Apple takes advantage of no loopholes. By law profits in international subsidiaries aren't taxed in the US until they are paid to the US company. Apple is simply keeping the already taxed profits overseas in the lowest tax jurisdiction until the US gives them a repatriation discount.

We clearly have different definitions of the word loophole. They are moving profits around "creatively" in order to pay less than the corporate tax rate. Why should the U.S. have to give a repatriation discount when they have already paid a much lower effective tax rate than many other corporations?

There is no "repatriation discount". It's tax deferral just like a 401k or not selling profitable stocks at the end of a year. And Apple pays higher tax rates than most multinational corporations.

Apple can't return their foreign profits into the US or they lose this deferral, so where should they keep those profits until they do? Germany? France? Why on earth would you keep your money in higher tax countries? Why wouldn't you keep it in Ireland or the Channel Islands instead? It's not illegal, it's not even unethical.

It would be the height of stupidity to leave those profits in a high tax country. And the taxes they save are relatively minor overall. It works like this.

Apple earns about two thirds of it's profits in foreign countries. Over the last decade or so that's been around $225 Billion. They've paid about $25B in income taxes on those amounts (we'll ignore the huge amounts of VAT and employee taxes they've paid), so there is about $200B left.

If they brought it all back to the US, they'd owe the state of CA around $20B in taxes, and the Federal government around $63B in taxes. If they paid the $117B remaining as dividends, their shareholders would pay over $20B more in state and federal dividend taxes.

Let's recap. They made $225B, bringing it all back would mean mean various governments would get $128B in taxes, and the owners of the company $97B, a tax rate of over 60%.

So instead they keep the $200B in the lowest tax rate location possible while they wait for a US repatriation holiday with lower tax rates. They might earn 5% on that money, or $10B a year. If they kept it in a high rate european country, they might pay another $2B a year in taxes on the interest, but instead they got a deal from Ireland where they paid less than 1%. So they save $2B a year, but they will eventually pay nearly $100B more in taxes when they repatriate it. That's trivial in the grand scheme.

And that was a screaming deal for Ireland, because they didn't have to pay anyones unemployment benefits, or build any roads, or give Apple any "incentives" to build something. Ireland just let them make huge bank deposits in Irish banks, which turned around and lent the money out again, mostly to Irish companies, which created a massive amount of jobs and more taxes.

Not only is Apple doing nothing wrong, but they are doing a great deal of good too.

You are mixing a lot of things together and it's making it confusing for me.

Dividends, income taxes are a separate matter. If you think the combined tax rate of corporate + dividend + income taxes is too high, then you should say that directly and have the discussion be about that.

This discussion has been about whether Apple is taking advantage of the tax code in order to not have to pay the 35% federal corporate tax rate. They could easily bring things back to Nevada (they do already to some extent is my understanding) and avoid the California corporate tax.

So all that being separated out your argument basically strikes me as: the corporate tax rate is too high so of course Apple is going to take advantage of tax shelters in order to avoid paying it.

I think this story is getting people upset because multinationals should not be free to leverage countries against one another in order to avoid paying corporate taxes. On paper Apple is a multinational corporation but both you and I know that it was American taxpayers who educated most of their employers. It was American taxpayers who provided a safe and prosperous environment for the corporation to flourish. And therefore, morally speaking, if the U.S. wants to tax Apple at a rate of 35%, then it should be able to. Unfortunately the world's tax codes have enough complexities still in them that all multinational corporations can avoid paying these taxes, while smaller corporations such as the one alluded to by the first comment in this thread do not have the capacity to avoid the taxes. This is what strikes me as against the "spirit" of the law. At the very least, multinationals should be more white-hat: sure, find and exploit complexity in the international tax code. But then you should report these things to the federal government. Maybe if there was a bounty :)

Okay, let's start there: pass a law to require companies to report these tax loopholes.

Please explain the difference between "tax loophole" and "tax law."

With a so-called "general anti-avoidance rule" (GAAR) https://www.gov.uk/government/publications/tax-avoidance-gen...

Effectively if your tax arrangements are weird enough they have to be submitted to a judicial-like body to determine whether they are for some sort of legitimate business purpose or purely for the purpose of tax avoidance. An example: https://www.gov.uk/government/uploads/system/uploads/attachm...

