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Financial Media Celebrates Apple’s Tax Evasion Bond Deal

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As is par for the course, the financial media is telling a story about a major US company from the perspective of the investing classes, rather than the broader public.

The poster child is the New York Times’ Dealbook, in a story titled “To Satisfy Its Investors, Cash-Rich Apple Borrows Money.” Its third paragraph reads:

Apple’s return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt?

A full seven paragraphs later, the article gets around to the last, and arguably the most important reason:

By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.

“In some ways” is an understatement. A simple Google search shows stories going back several years of how Apple has been pushing for a tax holiday so it can repatriate its overseas stash. One example is a February 2011 report from electronista, Demands come despite federal budgetary crisis:

A variety of technology corporations are among those pressuring the US government to give them a preferential tax break, sources tell Fortune. Apple, Cisco, Pfizer and Duke Energy are specifically named as lobbying politicians for a tax “holiday” in regards to repatriated cash. Whereas the companies would normally be obligated to pay 35 percent, their goal is allegedly to pay just 5 percent.

A 2012 story from United Republic focuses on Apple:

According to the Center for Responsive Politics, Apple spent $2.3 million on lobbying last year and its lobbying expenditures have been steadily increasing over the past decade – in 2000, it only spent $360,000 on lobbying.

A big chunk of this is spent lobbying on tax policy, especially repatriation legislation, which would let firms bring profits held overseas back to the United States at a cheaper tax rate. One bill in particular, the Freedom to Invest Act of 2011, would save companies like Apple, Google, and Cisco $78.7 billion, paid for by the American people.

This so-called tax holiday would let multinationals with more than $1 billion held abroad bring that cash back to the United States at a 5.25 percent tax rate, instead of the typical 35 percent top corporate rate. The idea is that those companies would pump that money into the American economy, especially through hiring workers.

Apple currently keeps about two-thirds of its $97.6 billion in profits abroad.

Bloomberg reported last fall that Apple and other companies have employed an army of over 160 lobbyists to persuade Congress to pass the Freedom to Invest Act of 2011. And these weren’t any old lobbyists. Sixty of them once worked for a sitting member of the House or Senate. And one in particular, Jeffrey Forbes, was once chief of staff to Sen. Max Baucus (D-Mont.). Baucus is the chairman of the Senate Finance Committee, which has direct jurisdiction over tax law.

This sort of chummy influence-peddling on behalf of the Freedom to Invest Act isn’t supporting good policy. How do we know that? Because Congress already passed legislation exactly like it, back in 2004. And as a recent Senate report found, it didn’t go so well:

A report from the Senate’s Governmental Affair’s Permanent Subcommittee on Investigations found that a 2004 tax break that was given to corporations repatriating profits made in foreign countries “did not produce any of the promised benefits of new jobs or increased research expenditures to spur economic growth.” In fact, the report found that the corporations receiving the break cut 20,000 net jobs and cost the U.S. Treasury $3.3 billion in lost revenue over 10 years.

At least in the UK, where the UK Uncut movement against corporate tax avoidance has staged some large protests, the officialdom has managed to get some of the big foreign tax avoiders to pony up some dough out of embarrassment. But big offender Apple is not among them. As the Telegraph noted last December, in Apple shelters almost $1bn a week from US tax man:

Technology giant Apple shuttled $11bn (£7bn) into offshore tax havens in the fourth quarter of 2012, an analysis of its corporate filings has revealed.

The iPad maker has slashed its tax bill by paying less than 2pc on its overseas profits, as it moves money through offshoots in low-tax countries such as the British Virgin Islands….

Prime Minister David Cameron last week told tax-avoiding companies to “wake up and smell the coffee”, comments which drew threats from Starbucks’ UK managing director of suspending millions of pounds of investment in Britain.

Starbucks took an unprecedented step of pledging to pay £20m corporation tax in the UK, after it came under fire for paying nothing last year despite making sales of £398m.

s-CORPORATE-TAX-RATES-large300Oh, and spare us any blather about “taxing corporations is unfair because those poor investors would be taxed twice.” Everyone is taxed multiple times, so stop running the con that investors deserve to be a protected class. Workers pay FICA and income taxes, so sales tax payments come out of income that has been previously taxed. You also pay the real estate taxes of store owners when you buy goods or eat out. You pay the gas taxes on the shipping costs of products you buy online (again out of your after tax dollars!)

And let’s also not forget that growth rates were higher when corporations were more heavily taxed, dispelling the notion that making corporations pay their fair share is a negative for the economy.

But thanks to the tender ministrations of the Fed, which is goosing asset prices right and left in a futile effort to pump of the economy, Apple has a cheap and easy way out of the fact that its clever tax avoidance leaves its monster cache largely overseas, where it can’t buy the good will of increasingly jaded US investors. Its $17 billion of bond offerings Tuesday were a blowout. And that’s despite the fact that they didn’t garner an AAA rating. That view may as much reflect rating agency doubts that Apple will ever get the tax breaks it wants to bring its dough into the US on the cheap as well as concerns about how long the Cupertino company can keep its cachet and the premium margins that result.

But let’s not look too hard under that hood. What’s good for corporate icons has to be good for America, right?

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80 comments

  1. down2long

    Thank you Yves for explaining this. I completely missed why Apple was doing this. I refuse to buy any Apple products because of the slave wages they pay in China and the slightly less slave wages they pay to their U.S. retail force.

    And frankly, having to hear about Steve Job’s and his “brilliance” which was detached from any social responsiblity nauseated me as much as any bankster’s reputation of “brilliance” or some other adjective simialr (yes Slimin’ Dimon and how he survived the financial putsch comes to mind.)

