Excerpts of Apple Executives' Senate Committee Testimony on Tax Policy

[Mackan]

That would be the difference of about 10 years of socialism. Don't worry, we'll be just as insane soon enough. We're already more than half way there, after all.

There's nothing insane with well balanced socialism. A country striving towards a more equal society where everybody get a fair chance in their life, is the best society.

But I guess you prefer a class based society, no wellfare, no universal healthcare, where money controls everything, and where everyone only thinks about themselves.

 

[vvswarup]

exactly. if you want to get back to a place where "Made in America" is a mark of quality and not an appeal for charity, we need to also get back to being a pro-business nation again.

Thank you!

I have read post after post on many forums about how America had the strongest economic growth in the early years after WWII when our tax rates were 90%. They use this to counter claims that high taxes will stifle growth. Some go to the extent of claiming that we may see that kind of growth again if only we went back to those tax rates.

What people don't realize is that after WWII, the US was the "last man standing." We were decades ahead of the world. There was no better place to do business than the US, so it didn't really matter if taxes were too high. Businesses just had no place to go.

But the reality is that the competition is a lot better. The US has to compete with other countries. The sooner people understand how asinine it is to expect to post "never-before-seen economic growth" with punitive tax rates, the better.

 

[wiz329]

Yeah sure, because it's all black or white. If you don't try to optimize your taxes, you try to pay the most possible, right.

It's interesting how it's always the same people with the same way of thinking that can't do better than binary thinking.

Sarcasm, sir.

The point here is relatively simple. Congress can't blame anyone for minimizing their tax burden, or "avoiding" taxes. To act in any other way is frankly stupid. Congress makes the rules. If there are loopholes in the system or misplaced incentives, then that's Congress' job to fix.

While understanding nuance and complexity in such issues is certainly important, its also important to avoid complicating things needlessly.

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Thank you!

I have read post after post on many forums about how America had the strongest economic growth in the early years after WWII when our tax rates were 90%. They use this to counter claims that high taxes will stifle growth. Some go to the extent of claiming that we may see that kind of growth again if only we went back to those tax rates.

What people don't realize is that after WWII, the US was the "last man standing." We were decades ahead of the world. There was no better place to do business than the US, so it didn't really matter if taxes were too high. Businesses just had no place to go.

But the reality is that the competition is a lot better. The US has to compete with other countries. The sooner people understand how asinine it is to expect to post "never-before-seen economic growth" with punitive tax rates, the better.

You raise an excellent point.

Just my two cents here.

The problem with the the tax policy issue in general is that there really isn't a whole lot of conclusive empirical evidence on the topic. So, folks on both sides of the isle throw anecdotal evidence back and forth at each other all day long, and its pretty difficult to cut through the crap.

If anyone is interesting in answering these fundamental questions about the effects of various types of taxation (how tax rates effect the labor supply, for example), I would recommend the book "Taxing Ourselves" by Bakija and Slemrod. It does an excellent job of present a thoroughly unbiased, empirical analysis of the American tax code. What I especially like about it is how it always appeals to the actual data, and if the data don't really demonstrate a conclusive answer, the authors aren't afraid to leave it up in the air. It really is a great book for sorting through all of these questions.

 

[darkplanets]

Let me get this straight: The "esteemed" members of congress think that money earned outside the US should be taxed by the US, even after being taxed by the relevant foreign nations?

Am I missing something here, or do they have the intellect of a small child? What makes the US so special that it thinks it deserves double taxation on all profits earned globally? Just because Ireland has a lower tax rate doesn't mean the US is suddenly entitled to tax that income as if it was earned in the states. Absurd really.

Foreign earned income should be taxed IN THE PLACE OF SALE. That's it! No double taxes. Reducing the repatriation tax rate would increase the cash flow globally -- global profits might actually be invested in the US again!

For all the people railing on Apple: do you really think the US should have the "right" to tax profits earned elsewhere just because someone else's tax code had lower rates? How US-centrist.

