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posted by janrinok on Thursday September 01 2016, @06:59PM   Printer-friendly
from the got-to-pay-somebody dept.

Cook blasted an EU ruling that Apple used Irish subsidiaries to avoid billions in taxes, but his defense is only one side of the story.

Apple's business structure and tax practices in Europe were around long before Tim Cook became CEO. He didn't invent those things, but he's vigorously defending them. His arguments in media interviews sound compelling, but they present only one side of a hot-button issue that's easily relatable to the overarching wealth distribution and fair taxation themes of election cycles in both the U.S. and Europe this year.

The European Union, after a lengthy investigation, ruled Tuesday that Apple's use of Irish subsidiary companies to avoid paying taxes amounts to the tech giant receiving "illegal state aid" from Ireland. As a result, Apple may be required to pay around $14.5 billion in back taxes dating back to 2004.

Cook had a carefully worded—and, at times, sharply worded—open letter ready to publish when the judgment was officially announced. He opens the letter by describing Apple's history in Ireland dating back to 1980, when Steve Jobs set up the company's first factory there. Apple employed 60 people in Cork county then, and employs more than 6,000 there now, Cook says. He points out that Apple's Irish operations have helped create and sustain millions of app development, manufacturing, supplier, and small business jobs across Europe.

To get the other side of the argument I went to Matt Gardner, the director of the [US] Institute on Taxation and Economic Policy (the research umbrella for Citizens for Tax Justice). The CTJ is nonpartisan and nonprofit, and it's funded by some of the same foundations that fund NPR. As it turns out, Gardner energetically disagrees with many of the statements in Cook's letter.

Here are his responses to Cook's main points. [Continues...]

Cook: As our business has grown over the years, we have become the largest taxpayer in Ireland, the largest taxpayer in the United States, and the largest taxpayer in the world. Over the years, we received guidance from Irish tax authorities on how to comply correctly with Irish tax law—the same kind of guidance available to any company doing business there.

Gardner: We weren't in the room, so we can't know whether or not they [Apple] ever asked for a special deal. But it's hard to deny that they received one, in the sense that they're using an arcane legal structure that is simply not available to the many smaller businesses Apple competes with. When they say "the same kind of guidance" is "available to any company," they mean that in theory any company could choose to employ their highly paid accounting and legal teams to construct the same artificial, tax-motivated network of subsidiaries that Apple did. But this is ludicrous, since most small businesses simply don't have the resources to construct an elaborate tax-dodging scheme of this kind. It's like saying that anyone could go start a company to send a rocket to Mars, even though only Elon Musk actually did it.

Apple created a complicated web of subsidiaries to avoid taxes, and the Irish government allowed it. Both the company and the country were complicit in this agreement. The idea that Ireland gave Apple guidance on "how to comply correctly with Irish tax law" makes both parties sound less guilty than they are. A better characterization would be that Apple cooked up a tax-dodging scheme, and Ireland allowed it.

Cook: The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws, and upend the international tax system in the process. The opinion issued on August 30 alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals.

Gardner: The interesting question is the sequence of events. Like many of the most sophisticated tax-avoiding companies in the world, they pushed the limits of what the law would allow. They set up a set of subsidiaries whose purpose was almost entirely to avoid paying taxes. And they subsequently received a ruling that the setup was within Irish law. It's clear as day—and this was one of the findings of the 2013 Senate subcommittee—that there was no sensible business reason to set up those subsidiaries except to avoid paying taxes. It makes no difference that Ireland cheerfully agreed to it. It's still a tax dodge, just a state-sanctioned tax dodge.

Ireland and other tax havens have built their economic development strategies on encouraging companies to shelter their profits there, and then to take their cut. Ireland has made a choice to structure their tax laws in a way that facilitates tax avoidance and that attracts tax-avoiding companies.

Cook: We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don't owe them any more than we've already paid. The Commission's move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been.

Gardner: All the EU is saying is that Ireland's tax rate is 12.5% and wouldn't it be nice if Apple actually paid that tax rate. It's certainly not coming up with a new tax regime that's never been seen before. In order to have a level playing field among companies doing business in the European Union, all companies doing business in Ireland should be subject the same tax rate.

