Tuesday, August 30, 2016

Apple: You can have taxes or you can have jobs, but you can't have both?

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Apple: You can have taxes or you can have jobs, but you can't have both

Business Insider - ‎3 hours ago‎
Apple's official statement on the European Union ruling against its Irish tax arrangements tells you all you need to know about what is at stake: You can have taxes or you can have jobs, but Apple is in no mood to deliver both.
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Apple: You can have taxes or you can have jobs, but you can't have both

Tim Cook Apple CEO Tim Cook. AP
Apple's official statement on the European Union ruling against its Irish tax arrangements tells you all you need to know about what is at stake: You can have taxes or you can have jobs, but Apple is in no mood to deliver both.
After learning Tuesday morning that the EU expects Apple to pay €13 billion (£11 billion, $14.5 billion) in back taxes, the company said, "It will have a profound and harmful effect on investment and job creation in Europe."
That is not a threat, technically. But it will be seen as one by EU politicians who want to attract new companies to their countries.
Back in 1991, Apple struck a tax deal with Ireland that was completely aboveboard and legal. The Irish government provided Apple with a "comfort letter" that said the company would pay very low rates of tax if it based its European operations in Ireland.
In the 15 years since, Apple has created thousands of jobs in Ireland. By 2015 it had 5,000 employees in the country. Another 1,000 jobs are planned for the headquarters in the Irish city of Cork. This year Apple will open its site near the town of Athenry, with another 200 jobs in the making.
The deal between Apple and Ireland was pretty clear: Give us low taxes, and we will give you jobs. A note from a meeting between the government and an Apple tax adviser in 1990 basically said exactly that:
"Apple was now the largest employer in the Cork area with 1,000 direct employees and 500 persons engaged on a subcontract basis. It was stated that the company is at present reviewing its worldwide operations and wishes to establish a profit margin on its Irish operations."
Apple is now the single largest taxpayer in Ireland, so it has the kind of negotiating strength to get what it wants.
Apple has noted that its tax arrangements were agreed to repeatedly by Ireland's government. The European Commission itself says the agreements were legal, albeit mistaken. But Margrethe Vestager, the European Commission's competition commissioner, made Apple's Irish tax arrangements sound like a scam:
  • Apple's effective European tax rate was 1%, on sales of €16 billion or more per year.
  • It sunk as low as 0.005% in 2014.
  • Apple created a head office that did not exist: "This 'head office' had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter ... The 'head office' did not have any employees or own premises."
  • The pact deprived other European countries of billions of euros in unpaid taxes.
Perhaps the most serious part of Vestager's case against Apple is the way it contradicts Apple's long-standing assertion that it does not pay corporation taxes in the US because its foreign (i.e., non-American) revenues are reinvested in the foreign territories that earn them. Apple's annual report has said "substantially all of the company's undistributed international earnings intended to be indefinitely reinvested in operations outside the US were generated by subsidiaries organized in Ireland, which has a statutory tax rate of 12.5%."
That 12.5% rate appears to have been Irish mist. The European money was actually being funnelled back to the US, Vestager says. Apple's Irish operations had a cost-sharing agreement with the US headquarters in which they were allowed to use Apple's intellectual property if, in return, they paid for the American R&D expenses to create that IP. The EC statement says (emphasis ours):
"Under this agreement, Apple Sales International and Apple Operations Europe make yearly payments to Apple in the US to fund research and development efforts conducted on behalf of the Irish companies in the US. These payments amounted to about US$ 2 billion in 2011 and significantly increased in 2014. These expenses, mainly borne by Apple Sales International, contributed to fund more than half of all research efforts by the Apple group in the US to develop its intellectual property worldwide."
(Critics may also ask how many more jobs would have been created in Europe if the money generated in Europe had actually stayed in Europe.)
Vestager's ruling will also be read as a threat by dozens of other international companies who previously used Europe's flexible tax arrangements. The European Commission concluded in October that Luxembourg and the Netherlands granted tax advantages to Fiat and Starbucks. It is investigating Amazon and McDonald's.
The ruling will be appealed. It will be years before it is resolved. It won't hurt Apple — €13 billion is roughly equivalent to only one month's revenue, and Apple has always kept a massive amount of cash stashed in foreign countries precisely because it does not want to move it into jurisdictions where it might be taxed.
The more immediate problem is whether global companies will even bother with Ireland in the future if they cannot get the tax breaks they want — and whether that, in the long term, will reduce the total tax take in Europe.
With that in mind, Apple published a longer statement Tuesday morning reiterating the link between jobs and taxes:
"Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission's theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.
"...We are committed to Ireland and we plan to continue investing there, growing and serving our customers with the same level of passion and commitment."

