> "This case was not about how much tax we pay, but where we are required to pay it," Apple said in a statement.
We have come to accept that certain tax payers (ie. corporate or well lawyered individuals) can chose where their revenue should be taxed. It think it has become obvious that this freedom distorts the spirit of taxation in most (all?) countries. I think it is fair to prevent double taxation across countries but IMHO revenue should be taxed as close to the source (revenue-generating-event) as possible.
> "We're proud to be the largest taxpayer in the world, as we know the important role tax payments play in society."
The old PR line Apple (and others) have been repeating ad nauseum... No one questions your place in the ranking, people care about the proportion (rate) you end up paying. If you're among the largest companies in the world by revenue it's not surprising that you'd be among the largest tax payers.
The problem is that the current system for international taxation of trade among daughter companies was devised during a time when international trade consisted of things like bars of steel, for which there is a well-defined daily market price, so it's easy to audit and prevent companies from profit-shifting to avoid taxes. Today, daughter companies trade things like 'the Google search algorithm' and 'the Nestle brand' - IP, which by definition is unique, so no market price exists, so auditing it is impossible, making it a free-for-all for multinationals to get taxed wherever they want.
There are proposals for updated international taxation rules to prevent this issue - for example this one: https://en.wikipedia.org/wiki/Formulary_apportionment The problem is to get the OECD to agree on updating this.
This sounds like a way to tax corporate profits in proportion to the amount of VAT, property tax, employment taxes, etc. already paid in each country.
Wouldn't it be simpler just to tax those things? We already collect those taxes, and can set any rates we wish. Why not just abolish the the tax on corporate profits?
I don’t necessarily agree with your conclusion, but I do think it’s important to emphasize that Apple is collecting VAT across the EU and paying large quantities of money to all EU countries as a result. The amount of tax revenue generated by VAT will be an order of magnitude larger than income tax, since the former is on revenue and the latter is on profit.
That is the other argument, and definitely makes sense, but that's also where things get complicated.
Normally you tax profits, which are gross revenue minus cost of goods sold (and yeah, I'm oversimplifying a bit). But in Europe, Apple has only profits, no cost of goods sold at all, since the costs are incurred in the USA. This would seem to lead to super-high taxes everywhere else, where profits are close to 100%, but huge losses in the USA, where the costs for the whole world aren't met by enough gross revenue to cover them.
To avoid that, the European entity takes on a share of the costs by "buying" from the USA entity. And that's where the games come in. What are they buying? The physical goods? Are what markup? Are they also buying the advantages that come from the Apple name and logo?
They can basically set the cost of that IP to whatever they want, and therefore show as much or as little net profit as they choose. Which is what they've been doing. Again, oversimplifying a bit, they recorded all European revenue through Ireland, and set the cost of product + IP + ad share + everything else so high that the net profit was very, very, very low, and sad that very, very, very low number is what they had to pay taxes on.
You could certainly make that argument but with a multinational company with sales in every country it's not exactly obvious where the money is "made":
Scenario A: Apple (USA) pays $200 for an assembled iPhone from their Chinese manufacturer. Then they turn around and sell the phone to Apple (Europe) for $1000. Apple (Europe) then sells the phone to a customer for $1000. Apple (USA) records a profit of $800, Apple (Europe) records a profit of $0.
Scenarion B: Apple (USA) pays $200 for an assembled iPhone from their Chinese manufacturer. Then they turn around and sell the phone to Apple (Europe) for $200. Apple (Europe) then sells the phone to a customer for $1000. Apple (USA) records a profit of $0, Apple (Europe) records a profit of $800.
In scenario A the money is "made" in the USA. In scenario B the money is "made" in Europe. Apple argues that since they are paying taxes on that money in the USA, they shouldn't have to double-pay taxes to Europe as well. Europe disagrees because they want a slice of those taxes.
(Note that no complex IP transfer schemes are involved here, it's solely a question of which entity records the difference in the retail price of the phone vs the cost of goods sold. Also note that in either case, sales tax/VAT is paid to the appropriate country.)
It gets even more complex and game-able when you consider how easy it is to shift deductible expenses to different locations. Suppose you fix things and force Apple(USA) to sell iPhones to Apple(Europe) for $600. What's to stop Apple from moving $400/unit of debt payments to their European subsidiary?
> IMHO revenue should be taxed as close to the source (revenue-generating-event) as possible.
What is the source of the revenue of an item sold in country A, manufactured in country B, and designed in company C?
What if it was shipped into country A, but the shipper has no nexus in that country? What if it was manufactured in country B, but the designer has no nexus in that country?
Add in parts made in one country, and assembled in another for more fun.
The new US corporate tax plan has an interesting approach of AMT on corporations of X% of global income or Y% on US income, whichever is more, with AMT credits for foreign taxes paid; and the income doesn't need to be repatriated to be taxed. (IIRC, X is 10, Y is 20). Of course, that only is effective if the company is US homed, if it only has a US subsidiary, that can't be used to levy a worldwide tax.
I know it more complex then I imply, yet, I find it odd that the relationship Apple has with it's far eastern suppliers seems to raise less problems (in their tax jurisdictions)... Why does Europe accepts an arrangement that doesn't favour itself (as a whole - since I'm sure .ie is getting a good deal, or they wouldn't do it)
We have come to accept that certain tax payers (ie. corporate or well lawyered individuals) can chose where their revenue should be taxed. It think it has become obvious that this freedom distorts the spirit of taxation in most (all?) countries. I think it is fair to prevent double taxation across countries but IMHO revenue should be taxed as close to the source (revenue-generating-event) as possible.
> "We're proud to be the largest taxpayer in the world, as we know the important role tax payments play in society."
The old PR line Apple (and others) have been repeating ad nauseum... No one questions your place in the ranking, people care about the proportion (rate) you end up paying. If you're among the largest companies in the world by revenue it's not surprising that you'd be among the largest tax payers.