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Apple (AAPL) is proving to be as good at avoiding taxes (here and internationally) as it is at...
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Sunday, April 29, 2012, 7:45 AM ETApple (AAPL) is proving to be as good at avoiding taxes (here and internationally) as it is at designing smartphones, taking advantage of tax laws designed for the industrial, not the digital economy. The company had an overall tax rate of less than 10% in 2011, vs. about a 24% average for non-tech companies, reports the NYT, seemingly laying out a blueprint for politicians to shift attacks from big oil to big tech. Ugh.
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Apple paid $3.91B in taxes on income of $15.5B before taxes
http://bit.ly/IKuCOj
Nokia paid $136M in taxes on net income of ($1.1B) before taxes. ... ( ) denote negative income.
http://bit.ly/JjkwPW
The share price of Nokia over that last 5 years has gone from a high of about 16 to 3.67.
Perhaps the best reason you can give for buying the Lumina is as a charitable donation to a company going under. It might make more sense just to send a donation to Nokia and buy an iPhone.
Really. Negative income suggests that the more they produce/sell the more in debt they go.
Woz likes the Lumina better than Android.
P.S. They might want to get better tax lawyers. A negative net income before taxes and they're still paying taxes?
Its not Apple's fault, its the fault of your elected officials that give preferential treatment to certain industries and locations instead of a flat tax. Income is income.
Buy an Apple phone and it pays income taxes, buy a Nokia phone and the company doesn't even make money to pay income taxes. Not to mention using this logic a person would want to know the income tax paid on each dollar of revenue not income. Even if Nokia paid a 30% income tax rate it might end up paying substantially less per dollar of revenue because the company is alot less efficient than Apple.
So now by buying a Nokia phone you've just subsidized the executive management team in Finland and the Finish government.
The solution is to buy an iPhone and tell your Senator to change the tax code.
The biggest danger for Apple is not the market competitors ....is American politics.
If you actually think that Apple actually paid $3.91 billion in Q1 of 2012, then you just don't know much about accrual accounting.
The tax item on the income statement consists of 2 items: A) the actual cash income taxes paid, plus, B) the deferred tax component. The NY Times article reports that for 2011, the actual taxes paid were about 10% of income. Deferred taxes are theoretical taxes that, in a growing company, never actually get paid.
As long as you have this ridiculous granularity to laws depending on which side of an imaginary, contrived line you are standing on, you will have this kind of nonsense. Wake up people. "States rights" worked nicely when it took 4 days by horse and wagon to get to the next medieval province. It was a nice dodge for the people who wanted to own other human beings who had the "wrong" color of skin. It has NO place in a modern industrialized country.
> fiefdoms, all with their own parochial tax laws.
I largely agree -- but would you say the same about nations?
When discussing corporations vs. governments, this is a logical extension, and indeed a very real incongruity in our modern world, where corporations exploit national arbitrages every day, and governments are unable to address the problems this causes them.
Also, what is your suggestion to those who value the differences in state laws? With a nation as large and diverse as the U.S., surely some degree of variance is beneficial, don't you think?
Less state reliance on the federal government would help,
Let the states have the freedom to soar or fall depending on the way they want to run themselves.
What works for people in one area of the country does not work work for people in other areas. Different areas have different needs and they should run their states accordingly.
I'm enjoying the palpable squirming of Mitt Romney these days as he puts forth the idea, completely straight-faced, that the individual health insurance mandate (a Republican invention that the Heritage Foundation once fell all over itself praising) somehow "works" for homo sapiens who dwell in Massachusetts, but would be a HORRIBLE idea for the humans who lay their head each night in the other 49 states. This is exactly the kind of idiocy that leads to Apple setting up an office in Nevada to avoid California tax.
I'm very curious to meet one of these bizarre, presumably-antennaed Bay Staters. Do they have three livers and only one lung? How does a setup for delivering health care to the most people "work well for them" but not for other members of the same species? Fascinating.
I'm all for diversity and variance - in dress, language, tastes, skin color, music, landscapes, art, whathaveyou. But when that extends to laws, it really creates unnecessary confusion, complication and inefficiency, IMO. I watch these petty fights going on between MD and VA for instance in trying to cannibalize each other's "business friendliness" and it seems like so much wasted energy. If we dispensed with this parochial race-to-the-bottom environment, "states" could instead focus on producing efficiencies and infrastructure of real intrinsic value, rather than just short-term, transient relative value.
