{"id":19468,"date":"2017-11-09T16:22:24","date_gmt":"2017-11-09T21:22:24","guid":{"rendered":"https:\/\/mjtsai.com\/blog\/?p=19468"},"modified":"2024-09-11T12:16:07","modified_gmt":"2024-09-11T16:16:07","slug":"the-paradise-papers","status":"publish","type":"post","link":"https:\/\/mjtsai.com\/blog\/2017\/11\/09\/the-paradise-papers\/","title":{"rendered":"The Paradise Papers"},"content":{"rendered":"

Bastian Brinkmann and Lena Kampf<\/a>:<\/p>\n

\n

In 2014, the law firm Appleby – the recipient of Apple’s long list of questions – took the company on as a client. The Paradise Papers show that in 2015, Appleby listed two Apple subsidiaries as being based in Jersey. Laws on the island allow foreign companies to establish their tax residency there.<\/p>\n

[…]<\/p>\n

One possible explanation for the company’s presence in Jersey is that Apple wanted to quickly react to the Irish tax reform. Previously, Apple subsidiaries in Ireland, thanks to the trick outlined above, had been considered “stateless” from the perspective of tax law – they weren’t based anywhere at all. But that’s no longer allowed. It could be, then, that Apple’s homeless companies have now finally settled down – on the island of Jersey, where the tax rate is zero percent.<\/p>\n

[…]<\/p>\n

Those familiar with the procedure say that the end result of Apple’s restructuring is that not much has changed for the company. And in Apple’s publicly available financial information, there has indeed been virtually no change in the amount of taxes paid by the company since 2015. According to that information, Apple paid around 4 percent on profits made outside of the U.S. in both the years 2013 and 2014. In 2015, it was around 5 percent and approximately 6 percent in 2016. Fluctuations of that magnitude are common for international corporations.<\/p>\n<\/blockquote>\n\n

Jesse Drucker and Simon Bowers<\/a>:<\/p>\n

“We pay all the taxes we owe, every single dollar,” Mr. Cook declared at the hearing. “We don’t depend on tax gimmicks,” he went on. “We don’t stash money on some Caribbean island.”<\/p>\n

True enough. The island Apple would soon rely on was in the English Channel.<\/p>\n

Five months after Mr. Cook’s testimony, Irish officials began to crack down on the tax structure Apple had exploited. So the iPhone maker went hunting for another place to park its profits, newly leaked records show. With help from law firms that specialize in offshore tax shelters, the company canvassed multiple jurisdictions before settling on the small island of Jersey, which typically does not tax corporate income.<\/p>\n

[…]<\/p>\n

The documents reveal how big law firms help clients weave their way through the gaps between different countries’ tax rules. Appleby clients have transferred trademarks, patent rights and other valuable assets into offshore shell companies, avoiding billions of dollars in taxes. The rights to Nike’s Swoosh trademark, Uber’s taxi-hailing app, Allergan’s Botox patents and Facebook’s social media technology have all resided in shell companies that listed as their headquarters Appleby offices in Bermuda and Grand Cayman, the records show.<\/p><\/blockquote>\n\n

Wolfgang Krach<\/a> (via Hacker News<\/a>):<\/p>\n

\n

Public filings reveal that between 2010 and 2017, on average, Apple generated two-thirds of its profits outside the U.S. Evidently, it earned $41.1 billion in 2016 and $44.7 billion in 2017. What these filings also show is that since 2010, Apple’s foreign-earned income has been taxed at a rate of between 1 and 7 percent. Mr. Cook, do you believe this comports with the “moral responsibility” you have advocated? Such “tax optimization” – albeit legal – is only possible because specialized law firms such as Appleby devise complex company structures inaccessible to most other firms. Skilled workers, small business owners and employees in most countries outside the U.S., many of whom surely use Apple products, don’t have the means to shirk ordinary taxes.<\/p>\n<\/blockquote>\n\n

