Apple CEO Tim Cook is absolutely right – and wrong – on U.S. corporate tax policy

“This Sunday, CBS’s 60 Minutes will air a wide-ranging interview of Apple CEO Tim Cook. A preview of that interview was released this last week,” Todd Ganos writes for Forbes. “In that interview, Charlie Rose asks Mr. Cook about foreign-earned profits held offshore. In essence, the question was whether Mr. Cook believed Apple should pay income tax on those profits held offshore. Mr. Cook stated that Apple was paying ever bit of tax that it owes the United States government under the law. Mr. Cook referred to assertions to the contrary by some members of Congress as ‘political crap.'”

“In mid-2010, one party held the presidency. That same party held a majority in the House of Representatives. But, most importantly, that same party controlled 60 votes in the Senate. They had 58 members and 2 independents aligned with them,” Ganos writes. “Under such circumstances, the party could have defeated any attempt at a filibuster. This means that the party could have done anything it wanted. It could have raised the minimum wage; it didn’t. It could have passed pro-labor legislation; it didn’t. It could have passed global warming legislation; it didn’t. And, to the issue at hand, it could have repealed the exception to the CFC tax rules and forced U.S. companies to report the income from their foreign subsidiaries. It didn’t.

“We will not speculate why the CFC rules were not changed when they party most vocal about the CFC rules could have acted with impunity. We will simply acknowledge that the CFC rules – and the exceptions – are still in place and all of these companies are complying with the law. They are paying every bit of tax that they are required to pay under the law. But, not a penny more,” Ganos writes. “Now, let’s move on to the point on which Mr. Cook is wrong… In the interview with Charlie Rose, Mr. Cook describes the U.S. tax system as being designed for the industrial age as opposed to the digital age. I would assert that it is actually worse than Mr. Cook describes: the U.S. tax system was not even appropriate for the industrial age. Mr. Cook is wrong in that he does not criticize the U.S. tax system even more harshly. Maybe Mr. Cook is just being the polite gentleman he is.”

Read more in the full article here.

MacDailyNews Take: Obviously, the U.S. corporate tax system, among other U.S. tax systems, is FUBAR.

Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth.Apple CEO Tim Cook, May 21, 2013

SEE ALSO:
Apple CEO calls corporate tax rap ‘total political crap’ – December 18, 2015
Apple avoids $59.2 billion U.S. tax bill – October 7, 2015
U.S. companies now have $2.1 trillion overseas to avoid corporate taxes – March 4, 2015
Intel CFO: Obama repatriation tax proposal ‘lipstick on a pig’ – February 4, 2015
U.S. Congress, Obama take Apple CEO Cook’s advice, eye corporate tax changes – February 3, 2015
Obama targets foreign profits with tax proposal, Republicans skeptical – February 2, 2015
Senator Rand Paul finds Democratic partner for tax repatriation holiday – January 30, 2015
Businesses hopeful Republican control of U.S. Congress will break tax-reform gridlock – November 5, 2014
Not in Taxes anymore: On site at Apple’s famous Irish ‘headquarters’ – November 2, 2013
Regan: U.S. tax code spurs loveless foreign corporate ‘marriages’ – May 13, 2014
Ireland to close Apple’s tax loophole, but leave bigger one open – October 15, 2013
G20 think tank OECD proposes blueprint for global crackdown on tax avoidance – July 19, 2013
Thomas Sowell on Apple, corporate taxes, and ‘the road to serfdom’ – May 28, 2013
Taxing Apple just taxes you – May 24, 2013
Don’t tax Apple, tax its shareholders – May 24, 2013
If Apple paid more tax, we might pay less or something – May 22, 2013
Apple CEO Tim Cook pounds another nail into the Keynesian coffin – May 22, 2013
Apple CEO Cook makes no apology for company’s tax strategy – May 22, 2013

37 Comments

  1. After the 60 minutes interview, there should be some discussion of this issue in the media, and the narrative may well hold with the idiots who have no comprehension of economics, and only see some money that they want to get their hands on. If that is the case, Tim Cook should not remain characteristically silent, but respond and use his bully pulpit to educate the country on tax reform.

    1. There’s really multiple issues at play here, and Cook isn’t as innocent as he sounds.

      For example, that same interview had an “insider’s look” at Ive’s design studio in California — but just how many of Apple’s patents have been filed offshore in Ireland? How is that not a slight-of-hand tax dodge?

