The New York Times:
“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said Senator Carl Levin, a Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations. “Apple sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.”
John McCain, the Arizona Republican who is the panel’s ranking member, added: “Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America’s largest tax avoiders.”
Before going any further with this, please note that there’s a big difference between “avoiding” tax and legitimate provisions for tax minimization that are well within the taxation rules. There’s no such thing as a tax loophole. Money is either taxable or not.
Nor is there anything called a non-existent, for tax purposes. A term like “tax resident nowhere”, for example, stretches the frame of reference. Beyond reasonable limits. It’s not that easy to be “tax stateless”. It’s impossible, if tax laws are being enforced properly. The US taxes foreigners, for example, with a very clear “You’re either a US resident or not” approach on its legendary W9 forms. There are treaty tax rates, etc., too.
Other countries also assume that a company is incorporated somewhere. The description of “stateless”, (if not the apparent results), is debatable.
Apple has found a way
of minimizing tax to a staggering degree, fractions of a percent. Even the experts are struggling for terminology:
“There is a technical term economists like to use for behavior like this,” said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles and a former staff director at the Congressional Joint Committee on Taxation. “Unbelievable chutzpah.”
It’s only fair to point out that Apple isn’t the only company with tax avoidance issues
. Just about all major US corporations do very similar things to manage their tax liabilities. Meanwhile back on the verbiage-soaked tax issues, the result of this corporate hit and run tactic has also been a direct impact on US revenue. If people aren’t paying tax on tens of billions, someone has to make up the revenue shortfall, and that means income tax payers and payroll tax.
The greed factor and a culture of “smarts”
US corporate tax rates are about average by the standards of Western nations. They’re not particularly onerous, and anyone could find tax allowances to reduce the amounts payable. The problem is that US corporate culture is so obsessed with regulatory evasion as a benchmark for “clever” corporations that tax evasion is almost a reflex. Hordes of corporate and tax lawyers infest US businesses, looking for ways of making money this way. There are more lawyers and regulatory scam artists than business initiatives and other job and money-creating things.
This is, in effect, a de facto revenue stream. The perceived greed is actually a normal business practice. It’s also keeping billions of dollars out of the US for fear of tax penalties. That’s doing nobody any good.
Just at the moment that everything is hitting the fan:
Government funding is shrinking, drastically,
Public services are being hamstrung and short-changed for lack of money,
Government spending is turning into a high wire act,
Gross revenue is getting sandbagged by non-payment of taxes by corporations which can easily afford to pay.
The US government is entitled to some severe criticism for not managing this situation, which was extremely well-known, a lot sooner. That ain’t how you manage a revenue system. The gigantic amounts of overcomplicated, outdated, tax legislation have created the perfect environment for tax evasion.
As I’ve been saying for several years, the US revenue system is a 19th century body of law with no place in the 21st century. It’s a doddering old wreck. Apple has simply clarified the problem and proven how the system has failed.
Quick fix? Yes and no
The simple, murderous fact is that any sort of tax dispute between the IRS and US corporations would cost both gigantic amounts of money and time. There’s probably a useful trillion or so collectable for the IRS, but it’d be advisable to do it without the major opera effects.
Corporation X owes tax on a nominal amount of say $20 billion.
Tax is about $7 billion at ordinary tax rates.
Shorten the entire process and offer a simple tax payment of the nominal assessed amount of 25%, ($5 billion) which is about right and reduces the overall tax liability without anyone even needing to get out a calculator. Both parties agree that covers all prior tax liabilities, and they start from scratch with a normal system the following financial years.
This means revenue is received a lot faster and the bureaucratic/judicial/legal nightmare is avoided. I’d point out that to get anything happening quickly in this area, some sort of incentive is required. The IRS has nothing at all to gain from a long, expensive teeth-pulling exercise, and corporate America doesn’t really need more endless litigation. Nor do the courts or financial policymakers.
The overriding priority here is to get the real message through- The US tax laws must modernise, fast. Everybody had a hand in creating this situation.
The method of writing legislation has to change, too. Those huge slabs of text cannot possibly be efficient law. It’s amazing people in the US can even walk down the street with laws framed like this. It’s perfectly possible to designate a street as something else legally, like a travelling stock route or a rail reserve, public land, etc.
The tax trail needs a sidewalk, guttering, and to be legally able to act like a street, not an obstacle course. Get on with it.