Apple pays under 2% on overseas profits and it’s entirely legal

Apple is paying less than 2% tax on its overseas profits, with new documents revealing that the world’s biggest company has again slashed the amount foreign taxmen receive. It paid $713m (£445m) corporation tax abroad in the year to the end of September, even as profits surged to a mammoth $36.8bn outside America, according to regulatory filings lodged last week.The Sunday Times, 4 November 2012

“The regulatory document they’re referring to is the 10-K which is here. The relevant information is on page 61, in Note 5 on income taxes. They’ve definitely got the right numbers and I don’t think they’ve done anything obviously wrong in their calculation,” Tim Worstall reports for Forbes. “However, they do get one thing wrong: ‘The meagre payouts to exchequers in Britain and across Europe are likely to inflame public anger over the aggressive tax avoidance tactics used by American tech firms.'”

“You see, this isn’t tax avoidance and it’s most certainly not aggressive such. For this isn’t some loophole in the tax system, isn’t a mistake somewhere along the line. Nor is it anyone playing games and avoiding the spirit of the law. This is just how the corporate income tax works,” Worstall reports. “Apple really does pay only 2% or under on those foreign profits. And does so entirely legally without even a hint of tax avoidance let alone anything more than that. For this isn’t an aberration: it’s simply how the system actually works.”

Read more in the full article here.

MacDailyNews Note: As Worstall points out, Her Majesty’s Revenue and Customs (HMRC), a department of the UK Government responsible for the collection of taxes, clearly stated in October 2012:

A UK-resident company has to pay UK corporation tax on the profits from its UK activities. A company which is not resident in the UK does not have to pay UK corporation tax on its trading profits, unless it is trading through a branch in the UK. Having UK customers is not the same as having a branch in the UK.

Non-resident trading companies which do not have a branch in the UK, but have UK customers, will therefore pay tax on the profits arising from those customers in the country where the company is resident, according to the tax law in that country. The profits will not be taxed in the UK. This is not tax avoidance: it is simply the way that corporation tax works.

Most major economies operate corporation tax in the same way as the UK, so UK-resident companies are treated in a similar way in other countries. In other words, UK companies do not pay corporation tax to another country on the profits from sales in that country, unless they trade through a branch based there. Instead, they pay corporation tax in the UK.

Read more in the full article here.

39 Comments

    1. Who appointed you fascist in chief?

      Free Speech, one of the first steps in changing something is building awareness.

      By “shutting your mouth” you only perpetuate the problem. This is not an either or situation.

    2. The headline to this article seems to indicate that Apple should pay more overseas taxes on profits.

      The bottom line is its none if our business. They don’t make the profits here. It’s very presumptive of America that it can levy taxes on the rest of the world. How would we feel in America if France or even Iran wanted to start levying sales tax on everything we buy here?

      1. Apple is a publicly traded company. As a shareholder, I contend it is my business to know.

        Considering the current US Politics talking point of corporate taxation, shouldn’t this be important to know?

        Mitt Romney wants a tax holiday for repatriated profits, he argues our corporate tax rate is too high. (of course never talking about effective tax rates) Seems logical that we have this information.

        For example, knowing they pay such a small percentage overseas, knowing they are lobbying for a tax holiday to bring that money home, I am now better informed on the situation and believe they should have to pay something more than nothing in tax to bring that money here.

        1. “…knowing they pay such a small percentage overseas, knowing they are lobbying for a tax holiday to bring that money home, I am now better informed on the situation and believe they should have to pay something more than nothing in tax to bring that money here.”

          They DON’T pay a small percentage overseas. They pay the local tax rate, which is not small. They pay the <2% HERE on money they make THERE. Yet you want them to pay "more than next to nothing" to bring the money here. Under the current tax code, they would pay a very large amount to bring that money here — probably the 15% capital gains rate. Which means they will likely NEVER bring that money here. That's why Romney wants a tax holiday: to have them repatriate the money, so that it is pumped into OUR economy and not another country's.

          Learn ALL the facts, please, before you formulate your beliefs.

        2. Your ignorance of taxation laws (worldwide), and your desire to cloud anyone that espouses taxation on consumption (vs our present system of taxing production) clearly identifies you as a follower of Marx and Engalls (the inspiration behind Marxism/Leninism aka Bolsheviks). In modern day ideology you are an Adlai Stevenson adherent, as has been every Democratic President since LBJ. Although Stevenson ran for President twice before JFK, Kennedy was not a follower, hence the largest US tax cut in history (up to that time) in 1962.