      FWIW, another tangent that I also noticed was that throughout the entire interview, that everything was all about superlative hardware design – – that’s nice, but there was not even a single peep about making good software.

        1. The answer is pretty hard to come by, particularly when you recognize that “Ireland” is a generic term for tax sheltering strategies: Apple is also known to have a tax-motivated presence in Reno, Nevada as well as Luxembourg and other countries.

          Broadly speaking, the strategy is to establish a shell company whose job it is to license something to, such as IP, so that all of these gains are not passed through back to the Corporate HQ.

          And this is very well known – – and being exploited by many companies, not just Apple – – here’s a 2012 report on it from the Grey Lady:

          http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?_r=0

            1. FWIW, the underlying reason why tax dodge schemes like the “Double Irish” work in the first place is because the claimed value of the IP that’s licensed offshore is very deliberately understated.

              To put illustrate, envision a scenario where the ‘Irish’ wasn’t a wholly owned subsidiary: would any company really be willing to sell a license for, say, $1B, when that IP license generates a cool $1B per quarter in pure profit? Of course not!

  2. The reality is that the politicians are not going to do anything during an election year. They will not want to jeopardize contributions.
    There will be a lot of posturing and accusations about the other side doing nothing.
    After the elections, the politicians will forgot about all the tax issues until they have to pretend to care in 2 or 4 years time.

  3. “ever bit of tax”
    Really? Is that supposed to be a question about Uncle Sam biting the hand that feeds?

    Or perhaps they meant ‘every bit of tax’.
    Thanks, Forbes.

  4. The problem with the corporate tax code in the United States is that there are two rates — the sticker rate, and the effective rate once you factor in deductions, tax subsidies, tax breaks, etc.

    Most of those breaks reward companies for activities they engage in in the US. Companies with many US employees get breaks, companies with extensive facilities in the US get more breaks, farming and construction and manufacturing get breaks, etc etc etc. Companies like Apple that generate large amounts of income without the kinds of operations that take advantage of substantial tax breaks get slammed. Apple designs products in the US using a relatively small operation, has the products manufactured abroad by foreign contractors, then sells those products abroad and then does have much to balance against the profits.

    The problem is that you have large numbers of extremely large companies that are subject to numerous tax breaks, and they lower their effective tax rate to zero to single digits.

    The way to end the foreign repatriation issue is to lower the sticker rate while eliminating tax breaks, so you collect the same amount at a lower tax rate.

    But that means that the companies most taking advantage of the current system will see a drastic increase in their effective rate. And that’s where the resistance comes from—those companies wouldn’t mind the sticker rate changing as long as they kept their breaks, and their negligible effective rates, and at that point revenue neutral corporate tax reform is mathematically impossible.

    1. You are right, the tax code should be simplified.

      But there is another issue here. Other countries only expect taxes to be paid in the countries where profits are earned. They don’t tax money simply because it is brought home.

      If the US didn’t double tax money brought home, then tons of money that was not earned in the US would be brought to the US and invested here to all American’s benefit.

      Double taxes on foreign profits should be eliminated, not simplified.

      1. They are not double taxed, Companies get a foreign tax credit for taxes they pay in foreign jurisdictions, and pay only the difference between foreign and US tax rates. It’s a shame that Corporations withhold these funds overseas while they ply lobbyist and congressional palms in order to eliminate tax on these profits.

        Hey MDN, Apple may believe in the simple, but they have put together one very complicated tax strategy to avoid tax.

    2. So, you said all that but didn’t give us some examples.

      The “sticker rate” presumably is 35%.

      Apple’s effective rate is 26%+.

      The effective rate of Apple’s peers, Microsoft and Google are typically around 20%.

  5. Why doesn’t every country do this?
    e.g. Netflix operates in many countries. Say they make $1m profit in Italy and $100m in the USA. Why can’t the Italian government say that Netflix owes them taxes on the profits earned in the USA?

      1. He didn’t say it was.

        Netflix (based in US) does business in many countries in the world (who knew, right?). Let us assume (for the sake of this argument) that Netflix made $1m of profit in Italy. Italian tax authorities will tax that profit according to the Italian tax laws. Now, if Netflix wanted to bring whatever remained (after Italians took their tax) back to the US, the IRS would require Netflix to pay tax on that money. Depending on how it was earned and how much was earned, the actual taxable amount may easily be the entire Italian profit (before the Italian tax man took anything). This is what is called double-taxing. The spaghetti-law of US taxes has myriad of scenarios, some of which would allow Netflix to deduct the amount of tax paid to the Italians from the US tax dues, but in most cases, there would be at least a part of the taxed amount that is double-taxed.

