EU commission orders Apple to pay €13bn as back taxes

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Mutex
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Re: EU commission orders Apple to pay €13bn as back taxes

Postby Mutex » Fri Sep 02, 2016 4:36 pm UTC

CorruptUser wrote:
LaserGuy wrote:
Tyndmyr wrote:Just changing rates doesn't mitigate that.

It means the vertical monopoly only gets taxed once, whereas specialist industries are being taxed at each layer.

Whatever the rate is, it means that some companies are getting taxed many, many times less than others.

Inducing monopolies is bad.


Maybe the solution then, is to tax global profits, based on a proportion of local revenues. So if your company has $100b revenue, of which $25b comes from the United States, and your total profit is $20b, then the United States applies it corporate tax rate assuming your American profit is 25% of $20b = $5b, regardless of where that profit is held offshore.


Which is exactly what I said.


How does that avoid the problem of the company owner setting up totally independent companies and funneling the profit to the one in the Cayman islands?

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Fri Sep 02, 2016 4:53 pm UTC

It doesn't. And if adopted by multiple companies, would run into double taxation issues again, and pretty much necessitate oddball corporate arrangements.

It is, at a certain point, impossible for a company to pay income tax on everything to all countries it works in. So, ignoring double taxation entirely is a no-go.

And "what country profit comes from" is very questionable in the case of many arrangements. Yeah, yeah, licensing fees taking 100% may look fishy, but...licensing fees themselves are not really strange. It'd be entirely normal for some money to be profit of the licensing firm. Who decides how much?

Taxes are complicated.

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ucim
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Re: EU commission orders Apple to pay €13bn as back taxes

Postby ucim » Fri Sep 02, 2016 6:10 pm UTC

morriswalters wrote:That was a rhetorical excursion. Don't be so bloody literal minded. Cupertino, Ca, is the corporate home of Apple and it could just as well be in Dublin. Better?
No, not really. The purpose of taxation is to enable government to provide indirect benefits. The entity being taxed should be the one deciding that they should be taxed, and they would do so in order to achieve those indirect benefits. That's the whole "taxation with[out] represntation thing. A big multinational gets benefits from (and due to) participating in many geopolitical areas far beyond its corporate home, and therefore it is reasonable that it be taxed in/by those areas, without regard to its corporate home. An analogous situation with people is that while most of a person's government benefit accrues from their home location, people are taxed in/from other areas too, and for essentially the same reasons.

morriswalters wrote:I'm quite sure that doing business on multiple continents is very difficult. Which is a very different thing than determining their tax liability is the US.
It's not orthogonal; tax liability depends very strongly on exactly what one is doing, how one is doing it, where one is doing it... which for a multinational is complex. Which is my point.

morriswalters wrote: They do know how much profit they generate, don't they? Isn't that reported to shareholders, annually?
Uh... no. Sure, summaries and sound bytes are given to investors, but not to the same degree that the tax agencies require for their own purposes.

morriswalters wrote:Pray tell me, exactly what does the stock represent?
I already told you. It represents an aggregate opinion of potential buyers and sellers about the future of the company as balanced against the future of other companies, currency itself, and the geopolitical climate. You are proposing taxing entities based on the opinions of third parties of what the future holds.

morriswalters wrote: Over time [stock price is] a pretty good indicator of [a company's] value.
Uh.... no. If that were true, there would be no money to be made in the market, and investing would be pretty risk-free.

I suppose one way to implement your plan would be that the government simply confiscates some percentage of a company's stock every year. I don't really see that ending well either though, and a company based in Cupertino whose major operations are actually in Ireland would be gradually eaten by.... who? And what if their (non-revenue-producing) research department operates in France?

Jose
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Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Fri Sep 02, 2016 7:09 pm UTC

ucim wrote:
morriswalters wrote:Pray tell me, exactly what does the stock represent?
I already told you. It represents an aggregate opinion of potential buyers and sellers about the future of the company as balanced against the future of other companies, currency itself, and the geopolitical climate. You are proposing taxing entities based on the opinions of third parties of what the future holds.


