The worlds focus is on Tax as Tim Cook takes the stand
By Quantum Capital Fund
There are two truths about life that are unavoidable: death and taxes. Well, it seems that Apple has been able to achieve the impossible by avoiding one of these truths, at least that’s how the US Senate feels about Apple’s lack of tax payment on profits from foreign device sales. Although the ruling of this case will be important, it may be seen as a secondary issue if the government initiates tax reforms at the end of the case.
General online news website The Huffington Post reports that the senate subcommittee released a report Monday that held up Apple as an example of the legal tax avoidance made possible by the US tax code. It estimates that Apple avoided at least $3.5 billion in U.S. federal taxes in 2011 and $9 billion in 2012 by using its tax strategy, and described a complex setup involving Irish subsidiaries as being a key element of this strategy.
It pointed out that Apple uses five companies located in Ireland to carry out its tax strategy. While all five companies were incorporated in Ireland, only two of them have tax residency in that country. That means the other three aren't legally required to pay taxes in Ireland because they aren't managed or controlled in that country, in Apple's view.
The report says Apple capitalizes on a difference between US and Irish rules regarding tax residency. In Ireland, a company must be managed and controlled in the country to be a tax resident. Under US law, a company is a tax resident of the country in which it was established. Therefore, the Apple companies aren't tax residents of Ireland or the US, since they weren't incorporated in the US, in Apple's view.
This is not the issue as Cook openly admits that the company pays the required tax for profits on sales in North and South America. The Senate is accusing Apple of reneging on taxes owed on profits gained by global sales.
But Cook said the Irish subsidiaries don't reduce the company's US taxes at all. Rather, the company avoids paying the 35% federal tax rate on profits made overseas by not bringing those profits back to the US, a practice it shares with other multinationals. Cook also took his opportunity, while on the stand, to lobby for a reduction in taxes.
Democrats are complaining that the government is missing out on billions of dollars in taxes while multinational companies use ‘tax avoidance’ techniques. Republicans argue that if the federal tax rate was, reduced it would be seen as an open invitation for multinational companies to return home to the US.
While both political parties agree that reform is needed, there is a stalemate on the form that this should take. But while the two parties are at loggerheads, a solution may be promulgated by international events. Reports from Ireland’s major news agency RTE show that there is growing pressure being put on the Irish government by media agencies and that the member states of the European Union are meeting to discuss establishing new tax reforms.