Cook: This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission's ruling and Apple will do the same. We are confident that the Commission's order will be reversed. At its root, the Commission's case is not about how much Apple pays in taxes. It is about which government collects the money.

Gardner: That's incredible for a couple of reasons. The first is that the commission's case is clearly about how little the company pays in taxes. The whole point is that they pay a phenomenally low rate tax rate—0.005 percent in 2015—on a very substantial amount of profits. This was the big revelation from the 2013 Senate subcommittee hearing: Apple constructed a subsidiary that was a tax resident of nowhere that would never have to pay any taxes. This is at the heart of what everyone is correctly saying Apple did wrong.

It's notable that there's no point in this [Cook's] very long letter where they discuss the question of tax rates. All they say is how many dollars they pay, abstracting away from their tax rate, and from the huge amounts that they avoid paying. They say they pay more taxes than any other company. This is certainly plausible, because few if any of the Fortune 500 can match their profits right now, but that doesn't mean they're paying anything resembling their fair share. The evidence is clear as day that they are paying one of the lowest effective tax rates in recorded history in Ireland right now. So the assertion that this isn't about how much they're paying is laughable.

Cook: Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company's profits should be taxed in the country where the value is created. Apple, Ireland, and the United States all agree on this principle. In Apple's case, nearly all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States.

Gardner: It sounds like what they're saying is that these ought to be thought of as U.S. profits, which makes it hard to understand why they have been so eager to report these profits in Ireland up until now. As long as Apple can pretend their profits are being earned in Ireland they won't have to pay a dime in taxes on them.

It doesn't appear to be even remotely truthful based on the numbers they publish in their annual reports. Each year they report that the majority of their profits are earned outside the U.S., with roughly a third (on average, over the past five years) coming from the U.S. When you look at the 10K, the annual report for 2015, you see the company reports earnings of $72 billion worldwide, and just one third of those profits are attributed to the U.S. And yet Cook's statement says that the vast majority of their income is taxed in the U.S.

We think that is a very low estimate. It certainly appears that the company is shifting profits out of the U.S. and into tax havens overseas. So one of these things must not be true: Either the numbers presented to shareholders in their annual report are false, or Tim Cook's new statement that the majority of its profits are taxed in the U.S is false. They both can't be true.

Cook: European companies doing business in the U.S. are taxed according to the same principle. But the Commission is now calling to retroactively change those rules. Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission's theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed. Apple has long supported international tax reform with the objectives of simplicity and clarity.

Gardner: That bit made me laugh out loud. When the Senate's permanent subcommittee was describing the elaborate tax-avoidance techniques used by Apple, they had to use flowcharts to explain it. The incredible complexity and creativity in the Apple tax-avoidance scheme is almost admirable. But to say that they are interested in simplicity and clarity is laughable.

In the public policy arena we have seen two very different Tim Cooks this year. One stood up the the FBI and insisted on protecting the absolute sanctity of secure and private user data. He appeared as the frontman for a virtuous Apple. The other Cook is the person out defending Apple's version of corporate tax responsibility. That Cook is less admirable.

Instead of defaulting to what's become accepted behavior among the Fortune 500 to give more to shareholders and less to tax collectors, Apple should be actively working with governments to eliminate havens and loopholes and move toward fair and equitable tax policy. It should be in Washington negotiating the terms of the repatriation of its foreign profit stores back to the U.S. It should be setting an example for other multi-nationals by doing the right thing. That seems more in keeping with Apple's culture, and more like who we believe Tim Cook to be.

(You can read Cook's letter, "A Message to the Apple Community in Europe," in its entirety here. You can read the full judgment announcement by the European Union here.)


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  • (Score: 3, Informative) by Arik on Thursday September 01 2016, @09:53PM

    by Arik (4543) on Thursday September 01 2016, @09:53PM (#396407) Journal
    "If paying a tax rate of 0.005 percent is not immoral, it should be everybody's right."

    Correct.