Comments

grabass on Aug 30, 10:40 AM said:
@iGay:
Stupid argument. You can either have taxes, or only the place that gives us a tax break gets jobs. It's time company's start paying their fair share as the same people who can't afford to get "comfort letters" from far off lands. I pay a combined tax of over 50% in the US and have no way to get around it. They should drop the rate for everybody, but close all these ridiculous loopholes.
Dean Wormer on Aug 30, 8:22 AM said:
AAPL GOOG and dozens of others are global tax cheats. Plain and simple. Fictitious offices, phantom sales all powered the "double Irish" tax scam all dreamed up by a bunch of bean counters with too much time on their hands. Time to pay up boys. There is right in the world after all.
Oh God Stop the Internet hyberbole on Aug 30, 9:15 AM said:
@Dean Wormer:
Apple is not a tax cheat. They just made an a egregiously one sided deal the EU doesn't like. Ireland got all the crumbs of the deal and the EU got nothing. If the deal gives gives the EU nothing of course their going to use their powers to get some action. If Apple didn't see this coming they lack understanding on how governments work.
Skeptacular on Aug 30, 9:43 AM said:
@Dean Wormer:
Wrong. They are not cheating if the government in whose country they are operating enters into an agreement with them allowing the rate and the action. While it is evident some trolls here merely use the story to amplify their immature hatred of Apple simply as a wish to destroy the company, that in no way trumps the agreement between Ireland and Apple. Read the article! This was made clear. If Apple leaves, it'll be an equally potent signal to all the other multinationals looking at their agreements and bottom lines too. Do you Einsteins REALLY think they'll stay? Do you really think their tax deals are any less of a bargain for them as Ireland's has been for Apple? Amazon, McDonalds...an any number not mentioned...poof! And lest you wondered, yes, that would be enough to shake Ireland's finances to its foundations. And do you think the EU will ride to the rescue, making up for that massive shortfall it itself caused by its short-sighted ruling invalidating its member-country's own internal financial treaty? If you do, you're even more clueless than you sound.
Skeptacular on Aug 30, 11:30 AM said:
@Dean Wormer:
Except the Irish employment, wages, monies paid to suppliers, real estate, utilities, transpo, and yes, the taxes agree to. Not too shabby for a "fictitious company." Helluva "scam" there, Brownie!
gerko on Aug 30, 8:41 AM said:
Apple's employment in the US is 15k? Something along that level. That ain't much. And they hide taxes abroad. I like their products, but don't use them.
Skeptacular on Aug 30, 11:24 AM said:
@TomF:
From a business standpoint, absolutely - but it DOES lead to the anti-globalist, and EU situations we've seen and it simply cannot last forever. We are headed like a runaway freight train for full globalization no matter what. We can either be prepared now - or be in a far more vulnerable position down the road. That said, do NOT take my words as advocacy. They're more like doomsday soothsaying.
bldigrrn on Aug 30, 9:25 AM said:
@tommariner:
Your comment sounds like it comes from someone who has absolutely no idea how the world works, or how humans behave.
Not True on Aug 30, 9:54 AM said:
@salooo:
California would have to raise taxes on Apple to 90% before they would leave. They will stay put.
bldigrrn on Aug 30, 9:22 AM said:
A meaningless threat. A bluff, really. I'd take the money and dare Apple to try pulling this same fraudulent crap somewhere else.
bldigrrn on Aug 30, 9:28 AM said:
An elegant solution:
Pay income taxes to a particular country based on the dollar value of sales generated in that country.
Separating your IP and moving it offshore to divert taxes to a lower region is just plain fraud.
Vic Hedges on Aug 30, 9:51 AM said:
@DAve2343:
Reduce US corporate tax rate to 5% - level playing field & eliminate privileges purchased from politicians
Vic Hedges on Aug 30, 9:49 AM said:
Drop US corporate tax rate to 5% and the problem is solved.
Vic Hedges on Aug 30, 11:15 AM said:
@Really:
There is no need to sloganize every possible situation unless you are a journalist (no offense intended) but corporate tax rates could be 0% though we need to maintain the legal position to tax for reasons other than raising revenue and 5% is a nice flat rate so there is no need to 'race' only recognize reality.
We, as a nation, want as many corporations as possible to domicile in the USA so we enhance our own economy especially as to employment and we need to make clear that politicians will not be in position to extort bribes from corporations for favors. Politicians are the real problem here regardless of which party happens to be in power and the USG cannot be trusted in that sense unless there is a permanent policy change where it is made clear that the default corporate rate is 5%. The USG does NOT need to loot every possible source for money.
Corporate and individual citizens are being stripped of every dime that can be squeezed out of them without creating a deflationary depressive debt spiral.
I understand that people are easily motivated by envy and jealousy and have been through all of History so if you manipulate those levers you can get elected and create a failing socialist economic model where the emphasis is on the endless redivision of what exists in a no growth economy as in the Middle Ages in Europe and be assured that such ideas were already ancient 2000 years before Marx was born. The idea is that if we can tear Apple apart we can pass out the pieces when almost certainly a great deal of Apple money is in UST bonds already and circulating through the economy.
Redistribution never works as people have varying interests, values, abilities, and educations and the ownership of property of all types stratifies toward concentration continuously.
The USG creates the money that it needs to fund most of its proposed spending and does not require HEAVY taxes. This is a mistaken idea drawn from pre-modern economies.

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