parent company, a sham."

Some conservatives joined in the fray.  Sen. John McCain (R-Ariz.), a former Republican presidential nominee, remarked that, "Apple has violated the spirit of the law if not the letter of the law."

John McCain
Sens. John McCain (R, right) and Levin (D, left) were not satisfied with Mr. Cook's answers.
[Image Source: AP]

He argued, though, that the onus was on Congress to perform "comprehensive reform" of the tax system.

III. Sen. Paul Wants Apology From Congress, Reform

But Senator Rob Portman (R-Ohio), countered that Apple's South Korean rival Samsung Electronics Comp., Ltd. (KSC:005930) pays the same effective rate as Apple globally -- 14 percent.  But he comments that the real problem is the high tax rate in the U.S. -- he points out that South Korea's lower tax rate allows it to return its profits home.

Villanova University Law School Professor J. Richard Harvey Jr. seemed to echo this perspective in testimony as an expert witness.  While he accused Apple of dodging $7.7B USD in U.S. taxes, he complained that the U.S. tax code makes returning money onerous.  He suggested a "long term solution" of lowering the tax rate on overseas profits returned to the U.S. to 15 percent.

Tim Cook agrees.  In his testimony, he comments, "Unfortunately the tax code has not kept up with the digital age."

One of Mr. Cook's biggest defenders was Sen. Rand Paul (R-Kent.).  He said Apple should be cheered for, not "vilified", remarking, "Money goes where it is welcome.  Everybody talks about tax reform. Just do it."

Sen. Rand Paul
Sen. Rand Paul defended Apple and said Senate Democrats -- as well as some Republicans like Sen. McCain should be ashamed and owe Apple a big apology. [Image Source: The NYT]

On Twitter he posted:

While the debate is unlikely to be laid to rest easily, it should be noted that many other companies like Microsoft Corp. (MSFT) and Google Inc. (GOOG) also shelter money in Ireland.  Google recently came under fire for dodging about $1.6B USD USD (£1B) in taxes by way of the island Bermuda. Google sent £6B ($9.6B USD) through Bermuda over the course of last year, which halved its 2011 tax bill.

Other top companies like Starbucks Corp. (SBUX) and Amazon.com, Inc. (AMZN) also are accused of using Caribbean, European, or Asian tax havens.  Of course, such tactics could be argued to actually be performing a key duty to shareholders -- minimized taxes under the law and maximizing profits.

Sources: The New York Times, Reuters



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RE: Why do we owe takers?
By PontiusP on 5/22/2013 4:26:07 PM , Rating: 2
Mint, you miss the point.

Makers will spend their money if they see opportunity. We have to ask ourselves, why are they not seeing the opportunity? Could it be because of a crushing tax and regulatory burden? Could it be because of an out of control lawsuit culture? Could it be because the welfare state have turned inner cities into full on war zones, thus scaring away capital?

Further, regardless of how much the makers have, we shouldn't be obligated to give one dime of it to takers. Every productive member of society is forced to give to them and it's morally wrong.

You can beat down on capitalism all you want from your dorm room, but in the real world, it's what makes things tick.

The question you need to be asking, is how can we create an environment where capital is welcomed, rather than shunned?

Also, nice way to completely sidestep the issue of the exploding welfare state. That's quite a mobile goalpost you've got there.


RE: Why do we owe takers?
By Mint on 5/23/2013 7:10:35 AM , Rating: 2
quote:
We have to ask ourselves, why are they not seeing the opportunity? Could it be because of a crushing tax and regulatory burden?
No it's not. It's due to lack of demand, plain and simple. The poorer folk are unable to purchase more goods, and the richer folk don't want to purchase more goods.

Without more demand, there will be always be limited opportunity to invest.

I'm not beating down on capitalism. I actually WANT rich folk to live it up and spend their hard earned money on THEMSELVES. Capitalism will then find the most efficient way to do so.