This is a huge subject and obviously not very suitable for resolving on a comment board.
Funny, some of the biggest corporations in the world, including Apple, seem to be very happy to make their homes in that little communist island.
Maybe California has at least a couple of things figured out? :)
> of Delaware.
Incorporated there, yes, but not actually doing anything there.
Companies like to incorporate in Delaware for a variety of reasons:
1) It's cheap to incorporate
2) You don't need to be a Delaware resident (!?)
3) Non-Delaware businesses don't pay Delaware's corp tax (!?)
4) One person can hold all positions for the company (!!??)
5) Separate corporate courts with no juries (!!!!????!?!?!?)
It's a dream come true for tax and legal arbitrage.
And yet:
How much revenue does this create for Delaware?
How much money do those companies spend in Delaware?
How many of those companies have sizable facilities in Delaware?
How many jobs have they created in Delaware?
How many of their wealthy executives live in Delaware?
What have Delaware's business-friendly laws done for Delaware? :)
Ireland has set up it's tax rates and laws to attract global businesses. Quite a few companies exploit what Ireland has done in conjunction with what US tax code has been approved by Congress.
If Congress were to complain [I'm not saying they are] that corporations are setting up subsidiaries to legal dodge US taxes Congress could write tax code up to defeat that. If they wanted to. They choose not to.
> benefit to it. It's a win win.
Well, let's at least try to be honest with ourselves. It's a win for corporate lobbyists and a few politicians -- it's a loss for Delaware as a whole, or at least a waste. :)
> Quite a few companies exploit what Ireland has done
The key word being exploit. Ireland isn't doing itself any favors either. Not that anything is illegal, but that the laws aren't beneficial to the entities that made them.
The con is that A) business-friendly laws will attract businesses and B) those businesses will create benefits for the state/country with those laws -- but what usually happens is you get A without B.
It's a classic bait and switch that the ignorant politicians fall for every time.
If it's to their disadvantage they would change them. Ireland specifically set those laws up to get tax revenue and they get it. Last year they threatened to raise the corporate tax rates and the corporations shot back they would move their subsidiaries to another country and Ireland backed off.
Not all business friendly laws are intended to create jobs. Sometimes states or countries are just going after the cash. Ireland doesn't expect Google to create jobs in Ireland. Ireland expects Google to set up a subsidiary and when money passes through Ireland they'll take some off the top.
By what logic do you arrive at that conclusion?
There are many benefits particularly if you are a lawyer (as are most politician's). Even a minor example, each company has to have a local registered office (again in some attorneys office) but still they have mail and other legal stuff to be handled. But the value really kicks in when lawsuits are filed. Etc. To say 'no benefit' is just wishful thinking. I have never known a politician that did things for no reason and particularly did things that did not benefits them in some way.
If I have to believe a politician did something out of ignorance versus self interest I would never believe ignorance was the reason. They do everything for self interest.
Just because there are loopholes being abused, doesn't make it right. I am shocked you don't see the injustice of it and don't recognise how morally reprehensible Apple's behaviour is. Every cent they do not pay, is a cent YOU will have to pay. It is money they are stealing from YOU.
Is Apple doing something wrong here? I don't think so. Companies are designed to exploit and profit as much as possible regardless of who gets throw under the bus.
What I DO question is why I pay more taxes as a percentage of my income than Apple and why so many others do as well regardless of earning much less?
Similar questions along the same lines are why does big business continue to get favorable treatment? Who is really benefiting from QE? Who is really benefiting from the low interest rate environment? Why is Fannie Mae / Freddy considering bulk selling mortgages to private equity at such big discounts when the previous homeowners were likely never given that opportunity?
They said that the bailout of the banks and our financial system was the lesser of two evils. The people in power said that it was for the best of the nation and going to save America. So did it save America or did we just transfer power and wealth at the expense of the people?
Taxes are simply theft from those that have worked hard for success to give to low-lifes and voters of a particular persuasion.
