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The Almighty Buck Apple

Apple's Luxembourg Tax Deals 158

Posted by Soulskill from the everybody's-doing-it dept.
Presto Vivace sends a report from the Australian Financial Review on how Apple uses a holding company based in Luxembourg to avoid taxes on its iTunes revenue. Quoting: The 2011 accounts for iTunes Sàrl [the holding company] give the first inside view of how Apple accounts for its growing earnings from digital content. They are part of a massive leak of Luxembourg tax documents uncovered in an investigation led by the International Consortium of Investigative Journalists. Remarkably, the accounts show Luxembourg has been more effective in extracting tax from iTunes than Ireland has with much larger Apple sales. Turnover for iTunes Sàrl exploded from €353 million ($508 million) in 2009 to €2.05 billion in 2013. Secret appendices to the 2011 accounts break down some of Apple’s costs. It shows that Apple takes a third of iTunes’ revenues as its gross profit margin. The 2011 figures showed that a flat 50 per cent of this gross profit was paid in intercompany charges. (Followup on a similar strategy from Amazon we discussed last week.)
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Apple's Luxembourg Tax Deals More

Apple's Luxembourg Tax Deals

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  • Simple fix (Score:2)

    by Anonymous Coward

    Assign someone at the IRS to figure out what they should be paying, and are dodging, add the cost of doing this estimate, and a 50% penalty on top of both, and tax the portion of the company that IS HERE that amount.

    Do this for all tax cheats until this nonsense stops and again whenever it pops back up in perpetuity.

    Solved. Ya welcome.

    • I think the IRS would need legislation giving them legal authority to do that. Otherwise sounds like an excellent idea.

      • Re: (Score:1)

        by Anonymous Coward

        I think the IRS would need legislation giving them legal authority to do that. Otherwise sounds like an excellent idea.

        Ha ha ha ha ha ha. Congress is more likely to give Apple (and all the other US tax dodging companies) a pat on the back than to ask what the country is owed. Crook companies, crook Congress.

    • Re: (Score:3)

      by slazzy ( 864185 )
      You can almost hear the sound of CEOs packing up their suitcases and moving to a warm tax free country taking all future revenues with them... I'm afraid the answer is not that simple.

      • Re:Simple fix (Score:4, Interesting)

        by CastrTroy ( 595695 ) on Tuesday November 11, 2014 @03:49PM (#48362771)
        I think the only way to tax companies is to tax them on revenues rather than profits. The can always reinvest, shift around, or hide profits, but revenues are a lot harder to hide. I don't get to discount all my operating expenses on my personal income tax, why should a corporation be allowed to do the same. Either don't tax the corporations at all, and increase sales and/or income taxes to make up the difference, or tax corporations in a way that they can't avoid them so easily.

        • Doesn't work that way. In this case, the US wants to tax a US business on income from US business, but also on income from Japanese business. Instead, the US business moves to Ireland, pays 0.027% taxes on Japanese business, and pays the US taxes on business done in the US--but NOT on business done anywhere else in the world

          There is a penalty for being an American business.

        • That's nuts. You'd gut businesses with low margins and undertax the ones with high margins.

          • You'd gut businesses with low margins

            Low margin businesses would all be taxed the same, so they would just pass the cost on to their customers.

            ... and undertax the ones with high margins.

            Good. High margin companies are more productive, and grow faster, producing high paying jobs. Lower taxes will enable them to prosper, and help the entire economy. They would only be "undertaxed" if you consider the current, profit based, tax system to be the natural order of things, rather than a counter-productive job-killing perversion.

            • Huh? And those customers would just keep buying the same amount of the low-margin widgets? Of course they wouldn't.

              Lower taxes do help companies prosper. But you're making a lot of generalizations about 'high margin' companies and their benefit to justify fucking over the low-margin ones.

            • Re: (Score:2)

              by lgw ( 121541 )

              Customers of Wlamart need those low prices. You don't seem very compassionate towards them in you zeal to give their money to the government (which is what you're explicitly advocating). Perhaps Walmart shoppers aren't the best target for raising federal revenue?

              Corporate tax rates are meaningless. The money will eventually be spent somewhere taxable - employee income, or shareholder dividends.

              • Customers of Wlamart need those low prices.