          The simple fact is that as international trade becomes more efficient (communications/transportation) manufacturing is moving to Countries with favorable tax environments. This began in the early 1950s as US unionism, and corporate tax rates grew to all time highs.

          Our Asian competitors (those wily formor enemies) have used taxation (consumption not production) as the driving incentive to move US manufacturing out of union dominated strongholds of Democratic politics to Countries that do not tax profits on production.

          This results in an about 20% price advantage in Asian produced goods vs US produced goods (approximate amount of US production taxes embedded in all US produced goods). Asian produced goods are only taxed at the local consumption tax rate (sales tax). While US produced goods are sold overseas burdened with US production taxes (aka income tax), then taxed locally with a national sales tax (often as high as 30%).

          It is the philosophy of progressive production taxation (redistribution of wealth) favored by liberals that has singlehanded lay destroyed US manufacturing. Because of automation labor has little to do with it. Believing otherwise exposes your dogma induced belief system, vs reliance on facts.

          A liberal cannot abandon a taxation system based on production, no matter how counter productive it is, because it is the backbone of their belief that producers should, through the coercive power of government, be forced to share their earnings with those not as talented, unable to, or unwilling to work.

          The US has the highest Corporate tax rate in the world, and Obama doesn’t think it is high enough. Gee, US manufacturers are moving production off shore, where the benefits of that production does nothing for the US worker. Who woulda thought it? Anybody with an ounce of economic understanding vs an irrational belief in dogma.

          Let the wailing of the liberals begin. Watch how they will first decry that Corporations do not pay enough, and that the rich should pay their “fair share” without defining what a fair share is. Current “fair share” is 80+% of all income taxes are paid by the top 2% of taxpayers.

          If you are unemployed, or under employed, its most likely because the creators of wealth (clue: not the government) are forcing manufacturing jobs off shore with their “progression” taxation policies, not shared by our foreign competitors.

          “Truth” (aka Pravda) if you are going to engage in a discussion of tax policy, and what is right and wrong, better to enter the fray with more than your copy of the Communist Manifesto if you are going to be taken seriously as anything more than a dogma spouting puppet.

        3. As a publicly traded company, Apple has a fiduciary responsibility to its shareholders to make biggest profit while paying as little taxes as is legally possible.

          Change what is legally possible.

    3. The Obama tax police will soon be out to arrest all the evil rich people and evil corporation and the occupy movement will occupy Apple’s Cupertino headquarter.

      Enough already with the injustice.

      I want my Obama iPhone… or 2 or 15!

  1. Are taxes paid by Apple in the UK used to pay brain dead British judges? If so, Apple should choose to minimise any and all taxes paid to the UK tax authorities so that brain dead judges should be forced to take a pay cut due to lack of funds in the UK treasury.

  2. This type of spin piece to encite class envy is atrocious. In a graduated tax system, with legal exemptions, you should look at overall taxes paid: federal, state, local, sales, luxury, real estate, gas, excise, capital gains, etc. etc.

    People like Steve Jobs don’t pay income taxes at all or very little, since they don’t need a salary. They pay capital gains, which is a different rate, and I would argue should be abolished, since the wealth was already taxed when it was acquired so how can we continue to expect them to pay. The amount of taxes these people pay is staggering, and punishing them with more taxes and guilt that they don’t pay trier “fair share” is evil and misguided.

    The amount of tax revenue Apple, Inc generates is absolutely incredible if you account for all those employed by Apple, developers’ income, sales taxes, rental taxes, FCC fees and taxes, gas taxes for FedEx trucks running up and down the countryside, and on and on. I’m sick of idiots taking 1 statistic and making it the story. Any govt. that needs more than we are already having taken is too big and inefficient to even ask for any more!!

    1. “class envy”? I don’t see it as class envy at all. I’m not a corporation and don’t ever see myself as ever being in that economic category of income. I make a good income on my own and pay what I see as appropriate taxes. How can I envy a corporation?

      Looking at overall taxes paid is not appropriate in this system, as all of the various taxes you mention are levied by different government entities for different purposes and to fund different governmental activities. Each is appropriate for the entity and purpose for which it is levied.

      As for gains taxes, why should any person who is fortunate enough to be able to forgo income taxes by having an income through investment be free from paying taxes? Taxes are levied at each step of the process, as each entity at each step is a separate and different legal entity. As for the “amount”, that is not relevant, as percentage is much more indicative of fairness in such a system. Ten thousand dollars of tax to me is not the same as it is to someone with a million bucks of income, or to someone with a $20,000 income.

