If Congress delivers on a proposed tax holiday, Apple could soon join a slew of American companies with large dollar amounts of offshore money eager to repatriate their earnings without being subject to the current corporate tax rate. News of the tax holiday being discussed comes via a report from Reuters:
Top Senate Democrats and Republicans on Tuesday said they were considering offering American companies a one-time tax break if they repatriate profits stashed abroad.
The senators anticipate the proposal would generate a windfall in revenue that would be used to fund federal transportation projects.
U.S. Senate Minority Leader Mitch McConnell told reporters in the Capitol that Republicans had discussed a corporate tax repatriation “holiday” idea and “it enjoys a good deal of support in our conference.”
In the past, Apple has made no secret that it does not favor the current corporate income tax rate. With current policy, Apple’s repatriated funds would be subject to the 35% corporate income tax meaning it could really only keep 65% of its earnings…
Tim Cook voluntarily testified before a senate committee last year speaking to Apple’s tax practices and assuring that Apple does not funnel funds offshore to avoid taxes. During that same time, Cook told The Washington Post in an interview that he believes the 35% corporate income tax rate is too high and should be reasonable:
“If you look at it today, to repatriate cash to the U.S., you need to pay 35 percent of that cash. And that is a very high number,” Cook said in an interview Thursday. “We are not proposing that it be zero. I know many of our peers believe that. But I don’t view that. But I think it has to be reasonable.”
News of the proposed tax holiday comes just one day after a report broke that the European Union plans to launch an investigation into Apple’s tax practices in Ireland which Cook has assured are longstanding and not gimmicky.
The last tax holiday passed by Congress in 2004 allowed corporations to repatriate offshore cash at a tax rate of 5.25%, Reuters notes, dramatically lower than the current 35% tax rate.
While the report points out that the proposed repatriation holiday is still at a very early stage and not at all a guarantee, it notes that the federal Highway Trust Fund is set to run out of funding before September and the revenue earned from repatriated funds could be used as leverage to fund that.
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Dear US Senate: Can I also have a tax holiday? Citizens are people too!
Thank you Rand Paul. May you be our next President – a man that blurs party lines and appeals to the Left as much as to the Right, as to the center. It’s time for Common Sense in the WH.
Back to the Gold Standard! Repeal the Civil Rights Act! Universal Healthcare = Slavery!
Yes, @israelanderson, what we need in the White House is someone who doesn’t even understand how the 3 branches of our government work:
“Just because a majority of the Supreme Court declares something to be ‘constitutional’ does not make it so.”
Well, as it happens, that is EXACTLY the role of the SCOTUS. Who knew! Oh wait, everyone knows that. Everyone except President Rand Paul.
It’s not going to happen.
Reblogged this on constantgist and commented:
hello
Can’t hurt I suppose. Allows companies to bring cash in and be taxed. Where as they would normally just keep it stashed off-shore otherwise. Win-win. A percentage of something is more than a percentage of nothing.
It totally rewards tax dodgers.
Why not tax the US sales of products of companies that do this? Why does this company, based in California, have a tax-presence in Ireland? To avoid paying taxes!
Uh huh! And I am sure that you have never taken a tax deduction or tax credit.
I am sorry, but I am calling hypocrite. Apple isn’t dodging their taxes. They are simply taking legal steps to minimize how much they have to pay in taxes, just like I am sure you do.
While I do agree that money needs to be brought back, and that a “tax holiday” is probably the way to do it, it’s not a comletely fair way of doing it. I mean, what if company X brings some money home this month and pays their 35% and then next month Apple gets to pay 5%? Not really fair. But then again, what ever is.
Whatever the offshore tax rates are, the term “tax-holiday” sets out this notion that Apple and others have not paid taxes on it, or have done something illegal. Fact is, they have, until proven otherwise, paid all legally required taxes, and now will pay additional taxes to bring the money into the States (not back into, as this is money earned overseas).
While some will (and have) complain about this, with comments like “where is my tax holiday?” etc., this is a wise move.
Even at 5.25%, it is much greater than what they will get today. Say Apple brings $1 billion into the United States from abroad. at 5.25%, that is $52.5 Million in tax revenue that today, the US is not getting. Sure, 35%, or $350 million, is more than $52.5 million, but as it stands today, the Fed is getting 35% of $0, which is $0
Glad to see that this, according to the report, has bipartisan support, in the Senate of all places.