In reality Apple, should not be taxes at all. Every penny that Apple makes is paid out to someone, either investors, employees, or suppliers. The suppliers then pay it out again to investors, employees, or suppliers. Eventually there are no more suppliers and the money just goes to employees and investors. At each step employees and investors are taxed. So taxing Apple is double taxation and its killing our economy.
So, schatzl, be outraged, or be informed. But remember to be informed is to go against many years of government indoctrination by union teachers that only want you to be a Democrat follower, in bed with racism and class warfare, and pay homage to the Democrat political elite who don't care one bit for you.
Or at least to one of the following countries with no (income) taxes: Andorra, Bahamas, Brunei, Kuwait, Maldives, Monaco, Nauru, Oman, Qatar, United Arab Emirates, Vanuatu. And there are probably others.
Why do companies like Apple not make their homes in these shining pillars of tax-free-ness? Sure, they might have an office or a P.O. box in them, as Apple does in Nevada, but that's the extent to which they are willing to subject themselves to those nations.
Why is this? Sheer masochistic tendencies on the parts of these corporations? Why would they not want to embrace these enlightened Utopian societies that have rejected the evils of taxes?
Why do these poor innocent corporations and people (but then, they are the same these days) continue to torture themselves by living in the dregs of the globe like the U.S.?
Could it be because these tax-free countries have tiny markets, pitiful infrastructures, poorly educated average citizens, and significantly lower average standards of living than the U.S.?
Thinking. Everyone should try it, at least some of the time. :)
The problem is not with Apple or other companies, the problem is with the tax code loopholes and corrupt politicians that wrote the legislation allowing the loopholes.
That said, I DO have a big problem with corporations like Apple "greasing the palm" (spending millions of dollars lobbying and making donations to politicians) in order to get legislation they want. It all comes cown to money in politics.
> owes but no more.
This is not true. Conservative pundits often call Warren Buffett immoral for speaking on tax policies while only paying what's required of him.
Hypocrisy can make anything supposedly immoral. :)
That's got to be one of the most ignorant things I've ever read on Seeking Alpha. How do you think our military, all the roads, bridges, airports, and public schools we're paid for? TAXES. Without taxes this country would not exist.
> public schools we're paid for?
He thinks they were paid for by the Capitalism Bunny and the Freedom Fairy, of course!
Well stated. US corporate tax laws and tax avoidance schemes are legal only because corporations continually use lobbying and in effect donation bribery of politicians to try and make them legal.
Any taxation system that gives corporations loopholes and tax preferences that a country's individual citizens can not get is an abuse of the system.
Perhaps the solution is to treat every individual US citizen as a corporate entity for tax purposes as well. Thus enabling the huge corporate lobby and army of corporate lawyers and corporate tax planners to actually begin working for the american citizen as well.
Imagine that DV, there is a new mega growth industry for you and your partners. Just set up a corporation in Nevada to handle all the taxes for every individual US citizen who is now a corporation of One. You will become a zillionaire and the hottest new IPO on wall street. Not to mention that you will become a major employer as well, except of course for the parts of the operation that you offshore to Ireland, Grand Caymen, etc. to avoid taxes on the corporate shell in Nevada and protect your new zillionaire status.
I always knew that Ike was a raving Che Guevara Marxist. He presided over a 91% top marginal tax rate, and used it to build the interstates that the tea partiers routinely use to get to their rallies. Such a dirty communist!
States who are part of the powerball will have roads, esp. ones that lead to a gas station with exxon/mobile outside.
Lottery should replace the tax system in this country, we should tax the winners 75% of thier winning and sharing them with our allies oversees.
The founders realized this and did the best they could to protect America from it, but it looks like our founders have been sold out by the Media and the education system. Anyone here that thinks that what we have now is good, just and moral, should go back an read what the founding fathers thought would happen in a few hundred years (about now).
Apple doesn't disclose exact US employment numbers, but are estimated around 40-50k, aggressively outsourcing to places like China, where labour regulations are lax and environmental laws non-existent. By contrast, Walmart employs 1.4 mill in the US alone.
Whatever happened to "Made in the USA"?
Or perhaps you did not file for your Earned Income Credit this year?
There isn't a magic number of taxes. Its whether or not the system is on the level.... And unfortunately in the USA, our overall system of government has become more and more corrupt. We've gone from a society where people were busy creating wealth to one where people simply gather around the trough of government to divide up whatever wealth already exists.
