First of all, when Apple pays income tax in most countries, they will receive tax offset credit in USA so they don't have to pay tax twice on same profit.

But Apple doesn't even do this. The whole point of having Irish subsidiary is to give it intellectual property which is the real money maker here.

What happens then is quite simple. Subsidiary company in Ireland is charging Apple in other countries huge licensing fees. In fact, so huge that it amounts to 100 billion dollars. Licensing fees are tax deductible so Apple is basically avoiding paying corporate tax all over the world because licensing fees and royalties eat up all the profit.

Of course, Apple as a group of entities is making billions in profit but as far as overseas tax authorities (Australian Tax Office, UK Revenue & Customs etc) are concerned, Apple is barely breaking even therefore is not paying its fair share of tax.

Obviously this whole scheme comes at cost. All these billions are basically stuck somewhere in Ireland and can't be used. They just sit there and earn interest.

Eventually money will have to come to America. How? Irish subsidiary will pay dividends to parent company Apple Inc. At that point all these billions in profits will get finally taxed at ~35% by IRS.

Congress is just asking Apple when they are going to bring to USA all those profits and what's the point of deferring it. Apple is saying, we will bring it when you lower our tax rate. They are basically blackmailing the government.

edit: I was wrong by saying Apple doesn't pay corporate tax in USA. I modified my comment to reflect what I have learned from comments bellow.

Cook explicitly denied this in his testimony. Are you simply assuming Apple is doing the same thing some other companies have done, or do you have evidence they have done this?

See here for references and one view http://blogs.reuters.com/felix-salmon/2013/05/21/tim-cooks-i...

Is this really true, though?

http://www.bloomberg.com/news/2013-05-23/apple-tax-rate-igno...

Among various other points it says Apple paid 6 billion in taxes last year which sounds unlikely if they were 'barely breaking even'.

I don't have any trouble believing that a large multinational has the means, opportunity and incentive to exploit every bit of every tax code it is subject to in order to minimize its tax liability. I'm just finding it difficult to get a handle on the basic issues between the 'zomg corporations, our evil overlords' and 'leave Britney/Apple/the free global market alone' rhetoric. My vain hope is to somehow summon up some grellas-like entity who is knowledgable in these matters and will provide a bit of level-headed insight.

What they really do is that they don't pay their rightful share in other countries such as Australia and UK where they transfer profits to Ireland through phony IP claims.

For example, their net profit margin in Australia was less than 2% in last financial year which means they paid only $40 million in tax on revenue of $6 billion.

All that profit which should have been taxed in Australia and in other countries now sits somewhere currently untaxed in Ireland.

Not that we're going to get much further in this, though, given that the submission dropped off the front page and into the dark recesses of HN a few minutes ago.

Note - my answer to that is very, very quickly you would find that successful US companies re-incorporating in other countries, in much the same way wealthy Americans will sometimes give up their US citizenship.

Because the law doesn't say they have to. That's enough for me.

I'm a left-wing, pro-high-tax guy, but I can never understand people who get angry at corporations for obeying the law. Besides being nonsensical, it's actively counter-productive. So long as people are focusing their attention on the corporations, nobody is pressuring the politicians to fix the actual problem.

But a corporation obeying a law they helped draft, lobbied for, water down, or prevented from changing is somewhat different in my opinion.

But I don't think the objections (or counter-arguments) to Apple's behaviour as simplistic as that - it's just I don't quite understand what the source of the controversy is and was hoping that someone else did.

I don't think any developing economy could possibly agree to such a scheme - it eliminates a less-developed economy's ability to compete for investment against established incumbents by offering tax incentives - I think this ends up translating to unacceptable protectionism for any non-economically-dominant country looking to attract investment and compete in the global marketplace. There'd never be a 'Celtic Tiger' economy under such a scheme.

US States, incidentally, compete for business on a similar basis.

3. You are a citizen or resident alien of the US whose physical absence from the US constitutes a minimum of 330 days out of any 365.

When I lived overseas I knew US citizens counted the number of days they spent visiting family to make sure they stayed under 30 days each year.

Any royalty for patent, trademark, design and copyright licenses should be deducted in the country where the patent is awarded, not where the owner of the patent happens to be situated. This way all the shenanigans would come to an end.

As a European, I am quite appalled that Apple almost doesn't pay tax in Europe either. Apple's European profits are compareable to their American profits, http://investor.apple.com/secfiling.cfm?filingID=1193125-11-....

Apple is competing with European businesses for customers and through European patent and trademark rights Apple is awarded competitive advantages in the European market. Not paying tax is another advantage. So what if the research is done in America? The European patents and trademarks apply in Europe. Let them pay tax income tax on American profits in America, on Irish profits in Ireland, German profits in Germany.