 

[4TheLoveOfTech]

There's nothing insane with well balanced socialism. A country striving towards a more equal society where everybody get a fair chance in their life, is the best society.

But I guess you prefer a class based society, no wellfare, no universal healthcare, where money controls everything, and where everyone only thinks about themselves.

Steve Jobs would be proud of you... But he's dead.

 

[ts1973]

It is not a US problem...

This post is probably already somewhere in the hundreds of posts before me, in this thread or the previous, but I'd like to point something out anyway.

As many of you know Ireland is a preferred country for many multinationals to reside in - or to put there holdings in - in Europe. Especially tech firms. Not sure that many of you know why : it is because a common practice and a loophole in the customs law. When products manufactured elsewhere, to be sold in the EU, are brought into Ireland (and the UK if I'm right), customs will not tax them. So companies bring them en masse into Ireland (whether this is physically or on paper I don't know) and are from there on home free. Further rules in the EU stipulate that from there on only taxes have to be paid on the added value. In case of Apple this is as far as I can see only on the service a retailer provides, we know that on hardware this is only about 3-5%. Europe does have something called sales tax (VAT as we all know) - but this is not what the hearing or the discussion is about (as Bullock said in the hearing: they pay about 900mill of taxes in Europe, not including VAT). Essentially, Apple (and Dell, HP etc) only pay taxes on 5% of the value of there products, all the rest remains in the holding and is not taxed at all. It is the destination countries that are suffering the tax loss here. In my opinion this is a practice that has to be stopped, but it is a globe problem.

The bottom line is - and Tim Cook and his colleagues were right to point this out - the end result for the US would remain the same no matter how many taxes AOI or ASE would pay, because the US would never be the beneficiary.

I did like the discussion in the hearing though, IMO it's a necessary discussion, but should not be limited to the US. I did not like, however, Levin's closing speech in which he tried to vilify Apple, while the only thing they do, again IMO, is the same every one of there competitors do. But then again, to declare that no (legal!) tax evasion is going on here, is completely untrue.

 

[savar]

Not following you. Apple pays US taxes at the full corporate rate for all US activities (in addition to units sold in all of americas). The distinction is their AOI managed foreign sales, which they are not required to pay US taxes on anyway. Why should they bring that money in and have it cut by a third?

Would you do that to your 401K?

Apple came in to suggest a lower rate for repatriating that money, which would be a great thing for our economy. Otherwise, it ain't happening (this goes for just about every other company as well btw. Apple are not an exception.).

To add to that, imagine that you are an investor in a company that has money from overseas business. This company decides to repatriate this money at a 35% tax rate and the cash holdings of the company plummets by 1/3rd, dragging the stock price down with it. Are you a happy investor now?

Congress is great at pointing the finger. They did it with banks and hedge funds during the financial panic of 2007. Why not? It's easy for the average American to resent somebody who performs a function that is incomprehensible to most of us, yet makes millions of dollars doing it even while unemployment skyrockets.

But the truth is, Congress created all the rules that those financial institutions live by. Congress created the institutions that feed finance, such as the Fed, the FDIC, and the Treasury. It's much easier for politicians to point the finger at easy targets than it is for them to actually effect change.

I wonder how many members of congress have been beneficiaries or creators of trust funds? Or taken advantage of complex tax structures in order to minimize their tax liabilities? These are tax advantages that the average person does not have access to, either, so it's quite hypocritical for Congress to rake Apple over the coals.

Why didn't Congress pass the full Stock Act this year? Because they want to have financial advantages that the rest of us don't have.

http://finance.yahoo.com/blogs/breakout/stock-act-gets-gutted-why-care-173159298.html

The article above really nails it: Apple brings the cameras. It's good press for politicians to fight evil multinational corporations in the name of tax justice and improving life for average people. This is reminscent of the NYT article on Foxconn that focused exclusively on Apple, completely ignored Apple's SCM audit program, and also completely ignored the dozens of other well-known American companies that contract work out to Foxconn, too.

 

[G4DP]

If Apple have paid the correct amount amount of corporation tax on US earning then there shouldn't be a problem.