                Walmart would only be taxed on the difference between their sales price and the price they paid their suppliers. Since their margins are lower, they would pay less tax than their competitors. They are also more profitable than most of their competitors, so pay relatively higher taxes under the current system. Walmart (and their customers) would be big winners if we moved to a revenue based tax system.

          • This is exactly what the Medical Device tax - that was a part of Obamacare - does. Taxes Medical Device Manufacturer's top line, not the bottom line.

            • Yes. It's stupid, even more so when applied to an industry where innovation often means years of low profits and unsuccessful products before a 'hit' that makes them money.

        • I don't get to discount all my operating expenses on my personal income tax

          Yes you do. If you have expenses directly related to generating your income, they are deductible. The law on this is exactly the same for individuals as it is for corporations.

          • Re:Simple fix (Score:4, Insightful)

            by CastrTroy ( 595695 ) on Tuesday November 11, 2014 @04:59PM (#48363363)
            I need food to eat. If I don't eat, I can't generate income. But I can't deduct it on my personal taxes. I also have to get to work, but I can't claim any transportation amounts on my personal taxes. I need to wear clothes to work, often more expensive ones than I would generally wear if I wasn't at work, but I can't deduct the cost of clothes. But a corporation can claim deductions for any expenses whatsoever. There's almost nothing that a business can spend money on that doesn't qualify as a deduction. Whereas for individuals, only a very small percentage of what I spend my money on actually qualifies as a deduction, and most of it isn't related in any way to my employment. Things like medical expenses and charitable donations are tax deductible, but don't really have much relation to me actually generating income.

            • You spend money on food regardless if you have any income. Ergo, food expenses are not direct costs associated with your income.

              If you have to wear a uniform to your job, and pay for it yourself, then it is certainly tax deductible. Just like travel, meals, etc.

              Rule of thumb - if you could do without it when unemployed, but it's required for your *particular* employment, then it's a direct expense that you can probably deduct.

              • You can't deduct your commute, which for many people is the largest cost of having a job...

                • You can't deduct your commute, which for many people is the largest cost of having a job...

                  Corporations also cannot deduct commuting expenses. If you are employed by a corporation, and they provide you with a commuting service or subisdy, then they cannot deduct that as an expense, and instead have to report it as a taxable benefit.

            • In US Federal personal income tax the individual taxpayer can take minimum standard deductions for themselves and dependents, regardless of any other factors, and gets a progressive tax rate.

            • IANAL.. but can't you deduct transportation to work if you live farther than X miles away?

              Also, if your clothes are more expensive than you would wear otherwise, maybe it counts as a "uniform", and AFAIK, you can deduct the cost of those.

            • I need food to eat. If I don't eat, I can't generate income. But I can't deduct it on my personal taxes. I also have to get to work, but I can't claim any transportation amounts on my personal taxes. I need to wear clothes to work, often more expensive ones than I would generally wear if I wasn't at work, but I can't deduct the cost of clothes. But a corporation can claim deductions for any expenses whatsoever. There's almost nothing that a business can spend money on that doesn't qualify as a deduction. Whereas for individuals, only a very small percentage of what I spend my money on actually qualifies as a deduction, and most of it isn't related in any way to my employment. Things like medical expenses and charitable donations are tax deductible, but don't really have much relation to me actually generating income.

              Let's not ignore that, generally speaking, corporations that commit crimes pay money and people who commit crimes go to prison.

              Bribery on a scale large enough to sound painful but which the corporations write off a a risk and cost of doing business.

        • Re: (Score:1)

          by N1EY ( 817702 )
          This principle is dangerous. Most companies do align with each other on ROI and margin. Within two separate industries we could have 10 companies with the same level of gross receipts but wildly different net income amounts. We could actually impose a tax that one of these companies could not bear. Most of the companies would probably have a rate of taxation in excess of the normal range. Such a principle would lead to a tax burden far in excess of the burden held by companies in foreign nations.

        • Then you'll drive every retail industry into the ground.

          Say I'm an electronics store. I operate on a profit margin of about 2%, because there's really not that much margin in electronics (or most retail, except the high end). I buy $100,000 worth of stock. I sell that entire volume for $102,000, making myself $2000 profit. I then receive a tax bill based off my revenue of $100,000, instead of my actual income of $2,000.