    "If it's everybody's right, who will pay for education, healthcare, roads, railways, enjoyable cities, libraries?"

    What makes you think these things have to be state funded? You realize that all but one of these things pre-date the state? And what do you imagine prevents any and all of them from being privately funded? In fact even with the state tilting the playing field against them private education, private health care, private roads, even private libraries continue to exist and meet human needs in cases where the state can't or won't. Without the double-whammy of state funded and favored competition on one hand, and confiscatory taxes on the other... oh no I am sure you are right. Without all that debt weight holding it down society would decompress or something, it couldn't be good.

    --
    If laughter is the best medicine, who are the best doctors?
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  • (Score: 5, Insightful) by quietus on Thursday September 01 2016, @10:53PM

    by quietus (6328) on Thursday September 01 2016, @10:53PM (#396438) Journal

    To a certain aspect I'm sympathetic to your reasoning. Yes, you are right, much of what we today regard as public services were once, mainly, private services. Let's take, as a starting point, England's excellent toll road system as the first such public service -- a novelty in that time (around 1716, I believe, but I'm not British), much admired [together with its simple, clear border system] by visitors from the Continent who saw it as one of the crucial points of England's strong economy. Note, that already that system turned out not to be able to pay its debts.

    Yes, you could provide a number of services through private funding, under which I understand private funding with the aim of making a profit. But you cannot provide that same service to everybody, everywhere, while still making a profit. Very roughly put, profit is made through a difference in either quality of a good/product, or a difference in production method (being able to more cheaply produce a good, while still selling it for the same price). If you aim to completely satisfy a market -- be it in education, healthcare or widgets to your liking -- you'll either end up with a de facto monopoly (generally presenting itself as an oligopoly with hidden profit sharing deals), or the price differences between competitors will become so low, and therefore profit margins so reduced, that you'll end up with the same situation, as competitors can only survive through volume sales.

    We both know that a monopoly is good for business, but bad for its customers, especially if these customers are required to use the product/services involved. That should be so, as a proper business will always aim for maximum profit (we're leaving aside the whole socially responsible enterprise field, like coops, for simplicity). You will probably claim that the modern state is such a monopoly on these very essential services (education, public transport and the like).

    To this I agree, but I'll argue that it's a better monopoly than a privately funded one, as the control structures for the monopoly are at least well defined, and available, for its customers/citizens. Yes, you can vote with your wallet with businesses -- but that voting power is greatly reduced when you're dealing with the oligopoly mentioned before: if 3 out of 5 telco providers in your region offer the same kind of functionality, with the 4th having only patchy connectivity, and the 5th an also-ran, where do you think you'll end up? At least with the state, you can enforce minimum standards (like all children should go to school until the age of at least 16) through the legislative process.

    Finally, and most importantly, there's also the moral dimension. You can say that all men are equal, and be done with it. But words are weightless without actions to support them: you should then, in my view, also be giving them equal chances. The very core of business is difference in chances: hence you simply cannot start from a business premise, when organizing services fundamental to the members of your society, if you've just decided that it's morally just to give everybody equal chances.

    • (Score: 2) by Arik on Friday September 02 2016, @01:10AM

      by Arik (4543) on Friday September 02 2016, @01:10AM (#396497) Journal
      "Yes, you could provide a number of services through private funding, under which I understand private funding with the aim of making a profit."

      There's where you actually depart from what I am saying.

      Roads are part of a fairly small class of goods that arguably qualify as 'public goods.' Given the geometry and physics involved, it's not very efficient to have dozens of competing routes between two cities, obviously. But that doesn't mean your only choice is state provision or for-profit enterprise. This is EXACTLY the sort of thing non-profit corporations were designed to handle, in fact.

      "You can say that all men are equal, and be done with it. But words are weightless without actions to support them: you should then, in my view, also be giving them equal chances. '

      This is not logical, and in fact I can't even discern an illogical connection. Of course all men are equal (in terms of rights) - saying I must therefore somehow give them more is a non-sequitur or even a self-contradiction. Why should I give them anything? Did we not just say we are equal?
      --
      If laughter is the best medicine, who are the best doctors?
      • (Score: 3, Insightful) by quietus on Friday September 02 2016, @04:56PM

        by quietus (6328) on Friday September 02 2016, @04:56PM (#396696) Journal

        Working for the greater good, through a non-profit, is to be applauded. I do see limits on 3 levels, though.

