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. Governments need to maximize revenue from taxes, which is only achieved by optimal tax rates. When rates are either to high OR to low then revenue suffers. It is nonsense to claim that increasing taxes ALWAYS increases revenue. In fact, three US presidents have increased revenues by decreasing tax rates.

    1. A low rate is better than avoidance. Government must block the off-shore HQ nonsense. If i buy a product in this country I pay tax – similarly if a company sells it in this country they too should pay tax on thir profits

  2. What is sad is that at some point all of these companies had to make a decision to stay in the USA and try to change the laws concerning what taxes they had to pay and what benefits they were required to pay, by law, to their employees or just give up, close down and move to China. Most of these businesses, instead of staying “American”, chose to lay off their employees, close their factories, and move production overseas, so they could take advantage of these tax and benefits “breaks”. To me, at that point, they stopped being Americans, and transitioned into companies who only care about their profits and revenue and they cared little if any about our country and our people. All you have to do it look around you, in your town, to see all the businesses, factories and empty buildings to see how this, in part, has ruined our society. These companies keep their headquarters here in the USA because this is how they define their tax break under the tax rules of the countries, in which, they are making their products. The same applies to large previously American companies who would sell to foreign investors, like Anheiser Bush, who sold the largest market share of beer to InBev, a Belgian-Brazilian company. There is no more concern for the USA by these companies, only the maximum profit that they can obtain in their day to day or in their sale. What happens when our largest companies decide to sell to foreign entities who’s countries have been profiting from our globalization/tax skirting practices and who’ve gained the revenue and desire to do so. What are we going to do when China buys Delta Air Lines, United and American and puts their citizens in all the jobs, which Americans now hold (this is serious by the way). What are we going to do when Ford and Chevrolet sell to a South Korean company and now all their profits go to South Korea. All of our manufacturing technology is slowly being given away to China, South Korea, Taiwan, etc.,… Have you ever been to Korea or China and compared it to the USA. Korea has never had the creativity or design ability we once had. How many Korean or Chinese developed products do you remember buying. They were all copies of American designed products! Where once that technology was kept in the USA and perfected here, it is now being done in China, for example. The Chinese are being shown how to do it, having their hands held through the processes, and being given everything they need to learn from the processes and develop their own copies based upon what they are seeing and learning. This is all happening while the factories here keep shutting down. This is slowly reducing our ingenuity, manufacturing prowess, technology base, and thus, destroying America’s ability to make money in our own country. Those CEO’s who chose to stop manufacturing in America rather than change the laws here, were the beginning of the downfall of our economy. No president is going to “create” jobs if the manufacturing technology/base is no longer here. If you have no engine to produce money, you have no way to do it and there is no engine, at which to place an American to work. We need to change the laws for businesses, so it makes sense for them to come back to America, employ Americans, make products in America, and thus our revenue will increase, our unemployment rate will go way down, more people will be able to buy products in America (made in America) and this recession can finally start climbing back under the globalization rock from which it came. There is absolutely no way, with the tax code we have today, coupled with the un-American practice of moving production to China, that we, as a nation, will ever get back to our national state of pride that we had prior to globalization.

  3. i hate these yellow journalism that are attacking apple who are doing the right thing and legally, end of the day apple create jobs and these employees pay plenty of income tax. then there is the VAT that the govt charge on the sale of every product, 20 % here in the UK. on top of this apple products are not essential like water and electricity, so why should anyone complain when there are generating so much tax for the govt. and the profits apple do make, they are pouring it into R&D and future development

  4. My POV: Whenever I’ve been able to skip state sales tax via buying from outside of my US state, I’ve done it. And despite my state’s endless whining about it, it has been entirely legal.

    The obvious solution for my state would have been to allow for a lower sales tax when buying from companies that don’t do business within my state.

    The obvious solution for the US feds would be to allow foreign earned profits to enter the US with a significantly lowered tax than what is charged for US corporate profits taxes.

    Yes, this is not a perfect analogy. But my state would benefit, not suffer from a lower sales tax for sales made outside the state. The US feds would equally benefit from a lower profits tax on sales made outside the USA. DUH.

    Deal with it governments! Your attempts to mandate full scale taxation on out of jurisdiction sales are NOT GONNA WORK EVER.

    Apple is only doing what is obviously the result of regressive taxation concepts.

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