How Apple Minimizes its Corporate Tax Burden

[nikhsub1]

Easier said than done. Lobbyists have much more power to prevent change than any of us as voters do to enact it.

No one said it would be easy - but it is really the only way to change what is going on. FWIW, I'm neutral - but since Apple is following the LAW, they have every right to do whatever it is they do to save on taxes. People are acting like they should say "Hey, you know what, we are doing so well that we feel like we want to pay 10 Billion in taxes this year instead of 3". Never going to happen people the problem is NOT with Apple or anyone else, it is with the whacked tax code - Passive income is taxed at a lower rate than working wages, that right there is 100% backwards IMO.

 

[EconProf]

If you really are an economics professor you should probably quit your job, no wonder economists nearly bankrupted the globe three years ago. What utter paucity of arguments. The customers end up paying less? Lol. And it's just the the evil bureaucrats out to get apple In the Doj book case, it's not that appple colluded with publishers and the customers ended up paying much more.

What a load of reactionary nonsense. Of course green peace should make a fuss about it? Why should a corporation with 30 billion yearly profit not have to care about the environment?

Unbelievable, even after what the world went through with the global financial meltdown to have people speak such neoliberal empty nonsense...

Good with invective. Short on logic. Explain yourself.

 

[jimjulian]

Overall, Apple paid $3.3 billion in corporate taxes in 2011 on earnings of $34.2 billion in profits, an effective tax rate of 9.8%, which is considered low by corporate standards. But with the company's tactics relying on a complex and disjointed system of tax laws throughout the world, it is difficult for the United States to single-handedly require Apple to book more of its revenue in its home country, which currently has the highest corporate tax rates in the world when federal and average state rates are included.

The best way to get Apple to repatriate profits and jobs to the US is for Congress to enact the FairTax (HR-25/S-13). It's worth a click to check it out.

 

[burne]

and with gross margins in the upper forties in percentage terms

Apple's gross margin of 29.66% is comparable to that of Microsoft: 29.34%

No need to make up figures, it's all in the SEC-filings.

 

[blow45]

No corporation in the entire WORLD "pays" taxes. Tax payments become a cost factored into the price of the goods or services the company sells. The consumer pays 100% of the corporation's tax burden. Always has, always will, everywhere, every time.

If a person wants to indulge in harshly judging the morality/ethics of corporations (decisions made by their management, boards, etc.), one would do better to discuss what said corporation does with their net profit. Do employee salaries go up? Do they donate to charity? Do they invest in R&D enough? Too much? CEO compensation reasonable, given performance? Do they give shareholders a return on investment?

Or one would do better to judge them by their overall environmental impact as it relates to the significance of the product being produced. Energy companies can disturb lands and occasionally cause environmental damage, but they provide the power necessary for industry, commerce, technology, agriculture, and personal use, so a reasonable balance must be struck.

If Apple's effective tax rate was 20% instead of slightly south of 10%, it is hardly likely that CEO compensation would be lessened, or even wages. Prices would probably go up. R&D expenditures might go down. Retail store expansion, along with all other capital expansion/improvements would be lessened. All of which would result in fewer new Apple retail employee positions (resulting in less payroll tax collected), fewer jobs for contracted labor (less payroll tax collected), fewer full-time research positions in the R&D department (less payroll tax collected and slower pace of technological innovation) and lower stock price (less capital gains tax collected from stockholders).

Sure, the federal and State governments get a bit more up front, from one large (vilified and "demagogued") source, but the economic impact of the taxes levied have detrimental effects on tax receipts long-term, not to mention that the pace of technological advancement, innovation, and new productivity-enhancing applications slows as a result as well. Some call this "trickle-down economics". Others just call it "Economics 101".

Private enterprises are far more agile in adapting to economic realities than a government is, and do not have the crutch of being able to print more money and devalue the currency when things get tight. They provide jobs and submit billions in payroll taxes to the federal government while keeping people employed, productive contributors to society, thereby lessening the overall burden of entitlement spending. If permitting large corporations--engines of innovation, job creators, product/service providers, and payroll tax harvesters--to retain more of the profits they earned through their success is "wrong," then I don't want to be "right."

Why would prices go up with a 20% tax? Where do you get that from? Apple is making 30 billion in profit, if their profits fall to say 27 billion why would they have to increase their prices ? Yes it is wrong their cummulative tax to be 10%. Companies making such profits shouldn't be paying tax equivalent to a low wage worker. But hey that's ecomincs 101... Lets all now down to the engines of innovation...

 

[ken94538]

Tax is NOT a Burden, it's DUTY!

 

[burne]

Apple is making 30 billion in profit

You're mixing up turnover and profit. 39 billion turnover, 11 billion profit, last quarter.