        First off is psychology: we need to be rewarded, and we want to distinguish ourselves. A pat on the shoulder will not cut it anymore after a certain point: a reward which counts, like (more) money, is needed then. For that, you need profit.

        The second limit I see is scale: administration sizes up with the size of an organization; what initially starts out as verification of who-took-what-where will evolve into procedures, logging and all that. If a non-profit corporation would be able to scale up to nation-size, I wonder what its administrative head count would be. If there are examples of non-profits who effectively grew to US or EU scale, I'd like to learn about them.

        The third limit is price setting. Non-profits too need income, and income entails price setting [of services, goods]: how are you going to do so if your non-profit(s) are the only game in town?

        As to your last remark: I didn't state that you must give more; I'm saying that, once you provide a service, and you start out from the premise of equality, you should also offer equal access, or pricing. To return to your roads example: laying a road to a back town in the mountains somewhere costs hugely more per person [of that community] than offering road access to a middle-sized town a few miles further. The logical thing for a corporation to do is to take that difference in cost into account, and charge people in remote communities more, which violates the principle of equal access to the same services.

        • (Score: 2) by Arik on Sunday September 04 2016, @10:54PM

          by Arik (4543) on Sunday September 04 2016, @10:54PM (#397556) Journal
          First, as to psychology, you're demonstrably wrong. People work for all kinds of motivations, not just for one. Nor is a single type of motivator most effective in all circumstances. Some people are greedy, but not all.

          Second, as to size of administration, this is EXACTLY why you want to devolve as many functions as feasible to lower levels, to smaller, more local organizations. So they don't have to scale. We were talking about roads, for instance. If each and every local stretch of road was assigned to a local non-profit so much of the work that is now done by huge centralized authorities would be done instead by small, local organizations that don't need to scale. And you could still have small regional and national umbrella organizations to help them coördinate the work.

          Third, it really sounds like you don't understand the concept of a non-profit. Non-profits set price equal to costs. They aren't allowed to turn a long term profit, and they aren't allowed to 'diversify' into other businesses, you'd have XYZ Inc with a charter specifying that their purpose is to fairly administer and maintain the roads in a certain area and they aren't allowed to do anything else. If they make more money than they can reasonably use to carry out that mission they are required to lower their rates. (And of course someone greedy might get in and try to embezzle money but that's really not a great idea when all your books are public record for anyone and everyone to go through looking for anomolies so they're less likely to succeed here than in a for-profit, and also more likely to be at the for-profit in the first place, non-profits *typically* don't make the top of the list for greedy people, though of course there are exceptions.)

          "As to your last remark: I didn't state that you must give more; I'm saying that, once you provide a service, and you start out from the premise of equality, you should also offer equal access, or pricing. "

          Of course, and those sorts of conditions can be specified with very carefully chosen wording in the charter of the organisation.

          "To return to your roads example: laying a road to a back town in the mountains somewhere costs hugely more per person [of that community] than offering road access to a middle-sized town a few miles further. The logical thing for a corporation to do is to take that difference in cost into account, and charge people in remote communities more, which violates the principle of equal access to the same services."

          It seems more complicated than you are making it, actually. We have a tremendous amount of road already laid in this country that only needs to be maintained (in some cases that task has been neglected too long already though.) There's no need to charge anyone for 'laying' those roads, the People have already paid for them and any disposition given to them should take that fact into account. Does maintaining a rural road that's already constructed cost more? I'm not sure, it will cost less in many ways, the surface will wear more slowly with less traffic, on the other hand there might be an increase in cost for clearing deadfall and debris. With fewer residents to split the bill among, each might pay a higher percentage of the total, but are residents the only ones that use the roads? In rural areas most maintenance work is typically around the highways, which are used heavily by commercial traffic. Commercial traffic today pays a large share of the road maintenance expenses and I expect would continue to do so. There would just be a more direct connection between what you are paying and what it is for. This money goes directly to a non-profit organization with open books and records to fairly and openly maintain and administer a certain set of roads, and they cannot lawfully use it for any other purpose. Not only that, but they are required to lower their rates if they make money. Compare that to the government, where no matter what flimflam they use to make it look otherwise, everything goes into the general fund to be used as the legislature wishes, in truth.