The problem in the UK is that none of the major companies are doing that.

 

[copykris]

Saw a Dateline deal some years ago and Cisco and a few other large corps are in fact having "corp offices" in places like Ireland JUST to take advantage of the 15% instead of 35%. All legally. Stated if US would compromise a little (not 15% but even maybe 25 -30 )they would move back. But US says NO WAY , we want 35%! So Cisco says fine we will stay in Ireland then.

oh my

this made me laugh pretty hard

this is the law man, you don't get to bargain with the irs about what *you* think is a fair percentage to pay just because you happen to have some 'leverage'

 

[swingerofbirch]

I'm 2 hours and 51 minutes into this. The thing I find most interesting so far is the taking on off debt to pay the shareholder dividends. I understand that they pay a lower interest rate on the money they borrowed than they would pay tax on money they have offshore. But then my question, which hasn't been asked by the senators, is how would they pay that debt back without bringing the money back to the US? Can they pay the debtor with offshore funds and not bring it back to the US first? I don't see a reason why they couldn't. And if they can, then why would they be interested in repatriating money to the US ever for the purpose of investing in US operations or research. They could continue using banks as a source of money to build their new campus or to do R&D and then just pay the banks back at the 2% interest rate. Because the way they make it sound is that they're currently limited in how much they can invest in the US by how much profit they have in the US (not that they're investing close to what they have in profit in the US anyway). But, if they can use a debtor to pay shareholder dividends, is there any reason they couldn't use the same method for any other type of US payment, such as toward building costs?

 

[inkswamp]

Rand Paul in neither Conservative or Liberal he is Libertarian. His statement is honest and refreshing. I don't agree with some of his ideas but I give him credit for stating exactly what he thinks come hell or high water. We need more like him.

First off, I wasn't talking about Rand Paul, but rather John McCain. Pretty sure he's not a liberal or Democrat.

Secondly, the simple facts is that Rand Paul was grandstanding and arguing against things that didn't pertain to the hearing and making a fool of himself. That's exactly why McCain asked Tim Cook if he felt he'd been dragged to the hearing or was there against his will. Cook confirmed that he wasn't. Apple has been (reportedly) talking to the powers-that-be about the problems with repatriating overseas money for a long time. This was Apple's chance to have their say and Paul was reacting as if the guys from Apple had been forced in at gunpoint. He was doing it because he knows his constituents wouldn't bother to look into the details of the hearing and would view his actions as brave and "stating exactly what he thinks come hell or high water." He wasn't doing anything of the sort. He was showing off, more or less.

 

[gnasher729]

I'm 2 hours and 51 minutes into this. The thing I find most interesting so far is the taking on off debt to pay the shareholder dividends. I understand that they pay a lower interest rate on the money they borrowed than they would pay tax on money they have offshore. But then my question, which hasn't been asked by the senators, is how would they pay that debt back without bringing the money back to the US? Can they pay the debtor with offshore funds and not bring it back to the US first? I don't see a reason why they couldn't.

If they take money from overseas to pay debt in the USA, they would have to pay 35% tax. Or if Apple USA borrowed the money from Apple in Ireland, the US IRS would probably take a very dim view of that.

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But then again, to declare that no (legal!) tax evasion is going on here, is completely untrue.

Careful wiith the words. Tax avoidance is legal, tax evasion is illegal. That's actually what the words mean. If it is legal, it isn't tax evasion, and if it is tax evaion it isn't legal.

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I find interesting the cultural differences between American and European people.

I was in London for two months, just in time to hear EVERYBODY bitching out because of the Starbucks case. And one thing that strikes me is how concerned the British people was about tax avoidance. Everybody agreed on boycotting the company and no buying its products—because they felt in someway that it was acting in an unfair and hardly decent way.

In America instead you see the people defending the company.

There is also a difference between what Apple is doing in the USA, and what Starbucks (and Apple) are doing in the UK. Here's what Apple does in the USA:

IRS: "I see you have $100bn in a bank account in Ireland".
Apple: "We do indeed".
IRS: "If you move that money to the USA you'll have to pay 35% taxes".
Apple: "We know".
IRS: "So why aren't you moving the money to the USA?"
Apple: "As you said, 35% taxes".