Personally I'd like to see a simple 15% tax rate for corporations with zero deductions. And I'm just as tired of hearing about how our government needs more. It needs far less and it needs to physically be far less.
Its called freedom and without that everything else will eventually disappear.
Austria is full of corruption, with it's society rotten to the heart.....
"People in glass houses shouldn't throw stones".....
I doubt folks here are as morally corrupt as you seem to believe. Not speaking for others, I am totally disgusted with the waste, graft, lobbyists, and silliness of our politicians. I am not opposed to helping out those in need, but in the current environment, giving more money to our politicians does not accomplish that. Higher revenues will not close the budget gap one iota. Spending will simply go up, and most likely by a greater increase than the revenue increase.
Higher government revenue here just go down the rathole of vote buying, political cronyism and the adventurism of the Military/Industrial complex. Rather than rail about what Apple legally pays in taxes, the concern is how to get our politicians to get their heads out of their arses and behave like adults. When that happens, the tax issues will take care of themselves post haste.
http://nyti.ms/wPr7nv
What if someone proposed giving Apple a tax subsidy? ... Great idea. If the taxpayer gives Apple billions of $$$ that will lower the cost of an iPhone.
It would be BS for Apple and it's BS for the oil companies.
Sort of. Taxes have long been used as a social tool: tax the things you want less of in your society, and subsidize the things you want more of.
Oil is a necessary driving force behind much of the economy -- other businesses can't do well without cheap(ish) oil.
iPhones? Not so much.
Whatever
It is their duty to pay the least taxes as long as they are following the law. Every USA corporation behaves similarly.
The NYT is repeatedly going after them, and even inventing stories to undermine them, as was evident in the Foxconn reporting.
That's good and great for you, but than you must realize how "in the hole" most of the middle class is and how lopsided the pay scales are for those individuals. It is those people you should thank for buying Apple products that in turn made you so much money.
"It shows you what America has become. A nation that wants other people to work for them."
I think the nation wants a government that works FOR the people and not AGAINST them to benefit the few who take full advantage of tax loopholes and special little policies put in place mainly for THEIR benefit.
Does that mean the laws are bad? Kind of.
This is one of the many ways in which the system is heavily flawed.
Corporations, which often have as much or more influence than national governments (and certainly state governments), can and do exploit global arbitrage -- where governments are inherently bound by geography, corporations are not.
Yet governments still foolishly think that tax incentives offered to corporations and the wealthy will bring them benefits.
What benefits has their 0% corporate tax rate brought Nevada? Their unemployment rate is at 12% (http://bit.ly/Jux0sv), the highest in the nation unless you count Puerto Rico's 15%. They get a pittance in fees from businesses that register a mailbox in their state, but that's about it. And in fact, Nevada is generally not considered business friendly (they are #47 on this list: http://bit.ly/IBOzCM).
Although median household income is about 4% higher than the national average, so maybe it's not all bad. But aside from vice industries, they basically have nothing to show for their "business friendly" laws except a lot of paperwork.
Contrast this, for example, with my home state of Virginia, where the corporate tax rate is 6% (about average for states), unemployment is 5.6%, and median household income is about 20% higher than the national average. Virginia is generally considered a very business-friendly state (#2 on this list: http://bit.ly/Jux0sy), but it generally tries to bring businesses *physically* into the state -- not just on paper.
Governments and corporations can successfully coexist symbiotically, but only if governments aren't stupid. :)
with the exception of some USTBs...
I guess a repatriation of the money would mean a
nice slice for Uncle Sam, and that is why so much cash
remains accumulated. The "advantage" is they can buy
foreign companies now without paying any US tax!
The article seems quite well-researched, hardly eye-catching (articles like this are seen near Tax Day every year), and no one will ever accuse the NYT of selling very many papers. :)
Take your bitterness elsewhere?
My comment was to point out that complex subjects (the Internal Revenue code is 19 volumes thick and are supplemented by the codes of fifty states as well as the codes of foreign countries in which companies do business) are difficult (that's a euphemism) for the casual reporter to adequately address. The article may sound well researched to a layman but when you deal with tax auditors on a constant basis, you'll find it doesn't even get the tip of the iceberg.