    Our sernator from Israel, I mean California, Barbara Boxer sponsored that tax giveway in 2004. And we’ve had to see her hauling her useless carcass around ever since with Silicon Valley monetary backing. Sheeesh what a sh*tshow this country is.

    Also in Dealbook was the trial balloon of Obomba appointing his corporate cable buddy to head the FCC. The Prez really has made clear what he’s gonna be up to the next four years, and that is giving aware what’s left of the store.
    It certainly isn’t what all my naive Obummer supporters told me before the election “Oh after the election he will be freed to be the populist he genuinely is, a humanist, the Mother Theresa of the Patomic because he doesn’t have to get reelected.” And futher idiotic genuflection in the direction of the anointed Dear Leader.

    God it is getting deep in here.

  2. AbyNormal

    well the *right* man already rolled out the red carpet…

    General Electric paid no tax at all in America last year and even managed to get a $3.2billion ‘rebate’ from the government.

    The utilities giant allocated just 7.4 per cent of its $5.1billion U.S. profits in tax – around a third of what others companies its size are paying.

    But through a complex series of measures GE, which is America’s largest company, will not even have to hand that over.

    *President Barack Obama* shows no sign of clamping down on corporate tax and even hired GE’s chief executive Jeffrey Immelt to advise him on future changes.

    ‘He understands what it takes for America to compete in the global economy,’ Mr Obama said after his appointment.

    Company spokeswoman Anne Eisele said: ‘GE is committed to acting with integrity in relation to our tax obligations.’
    http://www.dailymail.co.uk/news/article-1370001/General-Electric-avoids-paying-tax-entirely-dodges-incentives.html

    1. down2long

      HA! Well I guess we know what they mean by “integrity.” I strongly suggest you check your GE applieances and any jet aircraft with GE engines BEFORE takeoff. Just sayin”.

      1. AbyNormal

        and that was 2010! when pink slips were flyin
        immelt is satan’s right testicle…he’s always on cnbs carroting more jobs if only he could bring his simple ole shadow bank home

        1. KnotRP

          Appointing Immelt as the job czar…there’s how
          much your vote counts, average job holder, right there.

          Welcome to Fourth World** Status

          **third world income attempting to
          sustain first world overhead

    2. Wat Tyler

      Yves,

      Perhaps this is the point to bring up the MAP-21 legislation which increased the discount rate companies can use to compute pension liabilities and thus reduce current funding requirements. According to my annual pension fund report from GE, this legislation changed GE’s pension plan position from a $3.8B shortfall to a $3.3B surplus. Consequently, GE reduced it’s “Minimum Required Contribution” from $1.6B to ,wait for it, zero.

      Perhaps I missed the discussion but MAP-21 seems a good topic for this blog.

      Jim

  3. timotheus

    Another form of double taxation for your list: fee gouging of merchants by credit card companies that is factored in to the price of virtually all products. This is a tax on top of the excessive sales taxes that we pay and all the more insidious because we don’t see it on the sales slip.

  4. Damian Park

    “This so-called tax holiday would let multinationals … bring that cash back to the United States… The idea is that those companies would pump that money into the American economy, especially through hiring workers.”

    This logic is very similar to many other flawed ideas that focus on the flow of money and spending as drivers of our wealth rather than production. We are rich because we produce more. We get richer by producing even more. Allowing Apple to bring back pieces of paper will not make us richer in that it will not encourage more production.

  5. JGordon

    I have been reading Dmitry Orlov’s “Reinventing Collapse”, and I have to say that it an extremely positive and optimistic work that has turned me into a great supporter of our current corrupt regime.

    Anyway, this Apple bond deal is a great thing. After reading your wonderful article here on the subject I’m suddenly in a much better mood than I was just a few minutes ago. But regardless, I have a prediction to make: things will keep getting worse for people in America, and one by one, as their respective situations become unbearable, they’ll either find alternative ways of doing things or disappear. That’s all. There will be no reform, no great savior. No one will come along to fix much of anything at all–and even hoping for things to be fixed is somewhat braindead since the system isn’t even worth or fixing anyway (I learned that thanks to the wonderful permaculture links you provided that got me started on that path. Thanks a lot).

    Instead, try growing some fruit trees and get some chickens. Make friends with your neighbors and volunteer to plant fruit trees in their yards too. Stock up on ammo and solar panels. Start learning new skills–like guitar playing, marksmanship and emergency first aid for example. Now THOSE are things you can do that will actually have some positive impact on your future situation. But caring about politics and complaining about all the rampant corruption everywhere? Well that won’t do anything useful, even if it does make for entertaining reading.

    1. Yves Smith Post author

      Most people in America live in cities. And a lot of people who do not live in cities rent or live in suburbs which prohibit owning livestock.

      Stuff like “raise chickens” just shows how out of touch you are with how most people live. And if you actually have a job or run a small business (particularly if you have kids or elderly parents who need minding), you aren’t living the life of Reilly where you have the time to learn an instrument.

      Plus my brother, does have a bit of acreage and did try raising chickens, wound up producing coyote food.

      1. JGordon

        That is very convenient Yves, that most people live in cities–since I am a permaculture designer who focuses on designing integrated food forests within cities, both on community lots and on private lawns. I became a permaculture designer thanks to the links and videos you started running on your site by the way. If only you would take them as much to heart as I have.

        I live in a city in a heavily populated metropolitan area, as you no doubt know from my IP address. In addition, I’m raising chickens here and have started multiple fruit trees and shrubs in my yard, not to mention in my neighbor’s yards. And people actually “pay” me (I have yet to take cash for any permaculture help I’ve given anyone, although I do insist on other kinds of compensation) to help them.