 

[manu chao]

Ireland is in a austerity nightmare yet the government still allows billions (possibly trillions) to funnel through it's shores and a huge discount. Even a .5% increase on the current corporate taxes would help out the ROI immensely

Ireland just hopes to increase its tax take of all European countries by pricing things low and making it up in volume. Of course this leads to a bit of a race to the bottom and the other European countries (which are currently bailing out Ireland) aren't exactly pleased about this (particularly in the light of the bail-out).

As always, in general competition is good but if one actor dominates it, competition starts to benefits that dominant actor more than it benefits the larger community and it is good to put a limit competition. With tax competition, this can usually be done by putting a limit on the minimum tax rate, which the EU has done for example with VAT rates.

 

[lilo777]

Lol Apple does it better. It's ok if you do it as long as you do it worse then Apple? You have a lot to learn about business as this is the norm for any functioning company. Screaming immorality and unethical is so naive it's hilarious.

As a shareholder, I'm glad Apple does it and I'd be glad if any other company does it. Get off the high horse with the moralities clause.

I suspect that most people defending Apple here are AAPL shareholders. They should put a disclaimer in their posts. And I am not that naive. I say we should blame both corporations and government for doing a poor job in tax legislation and collection. Say whatever you want, for profit corporations should not pay 9% taxes (even if their shareholders want just that).

 

[unlinked]

Ireland just hopes to increase its tax take of all European countries by pricing things low and making it up in volume. Of course this leads to a bit of a race to the bottom and the other European countries (which are currently bailing out Ireland) aren't exactly pleased about this (particularly in the light of the bail-out).

If only the EU had the good sense to enforce the stability and growth pact. Instead they ignored it because Germany was one of the first countries to break it.

 

[FloatingBones]

I'm going to throw a curve ball from left field here that's likely to get a lot of a down votes, but I think it should be said anyways.

What if corporations weren't taxed (at least based on income)? [SNIP]

http://www.fairtax.org

 

[manu chao]

How many of you volunteer to pay MORE income tax because you think it's the 'right' thing to do? Yeah, that's what I thought. Why should Apple?

How many would agree to close a tax loophole they personally benefit from? Few.

But how many would agree to reduce tax loopholes that close a wide variety of tax loopholes but via slightly lowered rates leads to them paying a similar amount of tax than the existing situation? This should be a non-brainer, except that every individual and every group that stands to loose more from this change than it would benefit would get very vocal in their opposition. And unfortunately, a majority vote which would have a clear outcome is side-stepped by delaying and obstructing techniques of the losers.

 

[jlasoon]

It doesn't but when Google, GE, Exxon and hundreds of more companies do the same thing it ads up.

This is not a new thing and its an issue with the tax codes. Problem is the issue is more of a feature than a bug for corporations.

Why does everyone assume that these companies are super patriotic and will essentially stick around to feed the bloated government. Here's a hint, most companies have left already, there not coming back, the country is essentially broke. Keep fighting for those policies, I don't give a rats behind. Some of us are well off, and prepared for what's coming.

 

[henrystar]

Couldn't agree more.

Taxes are created and collected for good reason, and companies/people who dodge them are cheating that system. This puts pressure on those who do pay taxes, and/or causes governments to have less funds to achieve their goals.

Bad Apple, bad.

NOT bad at all. If AAPL did not use its best strategy, it could be sued by us stockholders. Apple is doing just great. Our US tax laws are all screwed up. They need fixin!

 

[EconProf]

http://www.fairtax.org

Great idea! Corporations are just pass throughs. If we must tax income, then we should tax the income that flows to individuals.

 

[reedmartin]

I suspect that most people defending Apple here are AAPL shareholders. They should put a disclaimer in their posts. And I am not that naive. I say we should blame both corporations and government for doing a poor job in tax legislation and collection. Say whatever you want, for profit corporations should not pay 9% taxes (even if their shareholders want just that).

I suspect that the people not defending apple are not shareholders of any company because they would never in a million years suggest that a company should pay more in taxes because it's just the ethical thing to do, if they actually owned any stock in anything. Very silly thinking.

You say whatever you want, a company shouldn't voluntarily pay for taxes when they don't have to. Again, it's quite evident who here owns businesses or stock, and who here is just angry because Apple is so successful.

Every company does this. Every company is expected to do this. Every company is in the legal right to do this. Funny how Apple is such a villain!

 

[blow45]

Good with invective. Short on logic. Explain yourself.

Save the patronising for your students and reply to my points instead. You made a lot of conjecture with nothing to back it up, at some point it might dawn on you that after a near economic meltdown and the global ressesions that followed people are not so keen to hearing your generic pseudoscientific nonsense. This is not a Goldman conference, we don't have our opinions in each others mouths, and when we collectively eff up the "bureaucrats" have to bail us out with taxpayers money so we can continue receiving our insultingly high bonuses.