          But ok what about laying new roads then? How would that get done?

          About the same way it does now, actually. The lions share of new road construction, year after year, is done by construction companies to provide access to new development. Because not only will nobody BUY that new house without a road to it, your crew can't even get to the site to build it without that. So roads get built as long as new buildings are being built, not just homes, but the same logic applies to office buildings and factories and everything else. Roads will be built. The problem, from a general welfare point of view, is that if the construction company builds the road they are going to want to allow it to be used only for their own purposes - and quite prudently, a lot of extra traffic just means more maintenance and calls to expand, and we aren't getting paid for that! And this is true in rural areas, I'm a rural man I would surely know, I've helped build several private roads in my life, most of them eventually becoming public later on, but I digress. We never had the luxury of the state running a road out where we want to build, they just come along later and try to take over maintenance in return for right of way and through-traffic etc.

          So local small road construction is covered by for-profit construction, and our non-profits could offer to take over maintenance in exchange for rights just like the state does today. I don't see any problem there.

          So what's left to worry about? Long-distance thoroughfares. That's not as easy to solve, but that doesn't mean it's insoluble. Fortunately we have an abundance of those roads already in existence in this country, so in the short term it's not a worry. Maintaining what we have built already is more important than building new. Long term solutions might involve bond issues and toll roads there, that's the one place where I suspect it might be necessary. Even there, it still might be possible to find other ways.
  • (Score: 2) by Whoever on Thursday September 01 2016, @11:28PM

    by Whoever (4524) on Thursday September 01 2016, @11:28PM (#396452) Journal

    "If it's everybody's right, who will pay for education, healthcare, roads, railways, enjoyable cities, libraries?"

    What makes you think these things have to be state funded? You realize that all but one of these things pre-date the state?

    Most of these things were only available and open to a small fraction of the population before the state became involved.

    • (Score: 2) by Arik on Friday September 02 2016, @12:57AM

      by Arik (4543) on Friday September 02 2016, @12:57AM (#396488) Journal
      "Most of these things were only available and open to a small fraction of the population before the state became involved. "

      You really believe that?

      Education was effectively universal in this country before the public schooling system was imported, and literacy has gone down, not up, afterwards.

      Railroads, now that is a better example for your case. Large early railroads were all state supported, and trumping objections with force certainly made gaining the land to lay the tracks on easier. That doesn't mean that other means would not have been found without it but clearly it would have taken a little longer to get going. I'm not sure how significant that really is in the long run though.

      Healthcare was MUCH better in this country back before the state got involved. As long as you set aside the technological advances (which are extremely expensive and of mixed utility at times, but no one doubts in some cases save lives that would otherwise be lost) everything else is clearly much worse. Doctors used to work for their patients. Now they work for Hospitals and the insurance companies and medicaid. They used to have enough time and disposable income to treat the poor and indigent on their own dime, and made it a point of pride to do so. Now they're just rats caught in the same wheels as the rest of us, and we're lucky if they aren't too strung out from uncompensated overtime to even pretend to listen when we tell them what bothers us.

      --
      If laughter is the best medicine, who are the best doctors?
      • (Score: 1, Flamebait) by cubancigar11 on Sunday September 04 2016, @09:12AM

        by cubancigar11 (330) on Sunday September 04 2016, @09:12AM (#397327) Homepage Journal

        Your definition of "effectively universal" is very different from what is normally understood by the public. No body cares for being literate or knowledgeable. Pursuit of knowledge has always - ALWAYS - been a personal preference and it is not found attractive by most women either. Not at least until you can turn it into above average salary. And that is what is education for everyone - those who run the society and those who want to be part of it - a way to improve your social/monetary/power status.