What did our government do to earn any of that money anyway?
Answer: Nothing.
What did Apple do: innovate, work hard to develop products that consumers and companies what to use.
So the comparison to the government is like comparing a human to a blood sucker.
I agree, Arthur, but I was trying to avoid a debate on the merits of international tax code. Today’s version is FUBAR’d
I actually believe that if Apple is bringing money back, and putting it back out there (X number of hires in the US, X amount of dollars for a new data center, etc.) – things that will create jobs (that those workers will be taxed on, etc) that it should be able to come back at 0% (because, again, the money wasn’t earned tax free where it was earned). But that is a pie in the sky type of dream.
“this is money earned overseas”
In a very cynical sense, yes. However the way that Apple “earns this money overseas” is that they transfer all their intellectual property (patents and software copyrights etc) to Apple Ireland and then bam, all their software, and a big part of their hardware sales can be attributed to Apple’s Irish shell company. Of course this isn’t an Apple issue at all, but all multinationals do this, and they’re robbing the US taxpayers blind.
The tax holiday is a horrible idea because it rewards this tax-dodging behavior and encourages all companies (especially large ones who can afford it) to keep stockpiling cash in offshore tax shelters because they know eventually we’ll do another holiday. It penalizes any businesses who choose to operate in a fair way and pay taxes in this country according to the spirit of the law.
What did the government do to earn it? Let me count some of the ways:
– provide security for the company and its employees from all enemies, foreign and domestic
– provide education to its employees and customers
– buy the company’s products (yes, Apple products are bought with money taxed)
– provide tax breaks and other incentives that us citizens subsidize
– regulate aspects of its products to protect its customers AND the company itself
– lets not forget taxes pay for the US legal system, which Apple famously exploits to stifle competition
– maintain the electoral system, which Apple lobbies to protect its interests and benefits from more than citizens.
Granted, all companies do this to some degree. They all benefit more than the consumers who actually buy the products.
Daniel – That is an ethics question, not a legal question. For the record, it only applies to sales overseas, as all US sales are taxed.
Is the tax holiday a bad idea? Maybe. But that money, under current conditions, is not coming to the States without it. Use this as a starting point to improve the law.
I am pretty sure they were ABLE to do it before, they just didn’t want to.
So, companies repatriate during the holiday then after the holiday go back to hoarding cash overseas. Why not change the laws while you at it Congress.
Agreed. But a holiday is a first step. If this passes, and gets bipartisan support, then it is a start
Anyone who pays taxes is a fool. Just wait until you get a tax holiday (you mean people dont get them?) or make a settlement offer after being delinquent.
Your neighbors are doing it.
Reblogged this on Taste of Apple and commented:
Might be good news for Apple.
Citizens United says that corporations are people. Vice versa should only be fair.
Aw, poor babies, having to pay income tax like the rest of us Americans. $65B is still more money than most governments have in their treasury.
Gotta love our “free” country taking earned public income for “evil” socialist uses like welfare, armed forces, police, fire fighters, public roads and libraries.
Every example you gave of “socialist” uses (and I agree, they are) is supposed to be paid for at the local level, with the exception of welfare perhaps. Your income taxes, even with corporate taxes isn’t enough to even service the interest on the federal debt.
So, what morons like you don’t get is that taxation destroys wealth. It doesn’t create it. The US has the highest corporate tax rate on earth, which you’re apparently all for, yet in the same breath will whine when companies take their production overseas and keep the profits there.
Where do corporations get the money to pay corporate income taxes? They get it from income from sales of their products and services to you, their customers. How do corporations price their products and services? They determine how much it costs to take a product or service to market then add a profit percentage based on the competitive market, to reach the price you pay if you purchase their wares.
The costs include materials, salaries, overhead (building construction and maintenance, rent, utilities, supplies, etc.) R&D, machinery cost and maintenance, engineering, manufacturing, transportation, tariffs, taxes, etc.
Taxes are a cost of doing business just like materials. If they didn’t have to pay taxes, just as if they didn’t have to pay for materials, the cost of producing the wares would be lower and the price needed to produce the same percentage profit would be lower. In other words, the more they pay in taxes, or anything else, the more it costs you to buy their product.
