Saturday’s Washington Post Tim Cook interview was a long, excellent read, a lot to unpack. One of the questions addressed Apple’s tax situation:
Q: What do you say in response to Nobel economist Joseph Stiglitz’s comments on Bloomberg [television], where he called Apple’s profit reporting in Ireland a “fraud”?
First, here’s a link to the original video, from July 28th. No bones about it. Stiglitz is pretty direct here.
As far as parking the money overseas, Tim said:
I didn’t hear it. But if anybody said that, they don’t know what they’re talking about. Let me explain what goes on with our international taxes. The money that’s in Ireland that he’s probably referring to is money that is subject to U.S. taxes. The tax law right now says we can keep that in Ireland or we can bring it back. And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it. Is that legal to do or not legal to do? It is legal to do. It is the current tax law. It’s not a matter of being patriotic or not patriotic. It doesn’t go that the more you pay, the more patriotic you are.
And so what we’ve said — we think it’s fine for us to pay more, because right now we’re paying nothing on that and we leave it over there. But we — like many, many other companies do — wait for the money to come back.
And as far as paying taxes:
In the meantime, it’s important to look at what we do pay. Our marginal rate, our effective rate in the U.S. is over 30 percent. We are the largest taxpayer in the United States. And so we’re not a tax dodger. We pay our share and then some. We don’t have these big loopholes that other people talk about. The only kind of major tax credit that we get is the R&D tax credit, which is available to all companies in the United States. That’s important to know. The second thing I would point out is we have money internationally because we have two-thirds of our business there. So we earn money internationally. We didn’t look for a tax haven or something to put it somewhere. We sell a lot of product everywhere. And we want to bring it back, and we’ve been very honest and straightforward about that.
That’s some amazingly direct language, rare transparency for a CEO, though not rare for Tim Cook.
Mr. Cook gave the fiduciary response. It doesn’t examine the implications of what those tax dollars would mean to the economy.
New flash: Apple is not the U.S. government
Its easy for academic ‘ideologues’ to stand on the sidelines and take cheap shots, they have no skin in the game. You’d think a Nobel economist would have a more measured response than this.
Whether your a Friedman or a Keynesian, Apple is following the law. Blame the shifty politicians who misuse and abuse your tax dollars, not Apple hoarding their money offshore in Ireland. So many heavy players are trying to get their hands on that loot. Stieglitz is just another East Coast elitist doing the bidding of weak politicians.
Apple records the federal tax in its financial statements because it expects at some point it WILL bring back the foreign profits. Some companies do NOT record the federal tax because they don’t believe its likely they will repatriate (I believe this is true for Intel). GAAP allows this, based on intent and management’s assessment of likelihood.
Tim is absolutely correct. It’s legal. Just as you and I claim the residence interest deduction to reduce our taxes. And unlike reducing our taxings permanently, Apple isn’t “saving” taxes here, it’s deferring them.
That was DC politician level obfuscation, not transparency. Tim Cook sidestepped the Ireland tax haven issue. They book all their foreign profits in the Irish subsidiary, despite not being generated there (that’s what Stiglitz is calling fraud). To say that they don’t didn’t look for a tax haven and coincidentally book their profits in an Irish holding company with no employees and no tax payments is a transparent lie. That is partly why they are under investigation by the EU and likely will owe $19B in back taxes to Ireland (which it should be noted, Ireland doesn’t want because it hurts their tax haven business).
http://www.forbes.com/sites/leesheppard/2013/05/28/how-does-apple-avoid-taxes/
Why is that the opposite of what they should be doing? If the tax rate is so high companies are not bringing money home to re-invest, then the system isn’t working. I think the problem is the reliance on tax-breaks which allow many companies to vastly reduce taxes. When companies don’t aim for maximum deduction they are hurt by the current tax code. It makes sense to work towards a system that rewards success while also making paying taxes practical.
Verizon in NYC got politicians to raise sales tax to implement FiOS across the city to the tune of like ~$23bn. Instead of installing FiOS lines in all buildings throughout the city, they diverted that money into LTE after only running lines down the major avenues (so they could beat AT&T to LTE). Most people in NYC don’t have access to FIOS, yet most of them paid for it through their consumer purchases. Verizon claims no culpability here and they are not obligated to pay back the $23bn, It was a free loan that’s been spent. I use Verizon and like LTE, but I would have preferred FiOS 🙁
Define ‘fair share’. And tell us what you pay so we can judge whether you pay your fair share. Mind you, we’ll define what your fair share is to be.
“fair share” is a meaningless term in this discussion for two reasons. First, it has no legal definition, but rather it’s based on one’s opinion. Second, they’re not doing anything wrong unless you believe that all companies should be forced to move profits earned outside the US back to the US or you believe the US government should be able to tax income earned outside the US as US income. Feel free to argue those, but since that’s not now the law, argue why it should be and how it might work.
Face it, none of us overpay taxes to be nice. We pay what we owe and use the deductions we’re entitled to. If you don’t, you’re working against your own interests, which isn’t logical.
PS: What I’d really like to hear from Cook is what tax rate he feels makes sense. If he argued for something close to 0 then I’d have an issue. If he was arguing for something around 20% that doesn’t seem unreasonable on the face of it.
The US has the highest corporate tax rates in the world and Apple should be lobbying lawmakers to make it higher? Are you writing comedy?
Their “fair share?” That’s a joke right? The fact is that half the population doesn’t pay any tax. Zero. So, let’s make the US a communist state because the USSR turned out so great under it.
nonsense, it’s exactly what they should be doing. paying 40% tax on money earned outside the country is absurd. not trying to get it lower would be absurd.
thank god you’re not in charge of anything.
no, he’s just a troll. always posts utter contrarian nonsense. it is what trolls do.
you’re referring to federal income tax — everybody pays sales tax. and the nearly half figure includes senior citizens, those below the poverty line, those not employed and thus no income to tax, and vets.
newsflash — the US population is aging.
the suggestion that half the country are a bunch of freeloaders is a bogus one made by Romney and the like in order to drive fear into the GOP voter base of ignorance. guess it worked.
The companies are not going to reinvest the money domestically. Congress passed a repatriation tax holiday in 2004 and received assurances that the money would be returned to invest domestically. What happened instead was the money was used for stock buybacks and dividends. After that experience the Democrats likely won’t stick their necks out.
The interesting thing is that it was the US State Department that suggested that Apple open an office in Ireland for exactly this purpose.
It’s ridiculous that half the population doesn’t pay any income tax, which is the subject of this article. In your world, the top half should pay income tax for everyone else. So much for the “fair share” argument. No wonder this country is broke.
Stop insulting commenters. Discuss the merits of their comments. Avoid the name calling.
From what I understand, every shareholder is paying a tax at the end. It s not a problem of not paying taxes, the problem is where, but this is on the way to change. Sooner or later taxes will be paid where the value is really made !
“everybody pays sales tax”
Show me the sales tax I pay here in New Hampshire?
Agreed, and just for good measure :
[…] they’re not doing anything wrong unless you believe that all companies should be forced to move profits earned [ AND ALREADY TAXED ] outside the US back to the US or you believe the US government should be able to tax income earned [ AND ALREADY TAXED ] outside the US as US income.
This is technically correct, but a meaningless statistic. It’s just an inflammatory soundbite. Of the 43% that don’t pay income tax, the majority (29% of total) pay payroll taxes. Of the remainder, 10% are retirees, 3% make under $20K a year and the final 1% are miscellaneous. However, 4% of the population don’t pay federal taxes doesn’t make for a good soundbite.
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