This could be abused hilariously.

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby SDK » Fri Sep 02, 2016 8:16 pm UTC

Going forward, all bad news would be released in June. All good news would be put on hold until July.
The biggest number (63 quintillion googols in debt)

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Fri Sep 02, 2016 8:27 pm UTC

Companies could screw with their competitors in hilarious ways that would be hard to frame as sabotage.

Good news could be classified as malicious actions, though...

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby morriswalters » Fri Sep 02, 2016 9:08 pm UTC

ucim wrote:No, not really. The purpose of taxation is to enable government to provide indirect benefits. The entity being taxed should be the one deciding that they should be taxed, and they would do so in order to achieve those indirect benefits. That's the whole "taxation with[out] represntation thing. A big multinational gets benefits from (and due to) participating in many geopolitical areas far beyond its corporate home, and therefore it is reasonable that it be taxed in/by those areas, without regard to its corporate home. An analogous situation with people is that while most of a person's government benefit accrues from their home location, people are taxed in/from other areas too, and for essentially the same reasons.
You've wandered afar. For purposes of business they have to be somewhere. In Apple's case they are incorporated in Delaware among other places. Read this article from Australia. For more amusement read this.
A key quote from the report explains why AOI exists:

Apple explained that, although AOI has been incorporated in Ireland since 1980, it has not declared a tax residency in Ireland or any other country and so has not paid any corporate income tax to any national government in the past 5 years. Apple has exploited a difference between Irish and U.S. tax residency rules. Ireland uses a management and control test to determine tax residency, while the United States determines tax residency based upon the entity’s place of formation. Apple explained that, although AOI is incorporated in Ireland, it is not tax resident in Ireland, because AOI is neither managed nor controlled in Ireland. Apple also maintained that, because AOI was not incorporated in the United States, AOI is not a U.S. tax resident under U.S. tax law either.
ucim wrote:It's not orthogonal; tax liability depends very strongly on exactly what one is doing, how one is doing it, where one is doing it... which for a multinational is complex. Which is my point.
For the purpose of the US Treasury, Apple's profits are taxable if they come home which is why they aren't brought here. I don't care how they got them and neither does Treasury. That's what being incorporated in business means. All the business they do is complex. Their profit isn't, and it is what is being taxed.
ucim wrote:Uh... no. Sure, summaries and sound bytes are given to investors, but not to the same degree that the tax agencies require for their own purposes.
I would expect civil liability to occur if the profit Apple states to their investors is less than what they state to the government and would expect criminal liability where Apple states more profit to investors than it states to the government.. What is exactly does profit mean to you?
ucim wrote:I already told you. It represents an aggregate opinion of potential buyers and sellers about the future of the company as balanced against the future of other companies, currency itself, and the geopolitical climate. You are proposing taxing entities based on the opinions of third parties of what the future holds.
It represents ownership. How its valued represents peoples opinion. If I own 100 percent of the stock Tim Cook dances to my tune.
ucim wrote:I suppose one way to implement your plan would be that the government simply confiscates some percentage of a company's stock every year. I don't really see that ending well either though, and a company based in Cupertino whose major operations are actually in Ireland would be gradually eaten by.... who? And what if their (non-revenue-producing) research department operates in France?
Or you could just slap a tax on a percentage of that. Or you could do what we are doing now, nothing.
Tyndmyr wrote:This could be abused hilariously.
Well sure it could, just like the present system. As a point of opinion I don't think it would work either, neither do I think would any of the other ideas. Whatever you think of can be twisted by someone who can think as well or better than you.

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CorruptUser
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Re: EU commission orders Apple to pay €13bn as back taxes

Postby CorruptUser » Fri Sep 02, 2016 9:27 pm UTC

Mutex wrote:
CorruptUser wrote:
LaserGuy wrote:
Tyndmyr wrote:Just changing rates doesn't mitigate that.

It means the vertical monopoly only gets taxed once, whereas specialist industries are being taxed at each layer.

Whatever the rate is, it means that some companies are getting taxed many, many times less than others.

Inducing monopolies is bad.


