Imagine Samsung builds phones in China. It's chinese subsidiary has to pay Chinese taxes on the profits from selling those phones. But it doesn't have to pay income taxes to the US on them.
Now Apple builds phones in China. It's Chinese subsidiary has to pay China income taxes on the profits from selling those phones. Now it also has to pay and additional 40%+ income tax combined to the US & the state of California, all because the subsidiary is owned by Apple USA?
Samsung would say, thank you US tax code! Our high end Galaxy phones can now sell for substantially less than iPhones and we'll get even more market share!
The way things are today is and enough. Apple still owes that 40% whenever the subsidiary pays those profits back to Apple US. Hopefully they'll pass a repatriation bill so the federal rate will drop to 12% or so (20%ish with CA state income tax), and Apple will bring the profits back.
You should really think about whether corporations should pay any income taxes at all. Profits are either reinvested in growing the business (and creating jobs), or paid to shareholders, who already have to pay taxes on them. Double taxing profits before they can be paid to shareholders, or single taxing them before they can be reinvested, is a significant disincentive to investing in the US. It's trapped trillions in US capital overseas.
But my point is rather than trap US capital in overseas bank accounts earning limited interest, it's far better to have it brought back to the US and invested directly in businesses (or returned to shareholders).
Don't confuse the taxes levied on a US citizen's income when living abroad with Apple's situation.
Apple is a US corporation.
One commenter appears to have assumed the former, the person replying assumes the latter.
http://www.afr.com/business/accounting/irs-chases-us-citizen...
I know someone who is giving up US citizenship on return to Australia for this reason.
Which is exactly what I meant, you are paying the membership fees whether you use the services or not. The US govt knows that, if you dont like you are free to give up that passport which I am sure you wont.
It's not that simple.
Not that I think it's a good idea to get rid of borders today, just that a natural extrapolation of western morality, which favors choice over birth, leads you down a path to a borderless world.
The US govt knows that most non resident US citizens even if they dont like paying taxes are still going to pay it because those citizens still want to be part of club US.
But the overseas profits were earned outside of the US by non-US corporations, so why should they be taxed in the US? If I buy shares in Samsung, it doesn't suddenly have to pay 35% of its Korean income as taxes to the US.
IIRC, the US considers corporations as people. Am I wrong?
If I am taxed by the US for every single penny I earn regardless of source, why should not US Corporation LLC Inc? We are both people. We both have income. Perhaps we both have foreign bank accounts. Every inch of my income gets taxed but US Corporation LLC Inc gets to stash big monies with no regard? I am confused.
If the US corporation directly accumulates income overseas, then it would be liable for US income tax as well.
It's a lot easier for a large corporation to arrange its affairs in this manner than a natural person, though.
You actually have it better than the corporation!
Only few politicians were against really knowing how the law will play. While those who push the law wanted all the countries involved to simply report on USC, the report itself is very complicated and confusing. Result? Majority countries that signed up for FATCA simply stopped opening USC account and shut down all accounts that belong to us citizens.
Two of my friends shut down their legitimate companies in Hong Kong overnight because they didn't have bank account anymore. Another friend started working with HK citizen so that he will represent him on paper and got screwed up out of his business. Result -- discrimination against USC around the word in terms of banking and less competition around the world from us-people.
Dutch citizen working and living in the US does not file taxes in The Netherlands. US citizen living and working in The Netherlands does file taxes in the US.
I dont think either the individual nor corporation should be taxed on overseas income but if you disagree that's fine, but at least put forward a non crabs in a bucket style argument.
When I worked for US corporates I had to get a US ITIN, and then fill in some paperwork annually and/or at the start of each job. The paperwork (W8BEN, I think) told Accounting not to collect tax in the US, because the earnings would taxed in the UK under a reciprocal treaty.
The US is one of the very few countries to demand that US citizens pay tax to the US gov on all their earnings, and then pay tax again to whichever country they're resident in.
This tragic/hilarious asymmetry between ordinary citizens and corporations says a lot about the balance of power in the US.
The old loop hole used to be that if you were (Or intended to be) non-resident for 2 years or more you didn't owe taxes to Canada (you would need to do a deemed disposition of all your assets for tax purposes though). But then you couldn't vote either...
And keep in mind that the vast majority of countries have tax treaties with the US such that you'll get tax credits for foreign taxes paid. You'd only pay taxes in both countries if you're living somewhere with lower taxes than the US.
And we shouldn't have any of it.
If you think 50% is a reasonable tax on investment, then fine. But don't pretend it doesn't exist.
Given every citizen $1k like in the futurama episode. Or use it to fund meals on wheels for a century.