      • Except of course all those tax free countries don't have any revenue or sales, those all take place in those horrible taxable countries that want real standards of living, infrastructure, a relatively fair legal system and all those things you experience in modern society. I'd love it if all those CEO's and other fuckers that think they don't have any responsibility to contribute to society moved off to those tax free countries, as along as they surrender their citizenship on the way out. Because inevitably

      • I wish them the best of luck in sales to the good people of Luxembourg, Ireland, and small carribean islands. I'm sure their total revenues after dropping the costly US market will improve tremendously.

        • I wish them the best of luck in sales to the good people of Luxembourg, Ireland, and small carribean islands. I'm sure their total revenues after dropping the costly US market will improve tremendously.

          And the US will do just fine without the billions of dollars Apple pays.

          You are of course aware that Apple does pay billions in taxes in the US every year?

      • Re: (Score:2)

        by mjwx ( 966435 )

        You can almost hear the sound of CEOs packing up their suitcases and moving to a warm tax free country taking all future revenues with them... I'm afraid the answer is not that simple.

        You see, it doesn't matter where the CEO's live, it matters where the company does business.

        If an arrest warrant for a CEO is put out, that severely limits their travel options to countries that have no extradition treaties with the country in question, so no EU, no US and probably no SE Asia as they seem to roll over for the US whenever offered a treat. That's most of the worlds travel hubs. Meanwhile, ever asset they own in a western county is frozen and probably auctioned off for far less than their a

    • Re:Simple fix (Score:5, Insightful)

      by pushing-robot ( 1037830 ) on Tuesday November 11, 2014 @03:44PM (#48362713)

      You *do* pay your state use tax for all those things you order over the Internet, right?

    • Re:Simple fix (Score:5, Informative)

      by bluefoxlucid ( 723572 ) on Tuesday November 11, 2014 @03:54PM (#48362815) Homepage Journal

      They're paying what they should be paying.

      All business done in the US pays US taxes. That is: if iTunes sells $5 million of songs in the US, Apple pays taxes on $5 million of revenue. Simple enough.

      At the same time, any US company which sells something to Japan, Germany, France, Britain, and so on also pays taxes on it. If iTunes sells $50 million of songs in Europe, Apple pays $50 million in taxes to the US.

      All Apple has done is moved their iTunes operations under another company headquartered in Germany. When iTunes sells $5 million of songs in the US, Apple pays US taxes on $5 million; but when iTunes sells $50 million of songs in Europe, Apple doesn't pay the US shit.

      You may notice that the US is trying to tax businesses for doing business in the US, and also tax US businesses for doing business outside the US. US businesses are simply moving their non-US business outside the US, which is where it is anyway.

      • It just happened be on vacation in Luxembourg with truck loads of money.

      • They're paying what they should be paying.

        All business done in the US pays US taxes. That is: if iTunes sells $5 million of songs in the US, Apple pays taxes on $5 million of revenue. Simple enough.

        At the same time, any US company which sells something to Japan, Germany, France, Britain, and so on also pays taxes on it. If iTunes sells $50 million of songs in Europe, Apple pays $50 million in taxes to the US.

        All Apple has done is moved their iTunes operations under another company headquartered in Germany. When iTunes sells $5 million of songs in the US, Apple pays US taxes on $5 million; but when iTunes sells $50 million of songs in Europe, Apple doesn't pay the US shit.

        You may notice that the US is trying to tax businesses for doing business in the US, and also tax US businesses for doing business outside the US. US businesses are simply moving their non-US business outside the US, which is where it is anyway.

        Companies don't pay tax on their revenue, they pay it on their profit.

        Let me summarize the situation for you, as you seem to have completely misunderstood:

        Apple, Amazon and other companies make huge profits in countries (like the US) and then, using licensing payments to subsidiaries in low or no tax jurisdictions like Luxembourg, shift all the profit to where it's not taxable, thus legally avoiding paying any income tax on the profits they made as those profits have just been erased by these supposed licen

    • Assign someone at the IRS to figure out what they should be paying, and are dodging, add the cost of doing this estimate, and a 50% penalty on top of both, and tax the portion of the company that IS HERE that amount.