Maybe the solution then, is to tax global profits, based on a proportion of local revenues. So if your company has $100b revenue, of which $25b comes from the United States, and your total profit is $20b, then the United States applies it corporate tax rate assuming your American profit is 25% of $20b = $5b, regardless of where that profit is held offshore.


Which is exactly what I said.


How does that avoid the problem of the company owner setting up totally independent companies and funneling the profit to the one in the Cayman islands?


Because you tax the parent company as part of consolidation, an incredibly confusing portion of accounting involving reporting of income with regards to subsidiaries and parent companies.

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby ucim » Fri Sep 02, 2016 11:29 pm UTC

morriswalters wrote:For the purpose of the US Treasury, Apple's profits are taxable if they come home which is why they aren't brought here.
Then they are not an issue.

morriswalters wrote:All the business they do is complex. Their profit isn't, and it is what is being taxed.
Ah, but it is complex. That is to say, figuring out what is profit can be complex, even in a simple business. One reason is that figuring out what constitutes a business expense, and against which business, can be quite complex, with no "right" answer.

morriswalters wrote:[Stock] represents ownership.
Yes, you are correct. I misunderstood the question - I took it to be "what does the stock price (or market cap) mean". It is for this reason that I proposed as one way to tax the "value of the company" (something I don't think is a good idea anyway) is to require payment in stock. Simply hand over 10% of your stock to the government every year. Let the government do what it wishes with it.

But as you say, we are quite far afield at this point.

If Ireland has a tax law, and Apple complies with it, but Ireland's tax law does not comply with the EU, Ireland is the bad guy, not Apple.

If I am misunderstanding the issue, then in my best Roseanne Roseannadanna impersonation.... "Never mind!"

Jose
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Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Sat Sep 03, 2016 12:41 am UTC

Something needs to be done. Just no clue what really.

Multinational companies including Amazon and Starbucks pay less tax in Austria than one of the country’s tiny sausage stands, the republic’s centre-left chancellor lamented in an interview published on Friday.

Chancellor Christian Kern, head of the Social Democrats and of the centrist coalition government, also criticised internet giants Google and Facebook, saying that if they paid more tax subsidies for print media could increase.

“Every Viennese cafe, every sausage stand pays more tax in Austria than a multinational corporation,” Kern was quoted as saying in an interview with newspaper Der Standard, invoking two potent symbols of the Austrian capital’s food culture.

“That goes for Starbucks, Amazon and other companies,” he said, praising the European Commission’s ruling this week that Apple should pay up to €13bn ($14.5bn) in taxes plus interest to Ireland because a special scheme to route profits through that country was illegal state aid.

Apple has said it will appeal against the ruling, which CEO Tim Cook described as “total political crap”.


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CorruptUser
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Re: EU commission orders Apple to pay €13bn as back taxes

Postby CorruptUser » Sat Sep 03, 2016 12:55 am UTC

Like I keep saying, change around the rules for consolidation (a specific concept in accounting regarding subsidiaries, especially internationally), so that by law the profits are where the point of sale is.

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby morriswalters » Sat Sep 03, 2016 12:56 am UTC

elasto wrote:Something needs to be done. Just no clue what really.
Neither does anyone else. It will be in litigation for years. :twisted:
ucim wrote:Yes, you are correct. I misunderstood the question - I took it to be "what does the stock price (or market cap) mean". It is for this reason that I proposed as one way to tax the "value of the company" (something I don't think is a good idea anyway) is to require payment in stock. Simply hand over 10% of your stock to the government every year. Let the government do what it wishes with it.
Why would the government want to own the cow. Stocks may drop, ask your broker. Always take cash.
ucim wrote:
morriswalters wrote: For the purpose of the US Treasury, Apple's profits are taxable if they come home which is why they aren't brought here.
Then they are not an issue.
Sure they are. It's why Treasury is hot to trot. They think it's money that should be here, and they are squealing like somebody lit into them with a knife. All those glorious billions sitting there untaxed and liquid. Now Tim Cook whines and says it's political. And of course it is. Only political entities levy taxes. The relevant authorities in Europe look at Uncle Sugar and say, ha, we got it!
ucim wrote:If Ireland has a tax law, and Apple complies with it, but Ireland's tax law does not comply with the EU, Ireland is the bad guy, not Apple.
Tim Cook doesn't care about good guys or bad guys, if it holds, Apple takes a bath, to the tune of billions. It's all rather amusing, don't you think?