        In other words, I am not being out of touch. I’m being a realist. The people who are out of touch are the ones who believe that the current unsustainable economic and political system will somehow, by they grace of God or whatever, be sustained. Accept reality: there was nothing anyone could do to save the sinking Titanic, and there’s nothing anyone can do to save this sinking system either. Find (or make) your life boats while most people are still milling around on the deck believing the captain’s lies and listening to the music.

        1. Mark Edward

          JGordon, you said:

          “I live in a city in a heavily populated metropolitan area, as you no doubt know from my IP address. In addition, I’m raising chickens here and have started multiple fruit trees and shrubs in my yard, not to mention in my neighbor’s yards. And people actually “pay” me (I have yet to take cash for any permaculture help I’ve given anyone, although I do insist on other kinds of compensation) to help them.”

          That tells me just how out of touch you are. How many people even have yards? 30% of americans live in apartments. The wealthy and white are much more likely to be the ones in houses. How many people have the time/energy, after working their 2 part-time minimum wage jobs, caring for and feeding children, and maintaining their lifestyle, for your permaculture stuff? Your lifestyle is a luxury in these times, whether you want to admit it or not. The people most damaged by the current system do not have the luxury of opting out of society and into what you propose.

          1. Yves Smith Post author

            Yes, plus he blew of my comment on chickens. Friggin’ insane. I grew up in small towns and suburbs all over the US, mainly small towns and let me tell you in NONE of them would chicken in the yard be permissible, and in only two of the nine places we lived was a vegetable garden viable AND permissible (my father liked to garden). So even in a non-urban setting, he’s way overselling his case.

          2. HotFlash

            An acquaintance has chickens here in downtown Toronto, my son in Philly did too, until the raccoons got them, but he says he will try again with a stronger coop. Article about TO chickens: http://this.org/magazine/2012/04/12/lorraine-johnson-breaks-the-law-to-keep-chickens-in-her-toronto-yard/

            We also have urban farmers, here is one project that uses public land in an area that in Detroit would be called ‘the projects’ http://www.trca.on.ca/the-living-city/programs-of-the-living-city/near-urban-agriculture/toronto-urban-farm.dot, here is another that is a commercial farm http://cityseedfarms.com/.

            As people become more and more disemployed, and I believe that will happen, more of us may find time for playing music, gardening, sewing. These activities in turn may be valued by our friends, neighbours and family members who are still working those three ‘mini-jobs’. I have concluded that the best chance to survive the next couple of decades will be in the company of my neighbours. Bonus! We don’t need a programme or a leader to work together!

          3. harry

            Im a big fan of Dmitri Orlovs work. But you will need to be very brave to take a big long term bet on his scenario. I suspect he is right, but I dont know when the resource pressure is big enough to finally break the system.

            In the meantime city living and apartments are a more efficient way for most people to live. Less gas spent doing stuff, and massive economies of scale for logistics.

            Eventually I would want to buy a small farm. I figure that upstate NY (somewhere with no gas for fracking) might eventually be a good place to buy a farm. But it would be better to be closer to the coast. I worry that somewhere down the line, the costs of the system will become greater than the productive capacity of the system, particularly with so many economic rents being extracted from the peasantry.

            Dmitri Orlov is writing about what happens way down the line, when central government in the US collapses under its own weight of excess spending and decaying productive capacity. Yves is talking about the next few years and what is currently feasible. Cross purposes.

          4. Lambert Strether

            Obviously, these solutions aren’t for everyone. However, they are clearly solutions for some, me, in particular; and last I checked, Portland, ME (chicken keeping permit in PDF) was a city.

            I guess I’m not getting the vehemence here. From 30,000 feet, it looks to me like there’s major collapse on the horizon, from any number of causes often discussed here. If JGordon wants to do some “bold, persistent experimentation,” then have at it, say I. If the worst happens, apartment dwellers are going to glad alternative systems are in place. If the worst does not, where’s the harm?

          5. skippy

            @Lambert…

            Its the Gun Pathetic Fallacy*

            (*ascribes human, emotional qualities (feelings, thought, sensation) to inanimate objects, as if possessed of human awareness.[1] [2] As such, in the term pathetic fallacy, the word pathetic communicates feelings of two types, pathos (emotion) and empathy (capability of emotion).

            skippy… ***US*** are both the problem and a possible solution… not stuff…

          6. skippy

            @Lambert,vr.s2

            Mental prosthesis is a poor second choice to humanity coming together… we either have society which can come to grips with what is on its palate… or history’s example… collapse.

            Skippy… this time… is different than all the others ie. stored potential of both humanity’s weight, its activity’s over the last 100 years, and the global environment – diminishing like never before.

          7. skippy

            Mental prosthesis? huh.

            The idea that humanity can survive by extension of half ass’ed attempts to solve a problem set. Kinda like economists leaving more than half the data on the floor (if they even took the time to compile what is on offer), so their model works.

          8. skippy

            @Lambert…

            http://www.nakedcapitalism.com/2013/05/the-climate-crisis-in-three-easy-charts.html

            Everything comes second to this… everything~~~ The reason climate change is so important… is that, it is, a ***catalyst*** to a massive amount of potential… biblical like (insert beardo).

            Economics of scale under the auspices of an informed population is the – only way – out.

            Skippy… BTW when is saw petitio elenchi in the comments update margin… I had a feeling… roflmao~

        2. John

          I’m with you. It is wishful thinking to believe this corrupt system will be fixed to serve the people. Mountains and mountains of evidence say it won’t.

          Slow decline, collaspe, whatever happens the rich THINK they will be A-OK and are going to loot the system as long as they can piling up resources.

          Those who think this isn’t coming haven’t gotten out much lately or don’t know any of the millions of people who have lost their once middle-class jobs due to the financial meltdown. No more nice middle class jobs to be had unless you are in your prime or very very lucky.

          Millions of us will be scrounging for food and keeping chickens, especially people over 50 as it is becoming clear corporate America no longer wants to employ older people.