That's not even tax avoidance, that's just common sense. European business is different.

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I believe the majority of Apple employees fall into the same poorest category. Retail doesn't pay well. Apple has their own 2% that make a decent wage.

I don't know about other countries, but if you go to my local shopping centre in Lakeside, I think the Apple employees are among the best paid there. Just like in China, Foxconn employees working for Apple are among the best paid there.

 

[MacDav]

Actually what's asinine is pretending that political party doesn't matter (or even worse, advocating for a no party political process). You do realize for most issues members practically vote in blocks. So lets say you're an independent who tends to lean liberal and there's a republican you like? He supports 80% of your issues. Well just wait until the caucus... His voting record is likely to shift to fall in line with the party platform (at least on most major issues). So now that candidate you voted for because he shared so many of your ideals, now only votes in support of 20% of them. Party affiliation matters a great deal. Another D or R is another vote of majority against a possible filibuster.

Plus, you think the political stalemate is bad now? Lol just wait until you have to convince each member individually with no leadership on either side to corral voters. My god nothing would pass. Ever.

P.S. Even independent members you vote for choose a party caucus to attend. The (I) after his or her name is strictly for political purposes (or because he or she had a falling out with state party leadership).

Everything you said only makes my case. What you are saying is exactly why everything would be more fair and equitable without any political parties. Of course this is extremely unlikely to happen anytime soon, because like you, most voters are stuck in the "us against them" team sport mentality. It's the animal herd thing and only a larger expanded awareness will fix it. The fact that you defend it with such vigor only proves my point. I'm not holding my breath for any real change in the near future, in fact if it ever does come to pass I'll be long dead.

 

[HelveticaRoman]

Way to go Rand Paul! Liberals and Democrats live in la la land and have no understanding how business and job creation work.

Apple is a success story!

You are absolutely right, but even wealth creating employers depend on an educated workforce or at least a sufficiently educated and enabled customer base. They also expect to have their interests around the world defended to government agencies, by force if necessary. That requires that reasonable contribution to the government. Discus reasonable... ;-)

 

[MacDav]

First off, I wasn't talking about Rand Paul, but rather John McCain. Pretty sure he's not a liberal or Democrat.

Secondly, the simple facts is that Rand Paul was grandstanding and arguing against things that didn't pertain to the hearing and making a fool of himself. That's exactly why McCain asked Tim Cook if he felt he'd been dragged to the hearing or was there against his will. Cook confirmed that he wasn't. Apple has been (reportedly) talking to the powers-that-be about the problems with repatriating overseas money for a long time. This was Apple's chance to have their say and Paul was reacting as if the guys from Apple had been forced in at gunpoint. He was doing it because he knows his constituents wouldn't bother to look into the details of the hearing and would view his actions as brave and "stating exactly what he thinks come hell or high water." He wasn't doing anything of the sort. He was showing off, more or less.

Everything you said sounds real good. Unfortunately you are only superficially correct. The mainstream news media portrayed the situation exactly how Rand Paul knew they would. I watched all the main channels and every one of them said for the most part that Apple was brought it before congress because they were using questionable tax practices and congress was going to get to the bottom of it by grilling Tim Cook. Complete B/S. Even you know that. The truth is always spun to make everything more exciting and titillating. This is why Rand Paul gave his little speech. You seem to have missed his purpose, and also missed the true purpose of congress, which is to point fingers and make scape goats for their own lack of doing anything at all to fix the problem. This should have been fixed years ago, but please go on and defend their lack of action. Let me guess... it's the Republicans fault.

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All the preaching and hand-wringing going on around here borders on the comical. Practically everyone has picked their favorite Senatorial grandstander, based entirely on their customer loyalties and political persuasions (as if the truth is ever revealed that way). The corporations and members of congress thank you for your suspension of disbelief. Now hear this: nobody has any intention of fixing anything in our screwed up tax system unless the change is made entirely to serve their political interests. The national interest is not even on the agenda, though corporate interests certainly will be.