Now that I have proven my ignorance about international finance I bid thee farewell.

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby ucim » Sat Sep 03, 2016 1:30 am UTC

morriswalters wrote:Why would the government want to own the cow. Stocks may drop, ask your broker. Always take cash.
Well, weren't you the one saying that stock prices represent the value of the company, and that companies should be taxed on their value? If one accepts these premises, then this is the only fair way to do it.

morriswalters wrote:Sure they are. It's why Treasury is hot to trot. They think it's money that should be here...
And I think it's money that should be in my pocket. But the facts are that it isn't.

morriswalters wrote:Tim Cook doesn't care about good guys or bad guys
... and I doubt this message board cares much about Tim Cook. :)

morriswalters wrote:Now that I have proven my ignorance about international finance I bid thee farewell.
Maybe we should ask Trump. After all, doesn't he know more about {fill in} than any of the relevant experts?

And now that I've godwinned the thread, I too shall bid thee farewell. :)

Jose
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Re: EU commission orders Apple to pay €13bn as back taxes

Postby morriswalters » Sat Sep 03, 2016 10:46 am UTC

ucim wrote:Well, weren't you the one saying that stock prices represent the value of the company, and that companies should be taxed on their value? If one accepts these premises, then this is the only fair way to do it.
I've changed my mind. I no longer believe that stocks represent the value of the company. I don't know why people buy them since they have no connection to value, I guess they just like funny paper.
ucim wrote:And I think it's money that should be in my pocket. But the facts are that it isn't.
I don't think much about that money at all, other than finding it funny how much turmoil it's causing.

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Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Sat Sep 03, 2016 8:27 pm UTC

Three years ago, Apple boss Tim Cook was emphatic. Appearing before a US senate committee, the man who runs the world’s largest company told the politicians straight: Apple had no intention of repatriating billions of dollars of profits from its international operations until the US Treasury slashed corporate taxation.

“I have no current plan to bring them back at the current tax rate,” Cook said.

It was a response – one of many – that rankled with the committee’s chair, Carl Levin. Leaning forward, the tough septuagenarian senator from Michigan glared at Cook over the top of this glasses: “It is not your intent to bring them home unless we reduce our tax rates? Is that correct?”

Cook repeated: “I have no current plan to do so at the current tax rates.”

It was a charged exchange that laid bare the impasse between corporate America and Washington. At that time, Apple had amassed about $100bn in cash – income from its foreign operations – all of which was being carefully held outside America, beyond the reach of the US tax authorities.

Since then, every three months, Apple has given Wall Street an update on the size of this cash pile, and each time the figure has grown by several billion. At last count, six weeks ago, the figure stood at $215bn (£162bn).

...

According to ratings agency Moody’s, US companies, excluding banks, had an estimated $1.2 trillion in cash overseas at the end of last year. Just over half of that sum – $630bn – is estimated to be held by Apple and other tech companies, among them Silicon Valley firms Microsoft ($96bn), Cisco ($57bn), Google ($43bn) and Oracle ($45bn).

Barack Obama promised he would get corporate America to bring profits home, as have both the Republican and Democrat candidates vying to succeed him. Quite how to do so, however, has divided Washington for decades.

And if the result has been intransigence, few have complained very loudly. The impasse has suited corporate America well, allowing its biggest international businesses to enjoy years of ultra-low tax bills.

Last week, however, the dramatic intervention of Europe’s competition commissioner Margrethe Vestager appeared to steal the reform initiative from Washington.

In a decision that for many years tax experts would have thought unthinkable, she ruled that a significant slice of Apple’s offshore wealth had been illegally won. The iPhone maker, Vestager found, had been benefiting from a sweetheart tax deal agreed behind closed doors with Ireland a quarter of a century ago. That deal had resulted in Apple avoiding €13bn in taxes over 10 years, she said: those back taxes, plus interest, would have to be repaid.