      The amount of tax revenue you say Apple generates is also generated by the economic activity of all of the various entities you mention, and that additional activity, while sparked by the manufacture, shipping and purchase of an Apple product, is also the result of economic activity by each entity at each step of the process. Apple doesn’t do that alone, which is why they don’t pay those other taxes, and the high amount of economic activity in the economy they generate does not excuse them from paying taxes on the profit they do earn by sales of their products.

      The amount of tax to be paid by higher income individuals and corporations is an appropriate subject for discussion in an economic climate such as ours where one Party is making political hay out of the national debt yet fails to suggest economically feasible solutions for paying for it.

      As a matter of fact, the founders believed that such things should be examined periodically by each generation anyway in order to decide the appropriateness of the laws we live by given the economic and social conditions extant at the time.

      Class envy has nothing to do with it.

  3. When politicians find it expedient to redistribute wealth from one group to another to purchase votes and secure a steady income for themselves then every working individual and business is at risk of theft-by-decree.

    1. If “wealth” engenders too much envy merely substitute “wealth” with “income”, it’s all the same to the government, mo’ money, mo’ money, mo’ money.

    2. … this better if you thought of it as “following the teachings of Christ” – in a limited way.
      Let’s not follow that … not all here claim to be Christians. When a company hires a CEO at an exorbitant rate it seldom matters if that new-hire boosts the profit of the company, only that they boost the year-end bonus of the C-class and the Board. They can steal that money from anyone. Like the company pension fund that people worked for and is owed them by contract. So … don’t ask me for sympathy for the Owner Class, the 0.1%, when they are merely the first thieves in.
      When a company arranges it’s business model to minimize it’s tax expense, it is playing the game in order to avoid that tax. Doesn’t mean they are doing wrong. They are playing according to the rules. If you are unhappy with who pays what, change the rules for NEXT year. For last year, the worst you can do is make sure all the rules were followed.

      1. If a CEO “steals” from the pension they must be committing a felony. Don’t compound the crime by extorting many for the sins of one.

        If you think someone make too much income I can assure you that I can find someone who thinks you deserve even less than what you earn.

        First thief? Only a moron would suggest stealing is legitimate if someone steals first.

        1. “… stealing is legitimate if someone steals first”? I don’t think I did. I was merely explaining why I had no sympathy for the Romney class.
          Paying as little tax as is legal is not illegal. It might be theft if you had something to do with creating the tax code in such a way as to favor your own interests. THAT would be unethical.

    3. MacFreak gets it. A French philosopher actually stated (shortly after the Revolutionary War) that democracy will work, until the electorate learns they control governmental spending/taxing priorities via their vote. After that democracy is doomed to financial collapse as the have nots vote themselves (via their representatives) entitlements paid for by the haves. In the US the have nots have taken this to the extreme by having the government borrow to give them the entitlements they want.

  4. this issue is not exclusive to Apple. Starbucks, Google, Amazon and Ebay are all implicated.
    From what I understand this tax avoidance is all legal, except that it is socially disruptive. Why should a huge company like Starbucks be able to twist the tax law to suit their pockets when the small coffee shop, run by one or two individuals cannot afford to pay lawyers to do the same for themselves.
    They all have to pay VAT, business rates, income tax, social security, but the big boys pay very little CT, whereas the small business must pay it in full.
    You can argue that Amazon, Apple, Google, Starbucks etc etc all benefit from the government funded infrastructure, roads, water, gas, electricity but actually pay very little for it’s upkeep.

    1. What ever higher taxes bushinesses have to pay the costs are included in the prices of goods and services charged to the consumer, layoffs and reduced worker benefits by the companies to maintain a profit, or both.

      There is little “social” benefit in higher prices or loss of income from increasing taxes.

    2. “From what I understand this tax avoidance is all legal”

      “Why should a huge company like Starbucks be able to twist the tax law to suit their pockets”

      Either it’s legal, which it is, or they twist the tax law, which they don’t.

      Do you read what you write, idiot?

      1. Twisting the tax law” means using lobbying firms to actually cause the tax laws to be favorable to their interests at the social expense of the rest of society. It does not allude to the manner in which the companies may follow that law once passed and signed, which is acknowledged to be quite proper. Why break the law if you can cause those who make the law to bend it to your benefit?

        One is proper – obeying that law once passed. The other, twisting the legislative process to benefit a few is not considered so proper.