The problem is that collectively they're not doing it, even if individually they're not doing anything wrong.
quote:
Could it be because the welfare state have turned inner cities into full on war zones, thus scaring away capital?
This is laughable. There is more than enough labor available everywhere, inner city or otherwise. If they want to open up factories in rural areas, they are free to do so and will have no problem finding workers who live there or move there.


RE: Why do we owe takers?
By half_duplex on 5/23/2013 10:26:26 AM , Rating: 2
You're pretenses are truly amusing.

You can explain away anything can't you?


RE: Why do we owe takers?
By M'n'M on 5/23/2013 3:59:35 PM , Rating: 2
quote:
The problem is that collectively they're not doing it, even if individually they're not doing anything wrong.

OK then, so they don't deserve to have a chunk of their $$s taken away.

But I have to wonder if what you call no demand is really just the true, "proper" level of demand. Afterall the people who spend and drive the economy are not the rich but those in the upper middle class and lower upper class, say the top 15% to top 5%. They're sitting on their $$ because they're uncertain of what the future will bring. They don't need any more HDTVs, the house they live in now is fine and maybe even too big as the kids move out. The 4 year old car still runs well and there's no need to buy a new one. There's no need to be on the spending spree they, and a lot of others who should have been saving towards their retirement, had been on in the prior decade. IOW this is what the economy looks like when people live within their means, not spending $$s like monkeys throw poo.

That this level of spending means less jobs for those who work in factories isn't the fault of the evil savers, but the result of a mature economy where there's more people than are needed to produce it's goods and services. If there are to be jobs for the masses here in the US, then we need to stop importing from the growing economies (China) and start exporting to them. And that's a very tall order to fill. The only light on the horizon is that wages in China are rapidly rising so that disparity might not be, in 5 years, the driving force that it is now.


RE: Why do we owe takers?
By Mint on 5/24/2013 7:09:38 AM , Rating: 2
quote:
They don't need any more HDTVs, the house they live in now is fine and maybe even too big as the kids move out. The 4 year old car still runs well and there's no need to buy a new one.
I'm glad you are acknowledging this, unlike most free marketers who think that every extra dollar given to the top quintile helps the economy.
quote:
That this level of spending means less jobs for those who work in factories isn't the fault of the evil savers, but the result of a mature economy where there's more people than are needed to produce it's goods and services.
So how do you want to deal with the implications of this? Let me outline the problem to you with an example.

Lets say we only need 1 worker to provide this mature demand of 3 people (not too far from today's world). Some of the non-workers will be dependents of the workers (lets say 1.7 dependents per worker), so they'll be supported, but not the others. Lets start with 300M people: 100M workers, 170M dependents, 30M moochers.

Now, if we switched to a purely free market with minimal gov't & redistribution, the unsupported starve and either die or become bums. Now there's only 270M people consuming, so the economy only needs 90M workers. 10M people get layed off, and they (along with their 17M dependents) stop consuming. So now we're down to only 253M people consuming, and this vicious cycle repeats until employment shrinks enough that it hurts productivity (that 3:1 figure).

That's what happens in a highly productive, demand limited world without redistribution. The economy shrinks.

Outsourcing to China/India is merely a preview of the incredible advances we're seeing in automation. Both drive down the need of domestic blue collar labor. Addressing outsourcing is a temporary fix (albeit a welcome one).

So what's your solution?


RE: Why do we owe takers?
By Mint on 5/24/2013 7:25:37 AM , Rating: 2
Savers aren't evil, just like soldiers that wind up taking innocent lives aren't evil. Savers have good intentions, but are taking advantage of money that loses value too slowly .

How do I know it's too slow? Well, there are no longer enough ways to build non-depreciating assets faster than the demand for them (hence low interest rates). Building more housing is useless without working people to live in them, mining more metals is useless without stuff to build from them, etc.

So that's another solution: increase inflation to stop the market from hoarding it, i.e. tax wealth instead of income. However, you can't increase inflation without higher spending, whether by the gov't or by consumers.


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