          That, combined with the public section downsizing and the failure of small business to form and hire (falling demand and rising inability to compete with crony capiltalist corporations who are getting ALL the government handouts and preferental goodies and tax breaks)it is a bleak picture for employment in a society that is shredding it’s social safety net.

          1. JEHR

            You are sounding very peevish, Yves.

            I find that even the mention of chickens and permaculture gives a lift to my day that is a nice balance against all the corruption I read about. Flowers in pots on your apartment veranda are happier than anything you find in the financial system. You can even raise tomatoes, herbs and other veggies in pots on your apartment veranda (or out your apartment window).

            It would be very enlightening to ask older folks how they managed to live without electricity, without indoor plumbing, without Wal-mart and without much money and (most pricelessly) without worrying about a financial system that is so corrupt that it won’t stop until no one has enough money to live on even at a subsistence level.

            I am describing the way rural folks lived in my youth (after The Great Depression) and they would be perplexed at our pursuit of money and our desire to go into debt.

          2. Yves Smith Post author

            John,

            I don’t have the foggiest idea what you mean by “apartment verandah”.

            I’ve lived in 7 apartments in New York, one in London, and one in Sydney. None had any place where you could grow anything (well maybe a few herbs in a window sill). Terraces in NYC apts (which I’ve never had) are almost always inset and get no sun. My little terrace in my Sydney apartment was like that. You could put one plant in a corner that did get enough sun to grow. Plus my landlord would have been very much opposed to anything more even if there had been enough sun. The terrace was wooden and any leaks from cultivation efforts would have damaged the planks.

            And TOMATOES? Are you CRAZY? Do you know anything about gardening? Tomatoes require TONS of sun to ripen. My avid gardener father only once (in Maryland with a large yard) was able to grow tomatoes. You need a sufficiently long growing season and a spot that gets enough sun. Any yard with nice trees is unlikely to have enough growing space.

            Yes I get peevish when people blithely offer “solutions” that are totally disconnected from the way most people live. You need time and money to do permaculture, “money” in the form of enough space with enough sun exposure.

            And JEHR, if you can find a time machine and go back to when the US was giving away land to people who’d travel far enough to homestead it, be my guest. The way my ancestors lived before all these modern conveniences (and I have 7 or 11 ancestors who came over on the Mayflower, depending on which genealogy you believe) was by staking out land and farming, which sometimes involved displacing natives, and fishing, which in the Atlantic even now with GPS and weather forecasts and powerful motors is the highest mortality occupation in America. My relatives who lived in rural Maine off after the Depression the land inherited it, and I’d bet that your rural relatives were living on family land as well. By contrast, the later immigrants often had to live in squalid cities and work in sweatshops, or did you forget that part?

            Tell me where you can get arable land in the US by virtue of sweat equity alone. Oh, and not pay property taxes on it, which I think you’ll have trouble financing off subsistence veggies and chickens and maybe a pig.

          3. Lambert Strether

            My grandmother kept chickens in the Great Depression, which wasn’t so very long ago. And very glad the family was to have the eggs.

            Adding, I’m really resisting adding one of my favorite Pink Flamingos clips here…

        3. bob

          An idea man…

          “I became a permaculture designer”

          I’m a doctor myself, I watched MASH.

          Next up “permaculture” with jgordon..how you can turn your yard into a money making garden that doesn’t require any work. Watch us provide no budget and carefully avoid filming the dozens of Mexicans and thousands of dollars of equipment doing all the real work in the background.

          Tonight a 9 on HGTV Brought to you by homedepot

      2. Jim in SC

        Here are three links on backyard chicken farming:

        http://www.npr.org/templates/story/story.php?storyId=101082172

        http://www.backyardpoultrymag.com/

        http://www.newyorker.com/reporting/2009/09/28/090928fa_fact_orlean

        The MidWest and the South are full of places where rent or property is cheap, internet access is available, and no one will think twice about you raising chickens in your backyard. For dealing with Coyotes, I recommend ACME products.

        Incidentally, I think JGordon was also on target regarding playing the guitar as an important life skill. If you live within forty miles of a major city–there are plenty of low cost locales that meet that description–you can teach guitar at rates of $60.00 to $100.00 per hour. It can be quite remunerative. It is also fun.

        1. Yves Smith Post author

          Again, you really don’t get it.

          Moving costs money. You either need to be able to buy or rent when you get there.

          Gardening is a SECONDARY ACTIVITY. How are you going to pay your rent and property taxes and gas with vegetables and chickens?

          Most of the places that have cheap rents have no jobs.

          I can’t believe this discussion. This is as bad as economists assuming a can opener to open a can of beans on a deserted island. You assume people have resources which most people don’t have.

          Learning guitar takes TIME. I’d like to know who who is earning a living these days has time to take up new hobbies. Most people don’t even have time to do stuff which by all measures should take higher priority, like exercise and spending time with friends and family. .

          1. John

            Sorry but what you don’t seem to get is that millions of middle class people have been pushed out of the workforce and can’t get back in. Because there ARE ON JOBS except miniumim wage ones without benefits.

            Paying the rent is now shacking up with relatives and doing the chores and gardening or watching grandma and feeding the chickens.

      3. Gerard Pierce

        Chickens many not be the only solution. In the seventies, Dolly Fried published a book called “Possum Living” which among a lot of other things involved a garden and a rabbit hutch.

        The left over scraps from the garden fed the rabbits, and periodicly the rabbits fed the “farmer”.

        1. bob

          This is again, ridiculous. It ASSUMES you have a garden to feed the rabbits in the first place. And how much “food” does one rabbit provide? One small meal for 2 people?

          That adds up to 365 rabbits in one year, one meal a day. How many “scraps” would be required to feed that herd? What about the other 2 meals?