"Paragraph C5.6.7 of the Guid ance states “[the GAAR] rejects the proposition that taxpayers have unlimited freedom to use their ingenuity to reduce their tax bills by any lawful means"

"The reward was structured in the following way: a purchase of gold for the Employees was funded by the Company; that gold was immediately sold by the Employees ; the Company’s liability to pay the third party gold supplier was settled by the Employees in return for a director’s loan account credit in favour of the Employees; in connection with the purchase of the gold a long term obligation was created under which the Employees were required in the future to pay to the trustees of the EBT an amount at least equal to the purchase price of the gold (plus indexation)."

Obviously this arrangement is nonsense and is purely for tax avoidance, so the GAAR cuts through the complexity and rules it unacceptable.

How is this different than "we will make [legal thing] illegal if all it does is save you money"?

Nothing Apple does violates GAAR. It pays all the taxes it owes in every country it does business in, then it takes the remaining profits and moves them to a low tax location because repatriating them to the US would cost at least 40% in additional taxes.

Really cool thanks for the pointer! Has GAAR been effective in the UK at preventing tax havens?

Apple were apparently able to consider both Jersey and the Isle of Man (both British Crown Dependencies) for substantially reducing their tax exposure, so it's presumably questionable, but this is the first I've heard of GAAR. The UK Parliament has the ability to create primary legislation on any matter it wishes in these regions, even if by convention it rarely does, and Jersey and the Isle of Man have had arguably justified reputations as tax havens for a long time in the UK.

One only needs to look at the other leaks in this dump to see the attraction of these locations (Formula 1 driver Lewis Hamilton stashing his private jet on the Isle of Man to avoid a substantial VAT bill etc).

Exactly. Tax loopholes are like exploits. If they were all enumerated somewhere nicely then we could just patch them up.

If you're planning on using exploits, you keep try and them secret. Once they are common knowledge they get patched (hopefully).

What Apple does is exactly what the US Tax code wants them to do, nothing secret about it. If it were to repatriate it's foreign earnings every year, it's tax rate would skyrocket from it's current 24.6% to around 50% (leaving less than 30% for shareholders after dividend taxes).

"Nothing secret about it" This is false. From the NYTimes article https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey.... “For those of you who are not aware Apple are extremely sensitive concerning publicity,” wrote Cameron Adderley, global head of Appleby’s corporate department, in a March 20, 2014 email to other senior partners. “They also expect the work that is being done for them only to be discussed amongst personnel who need to know.”

Every accounting firm does all it's work under NDA. Apples public financials document everything you want to know.

1) They make huge foreign profits and pay substantial income taxes to those foreign countries. 2) They don't repatriate the remaining profits so they don't have to immediately pay the massive US taxes they'd owe if they did so. 3) They record a tax liability for the repatriation taxes they'll owe when they bring the money back. 4) They document they keep the money offshore in the lowest possible tax rate location, as is their legal right, so that they minimize the tax on the interest their funds earn, which is relatively trivial by comparison.

The Paradise Papers doesn't tell you anything other than the specific location. The only thing that would be unethical or immoral would be if they kept the money in London, Paris, or Bonn, because they'd be paying higher taxes on the interest (not the profits) for no reason at all. And since it's not their money, and belongs to shareholders, that would be very wrong.

I've been under various NDAs, and I don't hear anything about keeping things "need to know" within my own organization. This is clearly much more secretive.

Please point to a reference to the isle of jersey in Apple's public financials document. I want to know about evading corporate tax by rerouting profits to tax havens.

1) Most non multinational corporations produce both corporate and income tax revenues. Why shouldn't Apple? 2) Ditto 3) This is like apple writing "IOU" on a piece of paper. That money could be getting used to fund schools, to rebuild infrastructure and it has a time value. All of which Apple is capturing.

You seem to think that money which should be getting taxed by the corporate tax rate somehow "belongs" to the shareholders in some ethical (not legal) sense, and I think this is the root of our disagreement. Ethically, Apple is an American corporation and it was American taxpayers who allowed the company to flourish. Perhaps also some European countries played a role here. Therefore if they want to impose a corporate tax they should be able to, separate from the income and dividends tax.

The whole problem with all of this is that it's very hard (and maybe even intractable?) to define in advance what a "tax loophole" is. If it was easy to define then we could just write it out of the tax code.

I think the only way is for companies to make strong commitments to doing so, so in the case of future leaks like this or further investigative journalism, we would all have something to point to.