They don't? That's news to me. How do you invest in a U.S. company without bringing the money into the U.S.?
"can already make a wide range of investments on a tax-free basis, but cannot purchase their own corporate stock or invest in their own businesses, such as by building a new plant. Foreign earnings used for those purposes would instead be treated as repatriated and subject to normal corporate tax rates."
Apple can take the accumulated profits it stores in Apple Ireland that is currently invested in Irish/european banks, and invest it in US banks. And it probably does.
But it can't pay dividends with that money to shareholders, or it will be hit with 40%+ income tax rates (CA+US) on it.
And it can't invest it directly in Apple US to build a campus or R&D center, or factory, without paying 40%+ income tax rates.
Apple says Apple Ireland has no income since all of its profits go towards paying licensing fees to Apple US. So it's income for Apple US, but they haven't paid the tax on it?
Right now that money seems to be in limbo with no one having paid any tax on it. If Apple wants to recognize that as US income, surely they should be paying the tax on it. But let's not create some tax holiday so large companies can pay zero tax on foreign activities.
Apple spends hundreds of millions of dollars designing the iPhone 7 in Cupertino, and then billions marketing it.
It makes it in China, spending tens of billion to make it for an average unit cost of $300.
It has subsidiaries in many foreign countries that sell it for an average of $600.
Where should the profits be calculated? Should all net profits accrue to Cupertino, so that no foreign subsidiary makes any money? That doesn't make sense at all and no US tax authority has ever tried to make Apple account for profits that way.
And think about what happens under a system where foreign subsidiaries have to be rolled into the US tax calculations. Apple has to pay 40%+ of that net margin to the US and CA in income taxes. So their effective unit cost of the iPhone 7 is now $420. It now only has $180 in net margin to pay for world wide sales, marketing and R&D, so they have to be tempted to raise their prices substantially.
But Samsung gets to make a very similar phone using very similar parts for $300. They don't have to deal with world wide tax systems, so if they price their phones at $600 their Korean taxes will only be on a fraction of the $300. They can even cut prices if they don't need margins as high as Apple.
This is the perfect tax system if your goal is to sell more Samsung phones and fewer iPhones. I'm sure it would be great for the US economy.
The whole reason why companies keep money overseas is because they are waiting for a tax amnesty deal.
But if they knew that no tax deal was EVER coming, then they'd be more willing to bring it back over.
But right now we have high corporate rates. We double-tax the profits with an average rate of around 50% when paid out as dividends (whether you are in the lowest or highest bracket, little difference). We single-tax reinvestment of the profits at around 40% with state income taxes included.
What about on the capital gains that results if the money is used on stock buybacks instead?
If the corporate rate goes to 0%, capital gains and dividends should be taxed as ordinary income, and the top income tax brackets should be pushed up to their historic 1950's levels, and the profits going out to foreign investors needs to be taxed somehow. Trickle down clearly doesn't work, and we need to start fixing this situation.
Jesse Drucker wrote a lot about such tax maneuvers during his years at Bloomberg News. An overall link to his work is here: https://www.bloomberg.com/authors/APuiS-bL1Fc/jesse-drucker
What actually happens is Apple sells product to international subsidiaries to sell in their countries. In some cases international subsidiaries build products and sell them to Apple US and other subsidiaries.
The profits from international sales and production are profits in the subsidiaries that sold or made them. They aren't taxable in the US until those subsidiaries pay dividends to their owner, Apple US. Given that the US and California corporate income tax rates combine to equal 40%+, Apple US chooses not to take dividends from the subsidiaries at this time, and allows the profits to accumulate in savings accounts overseas.*
*this is a simplification of course, but basically accurate. One thing Apple does is funnel lots of the subsidiary profits to Apple Ireland, because Ireland's tax rates for the bank account interest is extremely low. But it all works out the same as Apple Ireland is a subsidiary of Apple US, and Apple US can't touch those profits without losing over 40% of them to US/CA taxes.
They just have hired a bunch of lawyers to tell them how to do it so that it is legal.
By the way, when you talk about selling product to international subsidiaries you are actually talking about putting their IP ownership in international subsidiaries and then having the American subsidiary pay licensing fees so that no profit is made in the US.
It's expected if a repatriation bill passes, Apple will pay out a special one time dividend to shareholders, and some think it will be as big as $100B.
Asking a genuine question is not reason for downvote.
Rather than letting obviously wrong statements stand unchallenged people just downvote them. There is no obligation to explain.
Why can't you stop spreading falsehoods?
Either way - you asked why you were downvoted, and now you have an answer.
Got it thanks.
There you go. So even your claim that I'm making things up is false.
Intellectual honesty is a currency around here.