Unfortunately, you are correct.

 

[numlock]

The reason Levin did let them answer was because Levin was clueless on the law and had to be schooled by the IRS in the 3rd act with the treasury and IRS. Levin was trying to convince the treasury and IRS the issue was regulatory but had to be explained it was legislative. Levin was made to look like a fool. Apple's answer of, "it was setup that way in 1980" was a meter of law.

In short, I have no idea why Levin was allowed chair that discussion given his ineptitude on the subject mater.

he was asking why are you willing to bring home profit from the americas but not the rest of the world. cook looked dumbfounded and their answers (they got limited time from him because they were not answering) had nothing to do with the question.

that question also had nothing to do with the law or regulations

 

[entropys]

Yup. This has nothing to do with Apple, nothing to do with taxes, and nothing to do with the economy. This is all just about Senators pretending to do something so that they can continue clinging to power. Apple just makes a good prop because they're successful and more reporters will show up for the hearing.

Its worse than that. This Levin dude is just seeking a distraction from the current IRS kerfluffle were it has been targeting organisations that aren't of the right political persuasion. I am not a yank, but I am astonished at this sort of behaviour in the land of the free.

This WSJ editorial has it right:

Mr. Levin is one of those Senators who wrote the IRS demanding that it inspect the tax-exempt status of Americans for Tax Reform, the Club for Growth and other groups that are his ideological opponents. "Why does the IRS allow 501(c)(4) organizations to self-declare?" he roared in July 2012. The IRS seems to have followed his orders, so no wonder he is trying to change the subject.

Also, in every other country of the world, liberals are pro free market, in favour of people doing whatever they want to do as long as it doesn't hurt others, etc. You know, libertarian inclined. In the US, the general population seem to have the term liberal confused with the term socialist, which is essentially the opposite. Why is that?

 

[MRU]

Much of the hearing would focus on Apple's use of Irish subsidiaries to avoid paying U.S. income taxes on revenue generated overseas from the sale of products. Senators had accused Apple of having "sham" corporate entities in Ireland that served no purpose except for avoiding tax liability.

We have a 12% corporate tax rate. Ireland offers Apple no subsidiaries other than those which are fixed such as corporate tax rate. The problem lays not with Ireland, but with the loopholes in the American tax system. Ireland is being made a scapegoat by a couple of US senators who have no idea how Ireland runs its tax affairs, but 'out of sight - out of mind'....

 

[entropys]

We have a 12% corporate tax rate. Ireland offers Apple no subsidiaries other than those which are fixed such as corporate tax rate. The problem lays not with Ireland, but with the loopholes in the American tax system. Ireland is being made a scapegoat by a couple of US senators who have no idea how Ireland runs its tax affairs, but 'out of sight - out of mind'....

Quite so. That the US government thinks that a company should pay tax on earnings in other countries, that it has already paid its local tax obligation on, is bizarre. But good for those other countries, who get the benefit from the apple earnings as they get invested in their countries instead of being repatriated back to the US.

The US Government has no idea.....glad it isn't mine.

 

[dernhelm]

oh my

this made me laugh pretty hard

this is the law man, you don't get to bargain with the irs about what *you* think is a fair percentage to pay just because you happen to have some 'leverage'

What's funny is that if the US laws were written to be simple and fair, US corporations would have an incentive to keep more of their money here, and even at a lower rate, the US government would likely make more money in taxes. But the people running things just can't seem to figure that out; or at the very least, did figure it out, but are too busy playing partisan politics to do anything about it.

After all, no one wants to seem to have given any ground (and thereby "lose" whatever game it is they are playing).

 

[johngordon]

Sorry if this has been addressed already.

