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Apple CEO comes out swinging on US taxes in new CBS interview
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Dec 18, 2015, 06:23 PM
 
Following on from reports that this Sunday's episode of CBS newsmagazine show 60 Minutes will feature a segment on Sir Jonathan Ive and his secret design lab (including a sneak peek at a future Apple Store concept), journalist Charlie Rose will also be chatting with Apple CEO Tim Cook on the show regarding some of the thornier issues facing the company, including the issue of "repatriating" the company's foreign profits, and Apple's strong advocacy of user privacy and encryption.

Cook, who has had to testify before Congress regarding Apple's non-US tax avoidance strategies, said that the charge from certain congressmen that Apple is "engaged is engaged in a sophisticated scheme to pay little or no corporate taxes on $74 billion in revenue held overseas" is "total political crap," insisting that Apple pays all the US taxes it is due, and follows the existing law (but employs advantages in that law to fullest allowable extent) in all the other countries in which it does business. In fact, he noted that Apple pays more taxes on its US income than any other company, and does so "happily."

At the heart of the interest in Apple's routine corporate tax-lowering strategies is an interest by Congress to force Apple to "bring home" profits it earns on foreign sales, which make up the majority of its sales. Congress, of course, sees the potential of enormous new revenue if it can convince Apple and most other large US corporations to "patriate" money it makes overseas, as these profits are taxed at a rate of over 35 percent -- despite having had local and corporate income taxes paid on them already.

Apple and most other multinational corporations take advantage of the tax laws and trade treaties between countries and regions to seek out countries that offer exceptionally-low corporate tax rates -- such as Ireland and Luxembourg -- and funnel foreign sales through "distribution offices" set up in those countries, making them only liable to pay that lower tax rate alongside local sales taxes, resulting in huge savings. None of this applies to profits made by Apple in the US -- it pays an average of over 25 percent of its US profits in taxes.



Apple and other companies refuse to import those already-taxed profits back to the US because it would not be "a reasonable thing to do," due to the re-taxing at very high rates, Cook told Rose. "It would cost me 40 percent to bring it home ... This is a tax code that was made for the industrial age, not the digital age. It's backwards. It's awful for America. It should have been fixed many years ago. It's past time to get it done," he said.

Apple and other tech companies have previously lobbied for a temporary "tax holiday" that would allow corporations to bring in their foreign profits at zero or very low tax rates, arguing that the US would benefit from the ancillary benefits of "repatriating" foreign profits, in ways such as job creation and US expansion. Historically, this has generally turned out not to work, with most profits simply being returned to shareholders or given to executives in the form of lavish bonuses.

Apple, and Cook in particular, appear to be lobbying now for a simple, permanent but much more modest reduction in the US tax rate, and for the government to close certain loopholes that allow the abuses such as using such profits only for executive or shareholder enrichment -- essentially the same plan President Obama's administration put forward. Various European authorities have been investigating Ireland and Apple for any potentially-illegal arrangement that gave Apple a favorable tax rate over other companies. Apple has maintained that it received no special deal from the Irish government, but the EU commission may find that Ireland's overall corporate tax scheme amounts to "illegal state aid."

Foreign sales now account for about two-thirds of Apple's overall revenue, but the company says it simply executes on its fiduciary responsibility to shareholders to use every legal means to lower its tax bill. Currently, Apple has over $200 billion in cash and short-term debt that is kept overseas as revenue from foreign sales. It often funds US expansion and stockholder dividends by borrowing money from banks rather than using its foreign profits, since interest rates on the loans is so dramatically much lower than the company would pay to "repatriate" the foreign-earned money.

The European Commission investigation is expected to conclude later next year, after the next set of Irish elections. Other countries, including Italy and the UK, have also accused Apple of avoiding local taxes through its distribution agreements, but the company has repeatedly said it has done nothing wrong, and is just taking advantage of existing loopholes these countries built into their regional tax codes.

CBS has also said that the interview will touch on Apple's skirmish with some authoritarian US government figures who demand that tech companies set up "backdoors" to allow the government to decrypt private communications when a warrant is issued. Apple, most prominently among some other tech companies, has set up its encryption options in iOS and some OS X services and communications programs so that the company cannot decrypt that information. Some agencies have said that it hinders some kinds of law enforcement, but Apple and others have argued that a "backdoor" for the government makes that same "backdoor" available to criminals, resulting in a larger overall security problem.

The interview will also address the topic of why nearly all Apple products -- and consumer electronics from rivals and other companies -- are made largely in China rather than in the US. The episode with Ive and Cook will air this Sunday at 7:30PM ET, and 7PM Pacific Time.
     
tankman
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Dec 19, 2015, 01:10 AM
 
If foreign profits brought back "at zero or very low tax rates" are "simply returned to shareholders or given to executives in the form of lavish bonuses", then shareholders and executives will have to pay income tax on that money.

And allowing companies to bring back profits at low tax rates would benefit the Government more than what it currently receives. Five percent of something is better than 35% of nothing.
     
Stuke
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Dec 19, 2015, 11:18 AM
 
I'm a business, I'm clever to be in business selling something for profit. I'm supported by shareholders (or private equity) to start-up and run my business. I'm pretty sure "business" means "make money, that universal exchange currency for anything else in life." Therefore, as a business, I try to maximize my money making efforts, that is, profit generating potential. I'm also ethical and perform this process according to laws. So when the laws allow me to make a profit around the world, and I become the biggest company on the planet based on my business success with products/services I sell and the profit I generate for my shareholders/backers, I now am accused of doing something wrong because the law makers can't get more money from me as "taxes." Well, tough! And if you change the laws to make it more advantageous for me to perform my business in this country or that country, I'll leave this or that country. Is that what you want?
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Stuke
     
mac_in_tosh
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Dec 19, 2015, 01:05 PM
 
It may be that what these companies are doing is legal, but laws are created by Congress to please their corporate lobbyist donors and not necessarily to do what's best for the country. It's the same with hedge fund managers avoiding paying ordinary income tax rates on their earnings. Basically a corrupt system. The fact that Apple or any other company is legally taking advantage of that system does not make it less corrupt.
Stuke: you can leave this country, but don't expect to then derive benefit from the protections our country provides.
     
ctt61
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Dec 20, 2015, 10:35 AM
 
Tankman is so correct.
the money that apple bring back to assume that it give share holders as dividends or bonuses will be tax at the tax bracket that persons are responsible for.
The US government eventually get their tax money, might not be much the 35% they want.
It is a convoluted.
No one company or individual want to be tax twice. Apple already taxed once by foreign country that account was based. Now the US want their 35% cut and the extra money if apple give to the their holder or executives will be tax again at their tax bracket.
So a same amount of profit get tax three times.
     
Ham Sandwich
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Dec 20, 2015, 10:01 PM
 
Schiller: Can't tax us anymore my a
     
   
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