        Uncle Sam is one greedy guy…

    1. this is actually the problem Apple has now with Ireland and the EU. They have rules and are upset that people are following them. They want to change the rules and then collect tax retroactively, cause, well, everyone should have known that is where they were going.
      LOL Europe, logic, thinking, these words do not go well together over there.

  6. What a load! Every country in the world, where you would want to put your money, gets it.The choice is simple, pay the taxes in the country where you made it, or spend billions in payouts to politicians lobbying for what you want.(every year no end in site)
    Pay out 80% of the profits, per quarter, and stop borrowing money to pay dividends.
    The US will not be a tax heaven, even it capital gains goes to zero, other countries will want a cut (taxes)… This is what happens when you sit on a big pile of money, it gets high enough that people can see it from a long way off, and they start thinking, “how can I get some of that”. Europe is looking for a big pay day. Apple is not the only one… ask Google.

    All publicly held companies should pay out 80% of the profits to shareholders. All companies should be barred from giving money in any type of political campaign. That money is better in the shareholder’s hand. If they want companies to pay no taxes as a company, the money has to go back into circulation. Face it, you invest in a company to increase your wealth not the companies. What do you think having a 401K is about? That’s a hell of a bet. 30, 35, 40 years, hell of a bet. Start to demand pension, and laws that protect them absolutely.

    1. “The choice is simple, pay the taxes in the country where you made it”

      If only it were that simple. Where did they make the money in the EU? In Ireland where the order was received/prepared/assembled/packaged/shipped, or in one of the EU lands where there is no brick and mortar store, but where the end customer resides and placed his order?

      1. “The choice is simple, pay the taxes in the country where you made it” — pay the taxes in the country where the money is made.
        Every international should expect to do that, and they should expect to pay taxes to the country they want to move money into.
        Really this whining is about the rate. So what should that number be? Nothing. Not a serious opening discussion. To ask for that, you really want nothing to change, you just want to be seen complaining.

  7. I see Forbes is trotting out the old, and much disproven meme that the Democrats controlled the government back when. Actually, thanks to the anti-Franken posturing and suits, effective Democratic control of the Senate lasted only a matter of days: not nearly enough time to pass any legislation.

  8. It’s so encouraging to see Todd Ganos who writes for Forbes point out the utter uselessness of the Democraps when they held the US Presidency, House and Senate. They entirely WASTED that opportunity, a bunch of lazy, stupid bums. All that resulted of any significance was The Affordable Care Act, and they didn’t even bother to allow members of congress to read the mess before voting on it. We’re STILL learning the screwed up ramifications of that law, despite a few brilliant things it accomplished. That’s #MyWillfullyStupidGovernment in action. We don’t need any ReTardlican clowns running anything. But neither do we need further DemoCraps such as this. Two parties of utter stupidity, waste and refusal to represent We The People. To hell with them both. 😛

    1. And yes, how boring and predictable that Charlie Rose, of all people, would be so dull is to pull the same old FUD, the ‘Apple’s Gonna Die’ spin that has followed Apple all the way beyond the top. The banality of the mouthpieces of our age is never a surprise. What’s a mouth good for if we don’t THINK before we speak?

      *yawn*
      Charlie
      *yawn*
      💤 💤

    2. Democrats did not have but a narrow window of this so called supermajority and even then had to contend with more conservative blue dog Senators, who tended to vote more like Republicans.

      And let’s not forget that when the affordable care act passed, GOP senator Scott Brown had already been seated and so this supermajority was no longer.

      And let’s not forget that the GOP has been the most obstructionist party in history, unwilling to work together on just about anything.

      1. It’s clearly more complicated than my view of the situation. But my impression at the time was that they were irresponsible and lazy while willingly being sock puppets for corporations. When I look at Princess Hillary I see only more of the same in store.

        As for the ‘GOP’, they’re dead, replaced by the spawn of the neo-cons, aka ‘The Crazies’ as Ronald Reagan called them. Now that Psycho Paul Ryan is running the House, I’d offer them a harsher insult.

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