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Apple pays very little in overseas taxes. Ireland and the U.S. have different standards for determining the main location of a business. U.S. tax code considers business headquarters to be wherever the company is chartered. Ireland considers a corporation to be domiciled in the nation where management operates. The U.S. determines that Apple is chartered in Ireland, however the Irish consider it to be chartered in the U.S. Apple doesn’t really exist in any nation. It’s based in a tax-free limbo land.
Apple is not the biggest offender in terms of proportion of capital held offshore. Apple holds 67% of their cash overseas. HP holds a whopping 100% overseas, while Microsoft stashes 89%.
Unlike HP and Microsoft, there are Apple stores all over the world. While the other tech companies do have large amounts of international sales, they don’t maintain a chain of stores throughout the world.
There are rules and regulations for offshore capital. Apple is actually following the letter of the law. This tax code is convoluted and contains benefits specific to constituents. John F. Kennedy tried to reform the tax code decades ago. It’s very difficult, since the constituents (large corporations) want to keep their benefits.
Tim Cook calls for reform of the corporate tax code. He mentions that it should be simplified, but there is not much talk of removing loopholes.
Accelerated depreciation is one of the most widely exploited tax loopholes. This accounting technique allows large industrial corporations to deduct depreciation upfront, instead of amortizing it over the lifespan of the fixed capital asset. For example, if a company builds a factory, they can write off much of the depreciation this year, instead of some of it over the span of years. Employed strategically, this allows many large corporations to avoid paying taxes entirely.
There is an active debate about corporate tax reform. The corporate world, represented by high-power lobbyists, is trying to convince Congress that lower corporate taxes will stimulate the economy. Lowering taxes will allow them to bring money onshore and expand, employing Americans in the process. It will also increase their profitability, to the advantage of their officers and major shareholders. There’s little mention of “simplifying away” all of the loopholes. Every discussion of tax code simplification tends to focus on the tax rate.
The macroeconomic benefits are theoretical. In practice, such tax breaks have not stimulated the economy. In 2004, there was a temporary break in corporate taxes which resulted in corporations shedding jobs. Historically, there is an inverse relationship between the corporate tax rate and unemployment. When corporate taxes are higher, unemployment is lower. (continue…)