As far as I can tell there are two separate issues here:

1. The question of whether or not Apple are paying all the US corporation tax they are due.

2. The question of whether or not Apple are paying all the non US corporation tax they are due.

My understanding (and will gladly be corrected, as it is pretty complicated) is that the US Senate is conflating the two issues. ie they are arguing that Apple are avoiding US corporation tax by paying tax outside of the US. And they are highlighting the severity and craftiness of Apple by focusing on the arrangements in Ireland and Holland which allow them to pay very little tax outside the US.

But surely Apple are due US corporation tax on revenue generated within the US, and due corporation tax on the going rate in non US countries on the revenue generated in those countries.

So whilst there are loopholes in the Irish tax system in particular that Apple can take advantage of, would it not be the case that if those loopholes were closed, Apple would simply end up paying more corporation tax in countries like the UK, rather than more US corporation tax?

 

[futbalguy]

oh my

this made me laugh pretty hard

this is the law man, you don't get to bargain with the irs about what *you* think is a fair percentage to pay just because you happen to have some 'leverage'

Sure you do. You don't go to the IRS, you go to congress. Companies get lawmakers to change laws all the time. They do have leverage and if the US wants the money then they will have to change the laws until its either forced or more advantageous for companies.

 

[rsocal]

Taxe's

Are Tax system has never made any sense, based simply on the more money we make the more taxes we're going to pay?
Unless we have enough money too create write offs, that in turn brings down the taxable income.

Simply put, when one owns a house and pays a mortgage all the interest is taken off his taxable income. This is just a simple example of when you become a home owner, you will pay less taxes then one making the same as you without a mortgage. Again just trying to simplify a point with this example.

Although this benefits myself at this time in my life, it didn't seem fair to me that the person trying to save money to buy a house, pays more taxes then the person with the house. However this is a bennifit for hard work and success!

Also a person with means to put moneys in IRA's, 401K's again less taxable income. The amount put in every year is tax deductible. When you work hard & do the right things with your money and live within your means, this is a benefit for it!

Yes, we need to change how we pay our Taxes? It shouldn't n be so complicated to file a Tax return!

Apple pays far more then anyone, they also would not have so much money offshore if there was a better & fair way for big profitable successful business's to pay Taxes or incentives to keep it here!

Remember all the jobs they create here? The employee's are paying taxes and Apple of course, has to match what each employee pays!

Leave Apple alone, they're targeting Apple, because its better publicity for the Senators and Congress

 

[entropys]

But surely Apple are due US corporation tax on revenue generated within the US, and due corporation tax on the going rate in non US countries on the revenue generated in those countries.

So whilst there are loopholes in the Irish tax system in particular that Apple can take advantage of, would it not be the case that if those loopholes were closed, Apple would simply end up paying more corporation tax in countries like the UK, rather than more US corporation tax?

that's it. The senator that has pushed this bit of grandstanding is actually acting against US interests. And in the interest of countries like mine where Apple has its moola invested rather than the US. Go you good thing, Senator!

 

[iRock1]

If they take money from overseas to pay debt in the USA, they would have to pay 35% tax. Or if Apple USA borrowed the money from Apple in Ireland, the US IRS would probably take a very dim view of that.

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Careful wiith the words. Tax avoidance is legal, tax evasion is illegal. That's actually what the words mean. If it is legal, it isn't tax evasion, and if it is tax evaion it isn't legal.

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There is also a difference between what Apple is doing in the USA, and what Starbucks (and Apple) are doing in the UK. Here's what Apple does in the USA:

IRS: "I see you have $100bn in a bank account in Ireland".
Apple: "We do indeed".
IRS: "If you move that money to the USA you'll have to pay 35% taxes".
Apple: "We know".
IRS: "So why aren't you moving the money to the USA?"
Apple: "As you said, 35% taxes".

That's not even tax avoidance, that's just common sense. European business is different.

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I don't know about other countries, but if you go to my local shopping centre in Lakeside, I think the Apple employees are among the best paid there. Just like in China, Foxconn employees working for Apple are among the best paid there.

How is this so different from the Starbucks case? Starbucks say in UK: we would love to pay for your healthcare system and crap, but you know, it's just that it's a lot of money—oh and by the way, we are not doing anything illegal.

It sounds familiar.


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