Irish seeing red from missed green

When it was reported recently that Apple has avoided paying U.S. corporate income taxes on tens of billions of dollars by claiming the money really belonged to its Irish subsidiary, the hope was that Congress would use the revelation to seriously look at closing these tax loopholes used by multinational corporations. 

But, of course, our Congress is pathetically impotent to deal with the real problems of the country.  It’s too busy playing politics ALL THE TIME.  Plus, Apple is an influential company and it isn’t doing anything that other influential multinational corporations aren’t doing.

So instead of our Congress addressing this tax issue we might just have to rely on Ireland to fix the problem because Apple hardly paid any tax to that country on all those billions.  Why?  Because Irish tax law says that to be taxable income the corporate decisions have to be made in Ireland, which, of course, they aren’t in Apples’ case. 

The Ireland Independent exposed Apples’ tax avoidance in that county with a story yesterday under the heading, “Biggest Irish companies paid tax at eight times Apple's rate”. 

And if Apple ticking off the Irish business community isn’t bad enough, the President of the Irish Catholic Bishops’ Conference, Archbishop Sean Cardinal Brady, signed a letter to the leaders of the G8 countries this week addressing tax evasion and taxation.  The letter cited the Catechism of the Catholic Church: 

“Submission to authority and co-responsibility for the common good make it morally obligatory to pay taxes…” (No. 2240).

Now if we can only get the leprechauns to rise up against Apple, we can shut down at least this one offshore tax haven.

 

One BAD Apple

The recent news that Apple has played the tax laws of Ireland versus the U.S. to effectively avoid paying any corporate tax on tens of billions of income might be the proverbial straw that breaks the camel’s back regarding finding a solution to offshore tax haven abuse. 

All the rest of us are essentially subsidizing all the government services that Apple is using.  Our roads and bridges, courts, public education, even our military defense.

So exactly how do we force multinational corporations to pay their fair share of U.S. taxes even if we can’t get other countries to join us in this effort?

Harold Meyerson addresses this issue in an opinion editorial in The Washington Post.  Here are some excerpts.

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The Washington Post
May 28, 3013

Apple’s U.S. revenue should be taxed

By Harold Meyerson,

The open secret of many global corporations’ success — and occasionally, downfall — is to fall between the cracks. Apple, which is based in Cupertino, Calif., created an Irish subsidiary with no employees, into which it funneled roughly $30 billion between 2009 and 2012 on which neither Ireland nor the United States levied taxes.…

The legal evasion of corporate taxes by shifting income to low-tax climes isn’t only a U.S. problem. Low-tax trolling is on the agenda of the Group of Eight leaders’ meeting next month. But absent a global sovereign, there will always be countries with tax rates lower than their neighbors’ and companies seeking to take advantage of that disparity. Reducing the nominal tax rate on corporate profits in the United States to 25 percent, or 15 percent, from the current 35 percent won’t deter some future Apple from shifting profits to some future Ireland if the tax rate there is zero.

So, what to do? …taxing corporations on their revenue rather than their profits. If Apple gets 60 percent of its revenue from sales in the United States, Apple should pay U.S. taxes on that revenue. Let France collect taxes from Apple on its sales in France, China on its sales in China and so forth. Taking production and the location of corporate headquarters out of the equation would end the noxious practices of placing factories where the taxes are lowest and creating dummy subsidiaries to funnel profits through low-tax countries. Companies would still roam the globe in search of the cheapest labor, though a better Congress might one day seek to reward businesses for keeping and generating high-value-added jobs in the United States.…

Ultimately, what’s needed are global standards for taxes, labor and regulation. Until they exist, let’s do what we can to stop game-playing that benefits only the rich.

Google Joins Apple Avoiding Taxes With Stateless Income

Bloomberg 

By Jesse Drucker - May 22, 2013

U.S. Senate scrutiny of Apple Inc. (AAPL)’s tax strategies turned the spotlight on a unit with $30 billion in profit since 2009 that’s incorporated in Ireland, controlled by a board in California, and doesn’t pay taxes in either place.

Apple officials acknowledged yesterday at a congressional hearing that the entity -- a key subsidiary in Apple’s offshore tax strategy -- is managed and controlled in the U.S., yet it still isn’t paying U.S. federal income taxes.

The shifting of profits by multinational companies is costing the U.S. and Europe at least $100 billion per year in lost tax revenue, according to Kimberly Clausing, an economics professor at Reed University in Portland, Oregon.

“Over the decades, Congress and governments around the world have allowed a system to develop which allows multinational companies to earn income tax-free by using contracts to shift the income, on paper, to companies in low-and zero-tax countries,” said Michael Durst, a retired international tax attorney based in Washington. The result “is eroding public confidence in the fairness of tax systems in the United States and around the world.”

Similar practices by an assortment of companies -- from Google Inc. (GOOG), owner of the world’s most popular Internet search engine, to Forest Laboratories Inc. (FRX), the maker of antidepressant drug Lexapro -- are drawing increased scrutiny from regulators in the U.S. and around the world, particularly as European nations face a backlash against austerity measures.

Tax Avoidance

Corporate tax avoidance is now being targeted on several fronts. The Organization for Economic Cooperation and Development, a think tank funded by governments around the world, is scheduled to release an “action plan” in July to deal with tax revenue lost to profit shifting. The plan came in response to a request by the Group of 20 nations.