So, who pays the light bill and the payroll, and the corporate taxes? YOU DO. If you think that your going to stick it to the man by making them pay more in taxes, be prepared to pay more for your iPhone because your only going to stick it to yourself.
Econ 101: Businesses (of any kind – Corporations, partnerships, mom & pop stores, restaurants, the mowing service) don’t pay taxes, the consumer does as part of the price.
If you understand this very basic economic principle, all the other arguments here are moot.
BRAVO! Thank you for the well thought out, accurate post.
I agree with you in principle. The left-wing parties here always call for “corporations to pay” when in reality the consumer pays. However, this isn’t 100% true (correct me if my logic is wrong).
A lower tax rate leaves you with more retained earnings. You can do a couple of things with that. You can invest in R&D, your people, your equipment. You can also issue or increase dividends.These flow on a more tax-effective basis to shareholders, who now love management more and give them all really big raises & bonuses. In other words, prices may already be set to be correct and fair at the current tax rates. It’s not like anyone in low-tax jurisdictions pays lower prices than in the US for Apple products. Repatriating cash at low rates only creates the opportunity to distribute it to the shareholders.
This argument isn’t Apple-specific and until recently wouldn’t have made any sense in an Apple context, since they didn’t issue any dividends, although having more cash on hand does increase the stock valuation and thereby the wealth of the owners.
To make this totally fair, the scheme should work like this: The US corporate tax rate is 35%. Any profits are taxed at this rate. I fully understand that if you have already paid tax overseas you shouldn’t get dinged the extra 35% after you have paid locally.
To make it fair, you are taxed at 35% and get a tax credit equal to the tax you paid in the other jurisdiction. In this way, there is no incentive to shelter your income in a low-tax jurisdiction. Most tax treaties work this way, ensuring you don’t have to pay more than the maximum jurisdictional rate. The issue is that the US doesn’t have treaties with every country (though I’ll bet it has one with Ireland).
This would most certainly not be good enough for those holding cash overseas; they expect to get away with paying peanuts for it. The cycle will just start over. The hordes will build up, there will be another holiday, and the effective rate will be incredibly low.
This is actually a great idea. Though the holiday isn’t a result of not having this. It is the high rate the US has. Make it a little more reasonable, and implement your idea and we’re good.
It sounds good to levy taxes on “greedy” corporations, make them pay their fair share! Again, businesses do not pay taxes, you do. Therefore, any taxes levied on a business is a tax increase on you. A hidden tax on you, but real none the less. It’s actually the government that is greedy but they want you to blame it on corporations, that’s why the tax on you is hidden. (Not that corps. can’t be greedy too, but at least they can’t raise your taxes)
So, to keep consumer’s (you and me) taxes from increasing, there should not be any taxes levied on off-shore money coming in, ever. There are many advantages to bringing money into the country to be spent, invested, paid to workers, etc., here that are not occurring now because of a policy that is contrary to basic economics.
That misguided policy it suppressing the positive effect on the economy of increasing our real money supply that would be a real, honest, stimulus to the private sector where real wealth is created.
Econ 101: As taxes go up, economic activity goes down. To the extent that your taxes go up, is the extent that you have lost economic freedom. I don’t want to lose any more freedom, do you?
Another great post! An example that most people should be able to relate to. (Two similar examples, actually)
Interest rates.
Remember the first time there were 0% interest rates on new cars? It was right after 9/11, when the sales of cars were down. The auto manufacturers came up with this “temporary” plan to increase sales.
13 years later, we still have those promotions. Why? Because they work. The auto manufacturers found they sell more product with lower (0%, 0.9%, 1.9%, etc) interest rates, and make up the “loss” in interest payments.
Also, watch the housing market. As interest rates rise, sales slow down. Rates start to drop again? Sales pick up.
The statement is a contradiction in terms! lol…. except it may be that they leaving some important details out of the quote. It couldn’t be totally tax free or how could then use be…. “The senators anticipate the proposal would generate a windfall in revenue that would be used to fund federal transportation projects.”
It seems this is a simple attempt to get people all excited and then when they are forced to face reality a Totally Tax Free Holiday gives them exactly nothing spend! ….it’s only obvious something is wrong with this reported story!
So apple deserves 30% of your app sale for their infrastructure, but the US government doesn’t deserve 35% of Apples revenue for their infrastructure. Interesting.