    2. SScaggs

      I would like to take up for jgordon.

      I doubt that jgordon really expects everyone to run out and buy chickens, but I see the post as embodying two key points.

      1.It is a popular pasttime in america to complain, develop a facile cynicism about everything, and then continue to live the way we have been conditioned to live. We think this is rebellious but it is actually despair.

      2.Most of us are not going to be history altering individuals. Our only real influence in the world is limited to the lifestyle we choose to live.

      It isn’t likely that the system is going to be reformed and most of us have no significant ability to affect that outcome. What we can do is choose to live differently ourselves. You have to accept that your behavior alone isn’t going to have a big impact, but overcoming the egocentric stance of our culture and accepting your relative insignificance is actually empowering as it frees you from so much of the arrogance and ambition that drives our insanity.

      Mark edwards points up the time and energy required to change the inertia of a life: “2 part-time minimum wage jobs, caring for and feeding children, and maintaining their lifestyle”. But surely this is the key problem? People want to destroy the system while maintaining the system and thriving within it. Well you can’t. We realize much of our civilization is insane but we want to maintain our lifestyle and have high social status in our communities. Well you can’t. You have to make a choice about what is really important to you. If you want to satisfy your craving for status and live in the western style then forget the truth you see, stop complaining, and get on with doing what you need to do to fit in and play your part in the insanity. Or you can decide that maybe the point of life isn’t to maintain your lifestyle or seek the envy and admiration of your acquisitive neighbors and choose to live a different kind of life. It isn’t easy and there are all kinds of pressures working against you. Most of the people around you will sneer at you, but it isn’t impossible. It just requires you to be honest with yourself about what you most value.

      And everyone doesn’t have to own chickens.

    3. bob

      You are completely delusional.

      The new american settelers.

      I have solar panels! I am my own island!

      Dare- Try to grow even 10% of what you eat this summer. For better effect, do it without amazon, a car or a garden center.

      You still have 4 hours of daylight on the east coast, better not waste it. That water isn’t going to carry itself, if you can find it….

  6. Chris Engel

    This is partially what explains the trend of corporations not paying dividends out and preferring to reinvest into the company or borrow domestically to make payouts to avoid repatriation.

    The tax holiday stuff is totally absurd, the gall on these companies to use offshore tax havens and then try and push for reprives when they need to bring the money back home (the main reason why tax havens have ever even been tolerated is that the money would eventually come back home and the public would “get theirs”) — it’s really disgraceful and indicative of the modern American oligarchy.

  7. vlade

    “…instead of the typical 35 percent top corporate rate. The idea is that those companies would pump that money into the American economy, especially through hiring workers”
    Muahaha. If you do invest into hiring workers, it’s a cost, which is deducted from your tax base. They can _always_ bring in the money to invest (albeit to invest into capital equipment will spread the depreciation over years, so it could be a cashflow problem. Oops, it’s The Fruit with 1bn of free cashflow a week we’re talking about, right?)

    That said, I do believe that corporate taxes on corporate income should be abolished – and replaced by a tax on cash (or equivalent, i.e. any liquid assets) stash (wherever in the world it’s held), and a witholding tax on dividend (equivalent to today’s corp rate).

  8. Claudius

    The U.S. corporate tax rate is now more than one standard deviation higher than the average OECD country, but the corporate tax revenues is the smallest (between 5% and 14%) as a share of GDP. Corporate tax revenues have diminished in direct proportion to the growth in debt securitization to where the real motivation is tax evasion – as demonstrated by the Apple make-believe need for “debt”. Once again, illustrating the absurdity of tax systems are neither coupled nor standardize to the size of the financial sector, and are substantially weighted with a debt finance bias; a bias that artificially reduces the cost of financing of transactions and investments that otherwise would not be viable (which, in turn, leads to mispricing of assets and risk, aka the GFC).

    Most people know “optimizing” corporate tax (and personal tax) involves the use of offshore tax havens and courting localities and countries for tax advantages (“arbitrage”). But one technique that receives little attention, but has a very pernicious affect, is the understated technique of “transfer pricing”. A tax avoidance method which (despite weak attempts to regulate it -1995 OECD transfer pricing guidelines or the U.S. Internal Revenue Code – section 482) has developed significantly since the mid-1990s.

    Transfer pricing exploits evolve from the fact that an estimated 40% of global commerce occurs within global corporations….40%! An exchange of goods and services vehicle that allows Multi-National Companies (MNCs) to avoid national taxes by manipulating the prices charged for the goods and services it buys and sell (transfer) within its own international entities. It is estimated that several trillion U.S. dollars of tax revenues are lost to national budgets annually through the use of transfer pricing tax avoidance techniques.

    Thought it works well for a range of companies, it’s this type of tax transaction that works best for technology companies such as ‘Apple’, or Pharmaceutical companies such as ‘Johnson &Johnson’. The technique is inherent to the difficult tax assessment of “intangibles” – i.e. transfers of intellectual property, expertise (consulting) and knowledge and skills – it is difficult to “prove” a fair market price for intangible transfer transactions that are not conducted between independent companies more so because it’s also influenced by tariff structures, exchange rate fluctuations and risk profit repatriation policies, and asset capitalization policies.

    Because techniques differ substantially in the mechanisms used to determine or assess objective transactions, it is difficult to get a clear picture of what is really going on. Made more difficult because, incredibly, in the US the burden of proof for transfer pricing allocation – rests with the MNC and not the tax authority (which is diametrically opposite OECD guidelines. Also, in terms of assessment mechanisms, the OECD guidelines focus on determining whether prices are fair. The U.S., by contrast, favors an approach that measures profits – it commonly employs the comparable profits method (CPM) which tries to assess the amount of operating profit a MNC would have earned on a transaction with a controlled affiliate if the transaction had been with an independent company; applying the “arm’s-length principle”.