      The IRS cannot do anything about perfectly legal activities. While reprehensible I have very little doubt that Apple (and others like them) have an army of tax experts ensuring that everything they do is 100% legal and that the IRS cannot do a thing about it. The problem is in the tax laws have more loopholes than shotgunned swiss cheese. That is the fault of Congress and no one else.

      I don't have a problem with your proposal in principle but I'm pretty sure the IRS doesn't have the authority to do what y

      • Playing games and finding loopholes to hurt America is very criminal.

      • The problem is in the tax laws have more loopholes than shotgunned swiss cheese. That is the fault of Congress and no one else.

        That's the fault of congress and the people who elected them. If you want to talk about eliminating all the "loopholes" that the current income tax laws have built in, you'll need to survive the onslaught from just about every person in the US, from those who are taking the mortgage exemption, all the way down to those who get earned income credit.

        Those "loopholes" exist because the government thought it should use taxes as a way of social engineering. That means if someone thinks that solar energy needs

        • Re: (Score:2)

          by mjwx ( 966435 )

          They don't, and I don't want them to have it. Can you imagine the "social engineering" if the IRS had the authority to determine what someone "should" be paying in taxes and could go after them for that amount? Can you imagine the effect on business if they had the authority, on a whim, to go through every account in a company to decide what the company "should" be paying?

          Yes, personal tax rates would lower as tax corporations are meant to pay replaces that revenue.

          With lower personal taxes, we have mo

          • Yes, personal tax rates would lower as tax corporations are meant to pay replaces that revenue.

            If they were meant to pay it, the law would require it. If the law doesn't require it, then it is what you think they should pay, not what they are meant to pay.

            And using the IRS to get companies to pay what you think they should pay is a bad precedent and bad law. It won't reduce personal income taxes because taxation is not and will never be a zero sum game. There are too many examples of this to believe that you've never seen it yourself, but here's two just from the city level here: we're still paying

        • Mortgage *interest* deduction, not mortgage *payment*. Oh, I wish it were the latter.

          (Actually, I wish they'd all go away, including the ones that I benefit from... I'd gladly get rid of the mortgage interest deduction, if you get rid of all of the other deductions/credits.)

          • I'd gladly get rid of the mortgage interest deduction, too, now that I've paid off my mortgage.

            I am rather hesitant to do it, though, because there are people who have made critical life decisions based on the (implied) promise that mortgage interest would be deductible, just as there are many many people who have made long-term decisions based on the promise of social security keeps me from calling for the abolishment of that system.

            You should keep in mind before you ask for all deductions to be eliminat

            • I would say phase out rather than abolish Social Security. Obviously the math has to be worked out, but let people opt out of it at anytime (possibly with a tax credit), but cut it off for a certain age and younger... Similar to how I think companies shouldn't be able to retroactively change pensions, but can change it for new hires.

  • Then again, I'd have less sympathy for them if avoiding paying taxes wasn't a universal pastime for corporations and individuals alike.

    • So you pay more than you are legally obligated to pay? That is great of you. How much extra do you pay?

      • What do you mean by "legally obligated to pay"?

        Do you mean that you declare all of the tax deductions that you can without having to provide evidence? For example in Australia you can declare traveling expenses up to X dollars without having to provide any proof whatsoever (expenses over X dollars require that you keep receipts in the event that your audited). would be paying the exact same amount even if I didn't use it for work purposes.

        Now legally your not allowed to declare those traveling expenses with

    • Actually, it's a sensible behavior. America taxes 39% to corporations regardless of where they earn profit: an American HQ company pays 39% on everything it sells in China and Japan. In most other developed nations, it's different: a German company selling cars in the US pays taxes to the US on the profits from its US sales, but pays no taxes to Germany on those profits; it does pay German taxes on profits made from selling cars in Germany.

      Americans are essentially crying about American companies not

      • Actually, it's a sensible behavior. America taxes 39% to corporations regardless of where they earn profit: an American HQ company pays 39% on everything it sells in China and Japan. In most other developed nations, it's different: a German company selling cars in the US pays taxes to the US on the profits from its US sales, but pays no taxes to Germany on those profits; it does pay German taxes on profits made from selling cars in Germany.