My points were pretty clear prof:
Why would apple making 25bil instead of 30bil mean higher prices for consumers?
Why should the DOJ not adress a very apparent collusion between apple and publishers hat has cost the consumer a considerable increase in book prices and has hurt competition?
Why shouldn't green peace be on apple's a back? If these people are not on their backs to safeguard a future for our planet, who wil pressure such über mega rich corporations that their monetary strength can enable them to bribe, lobby, lie and hide it effectively, lawyer up and be above nations in tax paying? If green peace don't effect this pressure who will, arch kissers (the iconical apple arch in a lot of their stores is what I am referring to) such as yourself? I wouldn't think so...

 

[cadillac1234]

Why does everyone assume that these companies are super patriotic and will essentially stick around to feed the bloated government. Here's a hint, most companies have left already, there not coming back, the country is essentially broke. Keep fighting for those policies, I don't give a rats behind. Some of us a well off, and prepared for what's coming.

They will stick around in the US because we have the best patent system, the best infrastructure, the most pro-corporation government, the best legal system, the best supply chains and the best military to keep things going that way.

Let them incorporate in India or China and see how well their patents are enforced.

 

[manu chao]

Meanwhile strictly enforce personal income taxes and eliminate loopholes. THAT is what would be ethical.

And how much personal income tax do we pay on rise of the stock price of Apple stock? Not much, thought so. Eliminating corporate taxes only works if the personal income taxes apply equally to capital gains and interest rates.

And even then, just create a corporation that serves your personal well-being and channel all your income directly to this corporation, it spends money to finance your housing and other expenses, ie, the corporation sells your work and spends on your well-being. Presto, suddenly it is like deducting all your expenses from income tax.

 

[blow45]

I suspect that the people not defending apple are not shareholders of any company because they would never in a million years suggest that a company should pay more in taxes because it's just the ethical thing to do, if they actually owned any stock in anything. Very silly thinking.

You say whatever you want, a company shouldn't voluntarily pay for taxes when they don't have to. Again, it's quite evident who here owns businesses or stock, and who here is just angry because Apple is so successful.

Every company does this. Every company is expected to do this. Every company is in the legal right to do this. Funny how Apple is such a villain!

If humanity wants to survive and thrive nations should put global capital under control. The fact that such large corporations have the clout to influence legislature worldwide doesn't mean this is right or just. I can't believe I am hearing this after what the world went through 4 years ago... It seems some people won't lean...

Btw, some people do own businesses here that can't go to Luxembourg and pay ridiculously low taxes...not every business can play the global market that way so via going through one loophole after the other they can both make more than obscene profit AND ND up paying no more than 10% in tax.... It might be legal, but laws are meant to change.

 

[puma1552]

I can't wait to see Apple top out, then maybe they won't leave technology **** languishing on the shelves for up to and over a year at a time while expecting consumers to pay the same price while their price to manufacture outdated stuff declines.

 

[lilo777]

I suspect that the people not defending apple are not shareholders of any company because they would never in a million years suggest that a company should pay more in taxes because it's just the ethical thing to do, if they actually owned any stock in anything. Very silly thinking.

You say whatever you want, a company shouldn't voluntarily pay for taxes when they don't have to. Again, it's quite evident who here owns businesses or stock, and who here is just angry because Apple is so successful.

Every company does this. Every company is expected to do this. Every company is in the legal right to do this. Funny how Apple is such a villain!

While I do not own AAPL stock I do own quite a few shares of other companies (mostly through funds). In fact, I suspect that I own way more shares than an average poster on this forum. Yet I value my stake in this country higher than my stake in these companies. It's very easy to have rich companies and lousy country. Our goal is great country. And while great companies are a means of achieving this goal they by themselves are not a goal. Let's set our priorities straight.

 

[reedmartin]

Of humanity wants to survive and thrive nations should put global capital under control. The fact that such large corporations habpve the clout to influence legislature worldwide doesn't mean this os right.

Again, it has nothing to do with right or wrong. Detach yourself from all the emotion. Corporations that do wrong should be punished i agree 100%. Apple, Google and whatever other organizations (see every single one in existence if they could) are doing nothing wrong by using existing tax laws to their advantage. You can't blame the player, blame the game.