        Once you realize that, you will understand why education was never part of black populace, why educated native americans were dying in large numbers and why educated english speaking people were the only ones benefitting over illeterates. And why public education is been a tremendous improvement for everyone because it standardizes the basic minimum and prepares a very large percentage of population to work within the system.

        literacy has gone down, not up, afterwards.

        Because the definition of literate has gone up, afterwards. A hundred years ago literacy meant being able to read, write and pronounce your name.

        • (Score: 2) by Arik on Sunday September 04 2016, @11:30PM

          by Arik (4543) on Sunday September 04 2016, @11:30PM (#397563) Journal
          "Your definition of "effectively universal" is very different from what is normally understood by the public."

          It might be, or you might have misunderstood me.

          The NAAL ( http://nces.ed.gov/naal/ ,) a fairly mainstream source I would think, says only 13% of the population is 'proficient' in English today. Their definition of 'proficient' is roughly equivalent to the politically incorrect term 'literate' - if anything it's still probably a slightly lower standard.

          In 1776, this book ( http://www.gutenberg.org/ebooks/147 ) sold 500k copies in 3 months. In a not-quite-country of 2.5m.

          Forget literacy, assume someone reads it to you. For 87% of the US population today, that book is still incomprehensible. Because it expresses complex thoughts in proper English, and that's something most of us can no longer do.

          The more well schooled we have become, the less properly educated we seem to be.

          "Once you realize that, you will understand why education was never part of black populace, why educated native americans were dying in large numbers and why educated english speaking people were the only ones benefitting over illeterates."

          /me backs away slowly.
          --
          If laughter is the best medicine, who are the best doctors?
          • (Score: 2) by cubancigar11 on Monday September 05 2016, @07:23AM

            by cubancigar11 (330) on Monday September 05 2016, @07:23AM (#397695) Homepage Journal

            You have not replied to the actual content of the message which said what is meant by education and you have also displayed that you didn't understand what it said by quoting data that doesn't mean any thing. In short, you have purposefully discounted the economic angle into the definition of literacy.

            There is zero reason why people should read a book printed in 1776. Expecting anyone to do that is stupid, but I think you are just creating strawmen.

            /me backs away slowly.

            Yeah you should and go read one of the books you want every one to read.

    • (Score: 0) by Anonymous Coward on Friday September 02 2016, @01:05AM

      by Anonymous Coward on Friday September 02 2016, @01:05AM (#396496)

      In the US, now that the state is involved, housing, medical and education have gotten really expensive.

      Also, to the comment above
      "Ireland gave up that piece of sovereignty when they joined the EU and ratified all those agreements and then approved them in their own parliaments. Ireland agreed to the whole "don't give special treatment" thing many, many, many years ago (when the going with EU was good)."

      I guess it's also technically true that Greece gave up the right to cook the books.

      A point of sovereignty that was not given up is that a treaty obligation to a country is not an absolute thing.
      If a country decides not to abide by it, then the other parties to the treaty can choose to ignore or act.
      They can ask the country to enforce a part of the treaty, but if the country decides not to, then their options are talk, war, sanctions, or pound sand.
      Of these, talk seems the preferred option.

      The folks in Brussels seem to have a vision of where they think Europe should be.
      Assuming there are some honorable folks in Brussels doing what they think is right,
      they need a lesson teaching where it actually is before they kill the path to where they feel it should be.
      One would think Brexit would have been a sufficient lesson.
      Perhaps either they are slow learners or not honorable, or hopefully just impatient or lack imagination.

  • (Score: 4, Insightful) by TheRaven on Friday September 02 2016, @08:13AM

    by TheRaven (270) on Friday September 02 2016, @08:13AM (#396594) Journal

    What makes you think these things have to be state funded? You realize that all but one of these things pre-date the state?

    Yes, they do. Well, with the exception of enjoyable cities (actually, cities at all). And why do we let the state run them? Because we tried for hundreds of years leaving them to the private sector and it worked really badly.

    --
    sudo mod me up