Second - Apple has to do everything it can to pay as small a tax bill as possible - it is what is called "fiduciary responsibility" to it's shareholders.
Finally - our problems are not going to be solved by raising taxes on Apple or me - or anyone. They will only be solved when we learn to live within our means - spending the enormous revenue that government ALREADY gets in the best way possible.,
How on earth is a 5-page article on how Apple and other companies evade taxes is getting "a pass" by the media? And I seem to recall the WH giving a hefty pass to GE, who is heavily involved in energy, healthcare, and financial, so I call BS.
Please at least attempt to make logical conclusions.
Its just the Chicago way.
Apple LEGALLY avoids paying. There is always another side to every story. Geojet
Actually, none. Sales taxes are not collected by the IRS, but by localities -- state, county, and city.
A little self-examination is in order. Across the country the silent majority is just that, not becoming familiar with or contacting their government representatives to voice approval or disapproval, and an all too-high number of citizens do not exercise their vote. The laws on the books get there because someone has the gumption to make the effort. Those who cry foul and bad-mouth Apple for not paying taxes are invited to channel their energies by getting involved.
This is a rich and wonderful country but we need individual involvement to make certain that our government and corporate institutions are functioning efficiently and honestly. Until that occurs government bureaucracy and wasteful spending, boardroom nonchalance, outrageous perks, salaries and bonuses, special interests, tax loopholes and the compensating need for further taxes, hikes and fees will continue to grow.
It really is 2012, people. Really. The calendar isn't joking.
If Apple loves exporting jobs let's stop pretending it is helping the greater good.
Save your anger and spare your blood pressure!
In an analytically bent website such as this those of you that are financially literate should easily grasp the following explanation on why the article is incorrect.
The authors of the NY Times article (and perhaps you also) failed to move the discussion to its next analytical level by asking the following questions:
1.) What is the impact on the corporation from the 'corporate income tax'?
2.) Did the corporation mitigate the impact?
3.) If the corporation mitigated the impact, HOW did it mitigate the impact?
4.) Finally, WHY did the corporation mitigate the impact?
Let's start with the WHY first. IT ALL COMES DOWN TO THE IMPACT ON RETURN ON INVESTMENT (ROI).
THE 'CORPORATE INCOME TAX' INTERFERES WITH THE ROI.
For example, for a 100% equity financed corporation needing a 10% ROI interacting with a 40% corporate tax rate will result in a 6% AFTER-TAX ROI.
The historical average on ten-year treasury bills is 5.2%. Are you willing to invest your money in a much riskier endeavor for a mere .8% over the risk-free rate of 5.2% (historical)?
In this example, In order to achieve a 10% AFTER-TAX ROI it take a 16.7% BEFORE-TAX ROI.
Where is that additional 6.7% of NET PROFIT BEFORE-TAX going to come from?
The answer is simple and this action is done in every corporation every day:
SALES PRICES ARE INCREASED TO COVER THE TAX!
But you're wedded to the term 'corporate income tax' because it says CORPORATE and it just has to be paid by the corporation.
Your frame of reference is false because you are letting the label ('corporate income tax') drive your thinking.
When you were a little kid you let labels be determinative of your thinking because you lacked the understanding to examine whether the substance was different from the label. Remember the 'tooth-fairy', 'santa claus', the 'easter bunny', etc. As you got older the substance finally revealed itself.
Do not as an adult let a label rule your thinking until you have examined the substance. If the substance matches the label, well, that is good. If the substance does not match the label, you are being fooled.
If you believe in the 'corporate income tax' you are being fooled. I've given you the substance in the example and explanation above. Reread it until it slaps you in the face! (You may also be confused by the term 'paid by the corporation'. The substance is that it is 'remitted by the corporation'. IT IS PAID BY YOU AS A CONSUMER!
If you want to direct your anger somewhere, I suggest that you direct it to the huge, huge, huge administrative cost of the 'corporate income tax' at all levels (governmental and corporate). In addition to paying the tax you are also paying for all of the administrative cost. There are much more efficient and tremendously less costly ways of raising the tax revenue necessary to run our governments. (HINT: More efficient and less costly translates into lower tax bills and lower prices on the goods and services that you purchase).
Kenny G2 CPA (and former IRS agent)
Good for them.