Cook was furious. He insisted that the income had already been taxed in Europe. “The commission is now calling to retroactively change those rules,” he protested last Tuesday. Two days later he was still raging — calling Vestager’s decision “invalid” and “crap” — but he also had a surprise announcement. During an interview on Irish radio, he started talking about repatriating cash held overseas and paying US tax. “Right now, I would forecast that we repatriate next year,” he said. “We [have] provisioned several billion for the US for payment [of tax bills] as soon as we repatriate.”

There has been no further elaboration, but it is a marked change in tone from Cook, who now needs all the support he can muster from allies on Capitol Hill. Hints that Apple might be more willing to pay tax in America might be just the kind of message US politicians wanted to hear.

...

The Apple boss certainly has friends in high places. Recent months have seen him host fundraising events for both Democratic presidential candidate Hilary Clinton and Republican house speaker Paul Ryan.

For all that, however, few US politicians have come out fighting hard to defend Apple’s Irish tax arrangements. There have some generalised warnings from US Treasury secretary Jack Lew that the commission’s move could have a “chilling effect on US-EU cross-border investment” and that Washington would have to “consider potential responses”.

But as global leaders gather in Hangzhou, China, on Sunday for the latest G20 summit, there are little signs of Apple’s €13bn back-taxes penalty causing a full-blown crisis.

Behind the scenes, dissatisfaction over corporate America and its untaxed offshore cash is growing. Politicians may not yet have figured out what they intend to do about this issue, but the last 18 months have provided a few stark reminders that there is a lot at stake.

Last November, many in Washington were surprised to see Pfizer, one of America’s largest drug makers, unveiling plans for a record-breaking $160bn deal – a so-called “tax inversion” transaction which would see it merge with a smaller, foreign rival and shift its headquarters outside the US.

The Pfizer bid was just the latest, and largest, in a wave of such inversion deals. Such transactions are designed to allow multinationals greater freedom to use their swollen cash reserves without triggering US tax bills.

In the end, however, the Obama administration moved quickly enough to introduce tougher rules to discourage inversion deals, thwarting Pfizer’s plans. But it was yet another wake-up call: corporate America’s untaxed offshore cash pile was a problem that needed fixing.

Most tax reform experts concede Apple’s Irish tax arrangements are hard to defend as fair. Pascal Saint-Amans, head of tax at the Organisation for Economic Co-operation and Development (OECD), who last year secured unprecedented agreement on reforms to tackle tax avoidance, is among the critics.

“The Apple case is a great illustration of the most aggressive tax planning that is out there… [It produced] massive profits that ended up going taxed nowhere. It is precisely because of these types of schemes that the G20 asked us to start looking at major tax reforms [three years ago].”

It is the OECD’s work on tax reform that prompted Ireland to finally close loopholes that allowed Apple and other multinationals to use “non-tax-resident” Irish companies to receive billions of dollars in income that then went untaxed. As a result, Apple unwound its use of such arrangements last year.

It now remains to be seen whether Vestager demonstrates an appetite for going after further large sums from cash-rich US corporations that have used aggressive tax structures in Europe. She already has two suspected sweetheart deals in her sights — separate tax rulings granted by Luxembourg to McDonald’s and Amazon. And she has not ruled out adding more.

Whatever the outcome, however, Washington and Wall Street have woken up to the possibility that if America is unwilling to tax the ballooning offshore cash mountains of its leading companies, others are now emboldened to do so.


So, assuming I read it right, Ireland has already shut down the deal that saw Apple paying a tax rate of 0.005%, so they have even less to lose by siding with the European ruling.

I assume that Cook is dropping hints about paying US taxes in order to divide and conquer - to get the US administration to put pressure on Europe. Should said pressure succeed, Cook's fiduciary duty returns to getting the best deal for his shareholders, which would mean refusing to pay any taxes again, so the US would be well advised to get their money in advance...

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