        Americans are essentially crying about American companies not wanting to make $10 million selling to Britain, pay Britain $2.5 million in taxes, and then pay America $3.9 million in taxes; instead, these companies want to have a British arm headquarters, make $10 million in Britain, and pay $2.5 million to Britain and NOTHING to America.

        Actually, by what I have been hearing lately they want to have a British operation doing their European business so they'll be in the EU common market, then they want to route all their $10 million of product sales though a shell company in Luxembourg where they make a secret tax agreement with the authorities to pay taxes of less than 1% while nominally paying the much higher Luxembourg corporate tax and VAT. There are many other variations on this, licence fees, internal loans, etc... but they all boil do

        • Actually, by what I have been hearing lately they want to have a British operation doing their European business so they'll be in the EU common market, then they want to route all their $10 million of product sales though a shell company in Luxembourg where they make a secret tax agreement with the authorities to pay taxes of less than 1% while nominally paying the much higher Luxembourg corporate tax and VAT.

          Which doesn't work, because walking into a country and selling products or services subjects you to that country's taxes. The moment they set foot in France or China and perform a business operation, that operation is taxed by France or China. If their HQ is in the US, their Chinese and French operations are taxed in China AND in the US.

          If you didn't pay taxes on business performed within a country, foreign services would always be less expensive than local services.

    • When there are legal means to, why wouldn't you (unless you think you're not paying enough)?

    • Then again, I'd have less sympathy for them if avoiding paying taxes wasn't a universal pastime for corporations and individuals alike.

      Apple introduced this sort of tax dodge and everyone else followed. Not that anyone else is less guilty, but Apple certainly lead the way.

      That said, I have no animosity towards those that avoid taxes given what our government inevitably ends up using the money for.

  • This just in: psychopath is psychopathic (Score:5, Informative)

    by NoNonAlphaCharsHere ( 2201864 ) on Tuesday November 11, 2014 @04:04PM (#48362911)
    Until we get away from the definitions that:

    1) a corporation exists only to increase shareholder value
    2) it is managements "fiduciary responsibility" to only "increase shareholder value", i.e. make the most profits possible
    3) a corporation is a legal person, with all of the rights but none of the moral compunctions

    We are going to have corporations that act by definition as psychopaths: amoral, antisocial, remorseless, uncaring, uninhibited, greedy and evil. They will act as unlawfully as they are permitted to.

    • 3) a corporation is a legal person, with all of the rights but none of the moral compunctions

      Hyperbole much? No, not even hyperbole. There is a huge body of corporate law. Worrying that the people in a corporation have the same rights they have without one, and then claiming that they have none of the "moral compunctions" (I assume you mean "legal responsibility", since "moral compunction" isn't a mandate for anyone) is just silly.

      They will act as unlawfully as they are permitted to.

      Just as you will find people who do the same thing. It is not a requirement for either.

  • No worries. Slaves will pay. (Score:4, Insightful)

    by Bar666Bar ( 3907821 ) on Tuesday November 11, 2014 @04:14PM (#48362987)

    Nothing to worry about. They are way to fix it tax short falls. We just need to motivate 299 million slaves in USA
    - retirement age increased up to 75
    - 60 hours work weeks
    - higher gasoline prices
    - more money poured into security forces
    etc.
    Just use your imagination.

  • Can Luxemborg enforce the IP rights? (Score:5, Interesting)

    by 140Mandak262Jamuna ( 970587 ) on Tuesday November 11, 2014 @04:26PM (#48363093) Journal
    What would happen if the government of USA declares, "look guys, we are broke. You are not paying taxes to us anyway. So when it comes to patent law enforcement, you contact the people who collect taxes from you to enforce your IP rights. We are not going to spend our resources to enforce your rights, when you are not paying taxes to us ..."

    • There are two root causes here. First, the US federal government has massively abused it's constitutional authority to "collect taxes" and written hundreds of thousands of pages of "tax" law about what you can and can't do. With such a tangled mess of law, it's unavoidable that there will be huge loopholes. All of those loopholes would go away with a simple tax law - you pay x%, period.

      Some of the largest corporations in world are getting millions of dollars of tax payer cash to pay for the FOR-PROFIT

    • Then everyone says: "Hey look, the USA is ignoring international patent treaties. I guess we're not bound by them any more either." China sends the USA a gift basket.