Alastair Houghton<\/a>:<\/p>\n

\n

In a\nvery real sense, for instance, there is no such company as “Apple”. Rather,\nthere is Apple, Inc<\/em> (which is in the United States), Apple Europe Limited<\/em>\n(in the United Kingdom), Apple Operations International<\/em> (Ireland), Apple\nSales International<\/em> (Ireland), Apple Distribution International<\/em> (Ireland),\nas well as a host of other entities. All of them are separate companies<\/em>,\nand therefore separate legal entities<\/em>, though some may hold shares in others\nand they likely share some directors too. The thing the public thinks of as\n“Apple” is not, in a legal sense, real — but instead is projected by the\nactions of a number of co-operating legal entities in various different\njurisdictions. You might say this is a sleight of hand, but it’s how the\nworld works because it’s how the laws passed by our politicians work.<\/p>\n

[…]<\/p>\n

Clearly both the delivery company and the website company will be able to calculate a profit figure (essentially sales minus costs), and so Corporation Tax will be paid at UK rate on the profit made by the delivery company and at some other rate depending on where the website company is incorporated on its profits. Now, let’s say the website company can choose where it incorporates — after all, it’s a website and the Internet is everywhere. So let’s pick somewhere with low tax rates. Luxembourg, say. […] It was fine before<\/em> I gave them both similar\nsounding names, and before they had shared directors\/shareholders. Why is it\nsuddenly not<\/em> OK now?<\/p>\n<\/blockquote>\n\n

Kirk McElhearn<\/a>:<\/p>\n

\n

If you are a company making widgets, and you don’t sell them directly, you sell them through distributors, and they in turn tell your widgets to retailers, who sell to end users. Lets say you sell your widgets at 50% of their retail price; the local distributors and retailers earn the rest of the money, and pay taxes on it.<\/p>\n

But since Apple sells most of their products directly, either through their own store, their online store, or their subsidiaries, they are able to retain much more of the total price of their goods.<\/p>\n<\/blockquote>\n\n

Shawn Tully<\/a>:<\/p>\n

\n

But the U.S. code provides ample room for sheltering and avoiding taxes on foreign income, a major reason it needs an overhaul. The rules essentially divide foreign profits into three categories. One bucket of profits is more or less taxed at the full rate of 35%. On a second bucket, the multinational can defer paying the U.S. tax due. And a third category is excluded from all U.S. taxation, amounting to corporate America’s biggest loophole.<\/p>\n

[…]<\/p>\n

The U.S. GAAP financial accounting rules stipulate that if a multinational either reinvests earnings from operations to grow its business, or intends to do so in the future, it’s required to neither pay U.S. tax on those profits in cash, nor to accrue a tax expense for the future that lowers net income. However, if plans change, and multinational decides that it will eventually bring those profits back, it has accrue U.S. tax on that income.<\/p>\n

It’s important to note that Apple is extremely responsible in the use of this exemption for reinvested earnings. Many multinationals report that they intend to plough all of their foreign profits into operations, and hence, don’t make any accruals for U.S. taxes on their offshore earnings. Apple the rare tech titan that books large annual accruals that lower net income.<\/p><\/blockquote>\n\n

Via John Gruber<\/a>:<\/p>\n

\n

The news coverage on Apple’s tax avoidance<\/a> would lead you to believe (and in fact has led many to believe) that Apple pays a lower effective tax rate than most companies, when the truth is they pay a higher rate than most of their peers.<\/p>\n

[…]<\/p>\n

You can argue that Apple should voluntarily pay more in taxes than they’re legally obligated to, but no one who holds such views would ever get hired as a finance executive at a large publicly held company.<\/p>\n<\/blockquote>\n\n

Previously: Apple, Ireland, and the EU<\/a>.<\/p>\n\n

Update (2017-11-09): See also: Todd Ditchendorf<\/a> and my<\/a> tweets<\/a>.<\/p>\n\n

Update (2017-11-13): Apple<\/a>:<\/p>\n

\n

Apple believes every company has a responsibility to pay its taxes, and as the largest taxpayer in the world, Apple pays every dollar it owes in every country around the world. We’re proud of the economic contributions we make to the countries and communities where we do business.<\/p>\n<\/blockquote>\n\n

See also: Sean O’Grady<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

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