    Needless to say there are giant loopholes (which are, really, easily addressed) for knowledge-based enterprise such as pharmaceuticals and high tech industries such as Apple to use intangible transactions to shift income and avoid taxes.

    If you have ever wondered what a company logo is worth and why it changes slightly from continent to continent or country to country, don’t ask the Marketing director, ask the CFO – he’s the one that sold it for an, almost, intangible, ten billion dollars or so……

  9. tony wales

    I really cannot believe the level of ignorance of global tax displayed here. The US headline corporate tax rate is 35%, the equivalent UK rate is now 21%.US large corporations do, and have to, operate globally so if they paid 35% it would cripple their competitiveness. That’s a one percent cost disadvantage with a low pre tax margin of 6% on sales.

    I think the offshore repatriation rules have been in place sine 1963. The more pertinent tax question is why the US Congress can’t simplify the tax code so the headline corporate rate is more competitive with other, competing, countries but the tax breaks are eliminated. That would help US companies spend less on tax lawyers to offset the very high 35% impact and more on real productive workers.

    1. John

      Jeez Tony, point us to the list of U.S. corportions that paid 35% in taxes or even close to it in the past decade.

      “The more pertinent tax question is why the US Congress can’t simplify the tax code so the headline corporate rate is more competitive with other, competing, countries but the tax breaks are eliminated.”

      It can never get done because our system is corrupt to the core. So we can talk and talk and talk about what SHOULD be done but it will NEVER be done.

      Accept it and go around best you can.

    2. jult52

      Thank you, Tony Wales. There’s a lot of ignorance being displayed here in the comments.

      The US has an inefficient and unusual corporate tax regime which from firsthand experience I assure you is directly leading to offshoring and an avoidance of job-creating initiatives in this country. The Obama administration, to its credit, actually proposed a sensible reform in the first term but the idea went nowhere. Hopefully, the congress will begin to focus on reform efforts and pass something in the next few years. There’s been a near-consensus on a solution in the tax and finance field for several years (lower rates but no overseas deferral of US tax on foreign income) so it’s not like there is much substantive debate on what needs to be done.

      1. Lune

        You’re absolutely right: there should be no overseas deferral of US tax on foreign income. After all, if corporations are people then they should be taxed like expatriates. But why does this have to include a lowering of their tax rate? Why is that part of the discussion? They already pay a lower share than in most countries (as % of GDP). And growth rates were higher in the past when corporate tax revenue was higher (again as % of GDP). So what is the argument for lowering corporate tax rates below where they already are?

    3. Lune

      Your mention about ignorance displayed here is… ironic.

      If you notice from the article, there were protests in England about corporate tax dodgers there as well. IOW, companies will bitch and moan regardless of what the tax rate is. Indeed, while the headline rate may be high, corporate tax rates as a % of GDP is lower in America than in most OECD countries (including the UK’s). Yet American companies aren’t even happy with that: most of them want — and frequently get — a negative rate (i.e. subsidies). Witness G.E., again from the article. Furthermore, Apple isn’t storing its horde in London. It’s in tax havens with essentially no tax at all. Lowering American tax rates to the UK’s will do nothing to bring Apple’s money back.

      And why shouldn’t the U.S. tax rate be higher? Companies that do business in the U.S. have access to a much larger domestic market, deeper financial pools, and ready access to the best trained workforce in the world, among other advantages (albeit there are disadvantages as well). If you don’t wish to pay a 35% fee on the profits you earn off the American consumer, please feel free to try to leech those profits off some other country. Let me know when you find a $15trillion economy out there.

      P.S.
      American companies also operate with much higher CEO / executive salaries than their peer international firms. This also serves as a competitive cost handicap and yet no company seems to be doing anything about this, even though that’s much easier for a company to control than national tax law. They also lobby against spending for infrastructure improvement which would lower their cost of doing business and improve their competitiveness vis-a-vis international markets. So let’s stop with the fiction that when companies ask for something it’s because they’re so concerned about their competitiveness or their valued workers as opposed to their ability to extract more money for their executives and (a distant second) their investors.

  10. Hayek's Heelbiter

    A very dear friend formerly worked for one of the aforesaid companies. Their job creating efforts after the previous overseas tax amnesty consisted of firing 25,000 people and reward the departing CEO with $190 million (not an order of magnitude misprint, that’s the figure, folks) for his business acumen. Perhaps the country should follow the contemporary French model and double the tax to 70% before the 99% decide to take matters into their own hands and follow the 18th Century French mode instead.

  11. Hayek's Heelbiter

    Hypersenstive mouse pad with a mind of its that sends posts out before I’m finished proofing. “and rewarding” and “18th Century French model”.

    1. Hayek's Heelbiter

      =====
      A very dear friend formerly worked for one of the aforesaid companies. Their job creation efforts after the previous overseas tax amnesty consisted of firing 25,000 people and rewarding the departing CEO with $190 million (not an order of magnitude misprint, that’s the figure, folks) for his business acumen. Perhaps the country should follow the contemporary French model and double the tax to 70% before the 99% decide to take matters into their own hands and follow the 18th Century French model instead.

  12. diptherio

    Some one here recently linked to this excellent documentary by the Dutch production company VPRO:

    A Tax Free Tour

    Definitely worth a watch. It details, among other things, Starbucks’ copyright scheme by which it has managed to show a loss for the last 10 years (in the UK).

    1. diptherio

      In the interests of giving credit where it’s due, that doc is by Marije Meerman, who’s done a number of good flicks on the finance industry…

  13. Phil

    An American citizen based offshore is liable to pay US tax under the US worldwide tax system, whether it is repatriated or not.