        Which was the point that whooshed right over your head.

  5. Apple isn’t being actively targeted here. There’s a big debate going on in the UK at the moment about the genuine tax avoidance our own large companies can do by use of sending their profits offshore. Apple, Starbucks etc. are being highlighted as examples of international competitors doing the same, as if it allows our own companies off the hook. It’s a diversionary tactic by our own to take attention from their own misdeeds, and sadly most of the UK press are following the narrative.

    UK tax law needs to change, but as we have two Eton boys with million-pound trust funds currently running government policy it’s unlikely to during the term of this Parliament. In the meantime, all Americans and Brits should just ignore reports of this sort. It genuinely does not matter, nor does it excuse anyone else’s use of loopholes or twisting of the tax code.

    1. You’re missing the point. At the moment our government is cutting spending as harshly as it can do without seriously hurting the economy. Every penny not collected in tax due to avoidance and use of loopholes is resulting in either more cuts and therefore more people out of work, or taxpayers further down the chain having to shoulder the burden of the missing receipts. As a nation we’re running at a deficit, and that cannot continue. So all everyone is asking is that people and organisations pay their share so that we all benefit in the long term by balancing the books. That way future governments should be able to cut taxes for all instead of having to cover increased interest payments for money borrowed.

        1. No it is not, sorry this isn’t Koch brothers daily news, nor is it Alec daily news.

          Our deficit is out of control thanks to W and his tax cuts and two unfunded wars. Hows TSA working out? Stop the endless war mongering, reign in the completely out of control defense budget, you know the one America spends more than two thirds of it’s money on.

          The last conservative blew up the deficit just like Reagan, with an out of touch, unworkable platform.

        2. MacFreek, I’m talking about the UK, which is most definitely not running a deficit from needless spending. Our problem is that our completely unbalanced economy was too dependent on financial services, which have taken such a dive since 2008 that our tax take is massively down even as the government cuts back the amount going out.

  6. What is legal and what is fair to UK residents who are being screwed by the taxman at every turn is the issue.

    All trading profit made in Uk should be liable to Uk tax. The same is true for the US and all the other developed economies. We both need a government that will deliver us those laws to make it a level playing field. If any company doesn’t like that idea they can cease trading and set up shop in the Caymen Islands, Monaco, luxembourg, or anywhere else. So the story really is not a ploblem with Apple but with our shit politicians

  7. Apple plays many perfectly legal tax games. The fly in the ointment is the perfectly legal part. Taking some actions regarding corporate taxes are legal in the sense that there is no criminal or civil sanction for doing so, but there are negative effects. An example is the article above–apple doesn’t have a uk branch so doesn’t pay Uk corporation taxes. This is legal.

    However, the uk didn’t set up their system to render a tax free system. Instead, a company that doesn’t have a uk branch doesn’t pay uk corporation taxes, but is supposed to pay taxes back in the state it resides, in apple’s case the United States.

    But apple doesn’t want to pay United States taxes on profits from uk either. It argues, why should we pay us taxes on uk sales even though the legal setup in the uk is that Apple in not opening a uk branch has chosen to pay uk taxes.

    So apple leaves those profits in limbo, refusing to repatriate the money unless the United States gives a tax holiday.

    So yes, mdn, what apple is doing is technically legal but only in the sense that it is following part of the law–not paying uk corporate taxes–while it simultaneously refusing to pay the United States taxes it owes until the United States changes its laws and makes those laws ex post facto to years of sales previously made.

    1. That money doesn’t stay in the UK. For that money to stay in the UK Apple would have to have a corporation there to take ownership of that money and then that money would be taxed. Most likely that money goes to Cork Ireland where I do believe they have a corporate office. I would imagine they pay corporate tax in Cork which is probably pretty low, or maybe they don’t have corporate tax.

      What I’d like to know is how you think this is hurting the UK (because you seem to be implying that it does). Do you think Apple is somehow costing the UK money that they’re not seeing a return on? The UK getting 2% of billions of dollars. They wouldn’t be seeing that money at all if Apple didn’t decide to sell it’s goods there.

  8. The only issue is whether or not they are in full legal compliance of the tax laws as they relate to a particular country. If citizens are unhappy with the tax arrangements in these situations, then the people to complain to their elected representatives. You cannot accuse a corporation of tax avoidance if they are in legal compliance with the rules set out in the particular jurisdiction. Also, you cannot whine about situations that look favourable to a corporation, if you would jump at the chance to do the same thing on your own tax situation.

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