 

[3282868]

Great post. I'd like to think your post will allow common sense to prevail and quiet down some of the "THEY ARE NOT PAYING THEIR FAIR SHARE!!" rhetoric in this thread . . . . but I know better

Yet people can state you're self entitled with greed and the rhetoric that "it's my money, mine, mine, mine, I don't owe any one anything." This is also false given that companies utilize services that need to be paid for, such as the roads their trucks use for transportation of goods, the land their businesses use, taxes on utilities to run their businesses, etc. The more they use, the more they should pay. A flat tax is the best solution for everyone; consumers, businesses, etc. Pay for how much you use. No one is entitled, not the corporations that circumvent the laws (whether legal or not) nor the people abusing the system with welfare. Everyone should pull their own weight, yet with living costs exceeding general income while companies such as Walmart, Target, and even Apple pay less while making billions and destroying small businesses as they do not have the cash resources to buy items in bulk like Walmart to sell them cheaper, it's a no win scenario.

Google Walmart and Rubbermaid. An example of how outsourcing jobs to cheaper nations such as China began, and thus the ultimate decline in American jobs. Please don't dismiss this as it's long, it's very informative of how our corporate and American job market began spiraling down. The next time you need pens, cleaning supplies, computer parts, think twice about shopping at Wal-mart, Target and the BestBuys that are dominating our corporate landscape. Is saving a few pennies on pens worth ignoring the small businesses that need us to stay alive? It may be pennies to us, but it's a large amount to them.

In 1994, Rubbermaid was one of the best-known plastic companies, but by 1999 Rubbermaid was bought out by a lesser-known company called Newell Company. A former Rubbermaid manager calls the takeover "a sad story", as Wal-Mart did Rubbermaid in. In the mid 1990s, Rubbermaid was dealing with skyrocketing prices for resin, a key ingredient in its plastic products, as well as producing their product in the US, a fact Rubbermaid insisted on. Wal-Mart warned that if prices rose, Rubbermaid products would be dropped. At the time, Wal-Mart was as much as 20% of Rubbermaid's business. "They backed us into a corner," one Rubbermaid manager admitted. "We couldn't recoup our product-development costs before they'd slash prices. That led to less innovation." When Rubbermaid raised the prices of some of its toys, Wal-mart dropped Rubbermaid's products, going with another company "adept at making Rubbermaid look-likes at a lower cost."

In 1995, Rubbermaid earnings plunged by 30%. Wal-Mart also insisted that Rubbermaid get its products to Wal-Mart within 2 days of being ordered, if Rubbermaid didn't it was fined for each dollar Wal-Mart said it lost, and was required to buy back unsold wares. Finally, Wal-Mart dictated to Rubbermaid what types of products it should make, and how/where they should be made. The former Rubbermaid manager said Wal-Mart "squeezed too hard." Rubbermaid was forced to close down many, if not all, of their American plants, forcing thousands out of work. Wal-mart then moved into the towns that Rubbermaid once employed and built Wal-mart stores, employing ex-Rubbermaid workers at minimum wage when most were making much more along with 401k's, health insurance and other benefits not given to Wal-mart employees. Wal-mart conducted a "slash and burn", strong arming American companies to produce their goods overseas in China, placing thousands of American's out of work, only to be employed at pimping out cheap goods for next to nothing.

In 1998, the Newell Company bought out the troubled Rubbermaid company, and their products started to reappear on Wal-Mart shelves--ostensibly because Newell Company agrees to do things 'the Wal-Mart way.'

This is how corporations have changed our landscape, outsourcing jobs and goods to China, placing millions out of work. Apple used to make their products in America, then outsourced to China. Their slogan was "Made in the USA", and later changed to "Designed in the USA". Apple still made profit before then, but wanted more. Foxconn already made parts for some of Apple's products, now they supply the majority of them for their ARM powered devices.

In the end, we, the consumers, lose yet we're applauding the very system that keeps us under-employed (and the theory that prices will rise if made in the US could be remedied by giving appropriate tax cuts to US companies for building/producing in the US). It's tantamount to Jews defending Nazi Germany. We're not Apple, how many American's does Apple employee outside of the minimum wage high school retailer employees? We know Apple keeps Cupertino small, instead of hiring more they move people from one department to the other (OS X Leopard engineers were relocated to iOS in 2007 for the iPhone, thus Leopard was delayed). We're paying for the goods built in China that hinder the US from growing. We may be saving money, but at what cost? We've sold ourselves out, and we have ourselves to blame.

-Forgive my bold and underlined sentences, I wanted to highlight key point as it is a LONG comment that I fear some may not read.

 

[reedmartin]

While I do not own AAPL stock I do own quite a few shares of other companies (mostly through funds). In fact, I suspect that I own way more shares than an average poster on this forum. Yet I value my stake in this country higher than my stake in these companies. It's very easy to have rich companies and lousy country. Our goal is great country. And while great companies are a means of achieving this goal they by themselves are not a goal. Let's set our priorities straight.

You're what's known as a walking contradiction then lol. If companies did what you say they should do because of ethics, you'd essentially be giving your money away to the companies you invest in. The paradox of your words compared to your actions is baffling.