The European Commission also is targeting key rules that enable corporate profit shifting.

In the U.S., President Barack Obama’s Treasury Department in April released a list of global tax loopholes to close, many of which it has targeted unsuccessfully in the past.

Meanwhile, the U.S. Senate Permanent Subcommittee on Investigations found that Apple avoided paying income taxes on $74 billion of profit during the past four years in part by moving patent rights to a web of offshore subsidiaries that pay virtually no income taxes.

Apple Chief Executive Officer Tim Cook yesterday maintained the company had done nothing wrong and said it pays “all the taxes we owe -- every single dollar.” The Cupertino, California-based company is also not alone in moving profits to such offshore units.

‘Double Irish’

Google, for example, has used a pair of tax shelters known by tax attorneys as the “Double Irish” and “Dutch Sandwich” that move foreign profits through Ireland and the Netherlands to Bermuda to avoid about $2 billion in income taxes a year, according to the company’s filings in the U.S.

Like Apple, Mountain View, California-based Google shifts profits into an Irish subsidiary that doesn’t pay taxes in Ireland. In Google’s case, it says the unit is managed in Bermuda, which has no corporate income tax.

Google has been questioned by the U.K. Parliament twice since November over its tax affairs and is in a more than $1 billion dispute with French tax authorities.

Yahoo! Inc. (YHOO) has funneled hundreds of millions of dollars in profits through a Dutch bookkeeper’s suburban home office en route to subsidiaries in Mauritius and Switzerland. Like Apple, Sunnyvale, California-based Yahoo has deposited profits in an Irish subsidiary that claims not to be a tax resident in Ireland, but instead in the Cayman Islands, filings show.

Forest Labs, Cisco

Forest Laboratories, based in New York, has used a virtually identical strategy to that of Google, claiming most of its profits are offshore, even as its sales are almost entirely in the U.S. It has also used an Irish unit that claims to be headquartered in Bermuda, and therefore not on the hook for Irish income taxes.

Cisco Systems Inc. (CSCO), based in San Jose, California, has avoided paying billions of dollars in income taxes by attributing about half its worldwide profits in recent years to a tiny unit at the foot of the Swiss Alps.

Cisco spokeswoman Kristin Carvell had no comment for this article. Yahoo spokeswoman Sara Gorman, Google spokeswoman Samantha Smith and Forest Laboratories Vice President Frank Murdolo didn’t return calls for comment.

The Irish Finance Ministry yesterday said there’s “no possibility” of special tax rate deals for companies, in an e-mailed response to questions on Apple’s tax treatment of profits of Irish affiliates.

‘Check-the-Box’

The companies have also depended on a U.S. tax regulation known as “check the box” -- cited by the Senate investigators in the Apple case -- that makes offshore transactions effectively invisible to the IRS.

Senate investigators drilled down into a crucial component of Apple’s strategy that Edward Kleinbard, a former corporate tax attorney and professor at the University of Southern California Law School, said may make the company vulnerable to taxation in the U.S. In the panel’s report, the top Irish subsidiary receiving offshore profits was found to have held almost all its board meetings in California, with its sole Irish board member rarely attending.

“Apple says their Irish subsidiaries’ ‘mind and management’ lies outside Ireland, but the real question is, do those subsidiaries have any mind of their own at all?” Kleinbard said. “If they are not really competent to make independent decisions to take on risks and make contracts on their own behalf, then the structure collapses of its own weight, and the income properly should be taxed to the United States.”

Multinationals aren't here to help

“We don’t have an obligation to solve America’s problems.” 

Remember this quote from an Apple executive as reported by Charles Duhigg and Keith Bradsher.  It appeared in the first of a two part story that will surely win the two New York Times journalists deserved recognition for exposing Apple’s decidedly un-American manufacturing standards in China.

Remember this quote the next time you hear Apple, which is sitting on $98 billion in cash on hand, and other multinational corporations offer to help the American economy if we only lower their corporate taxes and let them bring home overseas profits with little taxation so they can hire workers. 

Remember that quote the next time Apple and their ilk lobby for more trade deals with other countries to create jobs here at home like we did with China in 2001 (we’ve lost 6 million manufacturing jobs since then). 

Remember that quote when you hear Apple and their big business elite or one of their organizations like the U.S. Chamber telling the American people that they know what is best for our country.

Remember that the real motive of Apple and other multinational corporations is not to solve America’s problems.  That’s because they are not American businesses any longer—they’re “citizens of the world” Thomas Friedman correctly points out in his column yesterday.

These multinationals have no allegiance to any country.  They have only one goal—to make as much profit for their executives and shareholders as possible by increasing production and lowering costs.  The slave-labor like conditions and slave-labor wages at Apple’s Chinese manufacturing plants are detailed in the New York Time’s stories.

Likewise, America should have no allegiance to these multinationals.  When Steven Jobs told President Obama last February that the iPhone jobs aren’t coming back to America, the President should have told him that we were going to start getting tough on trade enforcement.  No longer should we allow other countries to produce cheaper products due to little concern for their workers and environment.  “Meet our standards or pay tariffs” the President should have told Mr. Jobs. 

Almost a year after that meeting with Mr. Jobs, the President did call on tougher trade enforcement in his State of the Union.  Let’s hope he means it and give him our support.