    A US company earning profits offshore does not have to pay any US tax as long as it doesn’t repatriate those profits.

    Makes perfect sense.

    1. Massinissa

      Especially when one considers the whole Citizens United farce of Corporations being people, that actual people are still liable for taxes and corporate ‘people’ are not is giving some ‘people’ more rights than others…

      God, corporations being people, even a child would understand the absurdity of that claim.

      1. Dave

        What does the evil corporation do with all of its ill gotten tax free gains? I have visions of Scrooge rolling around in all his money, but how does a corporation do that? It’s not really a physical entity with arms and legs or the other parts of a living organism. How does “it” get any pleasure from this?

        I’m guessing that instead of rolling around in all this excess cash it does something constructive with it. Perhaps this something may involve giving it to others who then pay taxes. Or, possibly it is a sound business management policy of thinking ahead for opportunity or harder times. After all, as a society we do need folks who plan ahead and don’t live from paycheck to paycheck. Or even worse, indulge in deficit spending as if there was no tomorrow. I’m guessing even more that whatever they have planned for it will benefit society more greatly in the long run than flushing it down the political toilet.

        1. Massinissa

          “Perhaps it involves giving it to others who then pay taxes”

          Right, because giving hundreds of millions of dollars to CEO’s while laying off workers TOTALLY stimulates the economy. Right.

        2. Massinissa

          Oh yeah, also they buy up their own shares.

          Which… Doesnt really stimulate much of the economy either.

          Corporations dont create demand, people do. But the corporations have too much, and the people too little. There isnt enough for the corporations to invest in, because consumers are already overleveraged and cannot consume more goods.

        3. TomDor

          “After all, as a society we do need folks who plan ahead and don’t live from paycheck to paycheck.”
          Most people to not make enough cash to avoid living paycheck to paycheck – you know things like food, shelter and energy are not something one can simply cut out of ones budget. I would rather see a country where no-one has to live paycheck to paycheck – but you know….corporations would prefer to push the workers wage down as far as possible – gives the owners a sense of domination and pride to reign over the peasants – gives a sense of omnipotence while they chow down pills to make their dicks hard.

          1. Dave

            As Henry Ford (a money grubbing capitalist) pointed out, the workers need to have enough money to buy his products. A sense of domination and pride along with hard dicks may feel good, but it does not help the bottom line.

            Being fairly old and somewhat travelled and educated, I see a general standard of living in America that is beyond the wildest dreams of those even 50 years ago here and way beyond those who now live in many other countries. Perhaps we expect too much? Perhaps some folks have spent or had their parents spend too much for a “feel good” but useless education? There are problems in our society, but they will not be solved by wallowing in envy and stealing from the prosperous.

            And Massinissa: these CEOs are then required to pay personal income taxes on those hundreds of millions. They were paid all of this money because the shareholders felt (mistakenly in many cases) that they were worth it. So if you don’t like the salary or the layoffs, sell your stock in that company. The laid off folks should be able to find other jobs due to their valuable skills, right?

          2. diane

            For one thing, Dave is supposedly too ignorant and uneducated to understand the concept of Majority Shareholders, soothing the masses that there are no Scrooges in operation. For another, Dave eppears to be a likely Scrroge himself, so what can expect but his ugly and chilling commentary.

        4. bob

          Perhaps..maybe..not one fact in there.

          If you seek facts, look for the GIANT ball of cash sitting in the caymans. That’s where its going, among other places.

  14. clarence swinney

    REVENUE
    The Obama 2014 Budget projects the National Debt to drop by $1.8 Trillion over the next ten years.
    The means spending cuts of $4.3 Trillion. It calls for $580B in new tax revenue.
    Spending surged from two wars and Part D Medicare and financial meltdown.
    The Treasury will need to raise revenue higher than the historical average (20% of GDP)
    to fund the massive Bush debt (+6100B) and address the aging population and $2T more to finish the two very dumb wars.
    Spending has hit a 60 year low yet we continue to create huge deficits due to lack of revenue.
    Ten Simple Items
    We need to hit historical 20% of GDP in Revenue
    The 2000s were a Lost Decade for Tax Revenue (The Rich got much richer)
    The 2000s saw an unusual massive increase in spending-180B to 3500B) +90%
    We need $4T in future unfunded dumb war costs
    Unprecedented contraction of the Public Sector
    Rapid Aging population make historical Revenue and Spending Averages obsolete
    Raising Social Security cap is long Overdue.(means test it)
    Non-Defense Discretionary Spending at lowest level in decades. Since 1962.
    The American people wart to keep or expanding on most programsEWe have cut enough now, Now is not the time to cut more. Raise Revenue. Forbes new Wealth list added 212 New Billionaires.
    In a dormant economy.!
    Most copiled from Jon Perr in crooks and liars. .org

    1. Massinissa

      Swinney, you might want to change your name to ‘Obama Sponsored News Update’ or something like that. It would be very fitting.

  15. Wat Tyler

    Not all financial media are celebrating. After discussing the tax consequences of the Apple loan for buy back, the Economist concludes by saying:

    “In short, the whole deal is linked to tax distortions; the treatment of repatriated cash, debt versus equity and capital gains versus income. The ideal tax system, as we have argued many times, is neutral between sources of income. The tax deductibility of interest played its part in creating this mess, both in the corporate and mortgage markets. Why should the taxpayer want to encourage higher leverage, when high leverage is the root of financial crises?”