    • You do realize that many of the people elected to the government of the US have interests in companies which do these exact same tax dodges, probably directly have off-shore accounts for themselves, and have precisely ZERO interest in changing things ... right?

      Find me 10 millionaire politicians. I'll bet they all personally hide taxes this way, and own (or are affiliated with) a company which does this.

      There is no way in hell this would ever happen.

      You cannot rely on the integrity of people who benefit fro

  • Is Tax Avoidance Necessary for Success? (Score:3)

    by Jodka ( 520060 ) on Tuesday November 11, 2014 @04:39PM (#48363207)

    Tax avoidance schemes are remarkably common among large successful coporations. Other successful U.S. tech companies exploit the "Double Irish With a Dutch Sandwich [nytimes.com]" loophole. Ikea pays almost no tax [economist.com] by incorporating in Holland and exploiting its permissive rules for non-profits.

    Which raises two questions:

    - Are tax rates so high that it is necessary to engage in complicated tax avoidance schemes in western democracies to be successful in business?

    - Is it best that companies do avoid taxes? Do we trust Larry Page, Sergey Brin, Vinod Khosla and Bill Gates to invest efficiently for the betterment of society more than we trust Harry Reid, Nancy Pelosi, Barack Obama and Hillary Clinton? And I would ask the same of the Republican counterparts of those politicians. Though that the comparison is somewhat unfair to Republican politicians because it is their objective to reduce the concentration of wealth under their own control by shrinking government, regardless of the political persuasions of those who would benefit from that dispersal of wealth. I have never understood why, for those who believe wealth is dirty, that its transfer to the political class is somehow purifying.

       

    • Re: (Score:2)

      by dkf ( 304284 )

      Though that the comparison is somewhat unfair to Republican politicians because it is their objective to reduce the concentration of wealth under their own control by shrinking government, regardless of the political persuasions of those who would benefit from that dispersal of wealth.

      When push comes to shove, when it comes down to actual votes, do they really work to do such a reduction, or do they just claim to do that for the purposes of propaganda?

    • Are tax rates so high that it is necessary to engage in complicated tax avoidance schemes in western democracies to be successful in business?

      When you get to international scale, tax is just like everything else; it's a competitive market. Once they have the size to make it feasible, corporations will go to whatever country offers them the best benefits for the least money, just the same as corporations inside the US shop around from state to state looking for the best tax deal.

      It's no different to what happened in Soviet Russia with individuals, really. Those that were the most productive, and earning the most money, were those "taxed" the most.

    • So as voters do we trust those that represent us or do we trust those whose products we buy to run our country. Should we have government tax the wealthy and spend on social schemes or should we let the wealthy choose where to spend the money ? Its about effectively channeling societies resources.

    • Re: (Score:2)

      by MrL0G1C ( 867445 )

      Are tax rates so high...

      No, the tax is on profits so why are you even asking this question?

      Is it best that companies do avoid taxes?

      Counter question is: Do gov't services need to be paid for?

      Why are you asking such stupid questions?

      Republicans shrink gov't! When did they last do that? I don't see what the Democrat/Republican duopoly has to do with the issue of corp's paying taxes.

      If companies don't wish to pay taxes in country X then they shouldn't have employees, services or products in country X.

      Co

  • Comment removed based on user account deletion

  • Why not eliminate them altogether? They are about 10% of the total revenues of the US Government. So why not just eliminate them altogether? Here's my thinking...

    Eliminate the corporate tax in the US altogether. Every company based in the US will suddenly exist in the greatest tax haven in the world. All companies world-wide will want to rush to the US to shelter their own incomes from their home countries. Lots of new revenue/assets flow to the US - as well as lots of jobs. How do those jobs come?

  • It is nice anti-apple spin. This case is so much more than just Apple and you had to go and kill an even more important story, just for some apple bashing.
    http://www.icij.org/project/lu... [icij.org]

  • Do we know anything about the leak source?
  • "Secret appendices to the 2011 accounts break down some of Apple’s costs. It shows that Apple takes a third of iTunes’ revenues as its gross profit margin. "

    Actually, it's 30% - the "secret" 30% everybody keeps whining about.

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