    Jim

  16. allcoppedout

    I thought you were a little hard on the chicken farmer Yves. My own chickens, fruit trees, gold excreting bacteria and petrol from air machine all run well at the bottom of the garden here in Cloud Cuckoo Crescent, tended by friendly Fairies.
    There is still probably enough land for us to return to subsistence plots and listen to each other playing the guitar badly. This was no doubt the Mugabe Plan for Zimbabwe. Quite why our economies are so stupid that we can’t sensibly distribute the resources of Robot Heaven, and the return to dirt-scratching so tempting is a matter of some interest.
    We used to hear a lot about subsidy in industry as a bad thing – those terrible government subsidies to Aerospace crippling honest Joe Boeing (subsidies provided by military research). Now we have rewritten subsidy-speak and practice through stealing tax, mis-stating profits through transfer pricing and lick-spittle justifications like the laughable Laffer curve.
    The USA lied over many years about “free trade” and like many lies this one has many contradictions, not least those of the road to monopoly and cheap labour leading to not enough money to buy goods made. The UK was along for the ride as the bag man. JGordon is right – at least if talking ironically = the chickens have come home to roost. Susan Faludi had it right – we’ve been screwed.
    The way forward is global regulation much as international sports are run, but without the bribes,lack of transparency and registration in Switzerland. Apple is just another example of how little we understand the term ‘level playing field’.

    1. diane

      I thought the point Yves made, that millions are totally unable to do such, was well deserved. To gloat and pat oneself on the back about it, for their Responsibility Shoes – as if all were able to do such – is actually stunningly THOUGHTLESS of those unable to do so (certainly 99% of the millions who rent apartments) as they rapidly fall through the cracks.

  17. TomDor

    Corporations are simply usurping the highest power a nation has – that is the power to levy taxes. They are trying to leverage that power to their advantage and couldn’t give a shit about those stupid humans and their common good or the upholding of law and advancement directed toward making a more perfect union.
    Corporations do not posses conscience- I think Thomas Jefferson said something along the same lines.
    Corporations are creations of man – the free market proposes to give them freedom to roam and predate however they would like. Its sort of like letting the starving wildcat or the massive angry gorilla out of the cage at the zoo… so what if they destroy the visitors because, well because we set em free. Freedom Good said the unthinking freedom good.

  18. econ

    Excuse me for my ignorance, there are no truly American companies in the world of a global economy but there are global companies who operate from the USA and elsewhere. Are there sovereign countries? Have they been replaced?

  19. Elliot

    “The idea is that those companies would pump that money into the American economy, especially through hiring workers.”

    Hahahahahahaha.

    re: city chickens & permaculture… Climate as well as lack of land/time/moneyed parents to inherit from preclude that as a viable alternative for most people. Raise your hand if you have a year-round frost free climate for your produce, a root cellar to store it in, the knowledge to raise chickens healthily, the ability to slaughter them hygenically.

    I actually *am* a farmer, in a northern clime, and have a greenhouse, and I don’t have fresh veggies or fruit year round, even though I have all the space I could want. Telling apartment dwellers to get a few chickens and raise their own food is cruel as well as stupid.

    1. bob

      It could be population control. Why do most cities have rules against having chickens? Disease.

      “my neighbor keeps slaughtering chickens and getting the blood all over my nice white painted fence. My kids started finger painting with it and now they have been sick for a few weeks. He also has a giant stinking pile of chicken $hit right next to my window, the smell of ammonia is making my eyes water”

      Freedom!

  20. PBlacque

    This post is odd given the blogger’s MMT credentials. It would be better to have a frank discussion about the role of taxes and Treasury bonds in the US economy.

    What are taxes for in reality?
    What do you mean by “fair share”? Share of what?
    Are you implying that taxes fund spending in the US? And that by AAPL not paying its “fair share”, it actually takes spending away from the rest of us?

    Well … all that sounds like MSM …

    I hope these corporation “tax avoidance” efforts will shed light on these questions … only then will we be able to tackle issues of budget deficits, debt, taxes, etc. … but the truth could be too explosive for us.

    1. bob

      Even with MMT, the money is leaving the US.

      It’s a huge drain. The money is leaving the country. Not just the tax on it…all of it.

      1. Outsider

        Yeah, USD now becoming a pariah currency. They have to come home some day when Foreign Exchanges start to pile up with yesterdays toilet paper that nobody wants to hold anymore. The longer they hold onto it and don’t spend back into the US the more it is losing its value so they should pay their tax and bite the bullet. Every foreign country is now dumping the USD for international settlements and all of the excess have to come back home someday….after deflation there will be a serious inflation, and it will make Zimbabwe look like a joke.

        1. bob

          Yes, naturally. Any and all situations resolve to hyper-inflation.

          It’s the second law of economics.

          If you have any USD’s you don’t want send them my way.

  21. spooz

    Regarding the $299 billion repatriated under the Homeland Investment Act of 2004, 92% of it was used for dividends and share repurchases, not jobs:

    ““Repatriations did not lead to an increase in domestic investment, employment or R.& D., even for the firms that lobbied for the tax holiday stating these intentions,” concluded the [National Bureau of Economic Research]study by three economists, including a former official of the Bush administration who took part in the discussions leading to enactment of the plan in 2004.”

    http://www.nytimes.com/2009/06/05/business/05norris.html

  22. Outsider

    Why don’t they just bank with HSBC and launder it back into the US? Come on Apple… you have to bank with the City Of Londons best-in-the-business to get your money past the US government…..get with the program!!! London and Wall Street must have a tax free wormhole you could hire for much less than even the 5pc your lobbied-for Bills could achieve. Remember; Too-Big-To-Fail means Too-Big-To-Investigate or Prosecute. Only a Wall Street Exec can get you the waiver you need to get this show on the road, stop lobbying in Washington for something you could purchase in New York on the down-low much cheaper. Wall Street would do it for 250mill and only even have to pay a 50mill ‘fine’ if in fact they got caught…it’s a no brainer, guilty or not guilty nobody would have to go to prison, just cross somebodys palm with a little silver.

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