Why Apple Should Pay Income Tax on Overseas Earnings: Because Other Americans Do

The recent hullabaloo over Apple not paying income tax is almost surreal. The company has so much money overseas – currently some $100 billion in cash – that it has issued bonds to proceed with a share buy-back plan. The interest on the bonds is much less than the amount of tax the company would pay if they repatriated some of their income.

In addition, it turns out that Apple negotiated a “secret deal” with the Irish government back in the 1980s, so they only pay 2% income tax on the money they park in that country, though they actually only paid about 0.5%.

My question here is not whether it is moral for Apple to do this (the law allows them to do so), but why Apple or any other major corporation is not treated like other US citizens?

Expatriate US citizens – whether they are permanent residents of other countries or not – are taxed by the US on their foreign income. There is an earned income exclusion, which increases from time to time, and which does not take into account exchange rates. A US citizen could be well under the threshold for paying taxes one year, but if on the date that the exchange rate is calculated, the rate is unfavorable, they could owe taxes the following year on the same amount of income. (The current earned income exclusion is $95,100 for an individual, and $190,200 for a couple.) This exclusion also does not take into account the relative cost of living of a country. If the cost of living is higher, salaries will be higher. I experienced this 25 years ago when I lived in Norway for a year; everything cost nearly twice as much as France (where I was living before that), but salaries were higher to compensate.

In addition, the paperwork for Americans overseas filing taxes is substantial, complicated, and in many cases requires the use of a tax attorney or accountant. (See this Boston Globe article for more about this issue.)

What’s even more unfair is that Americans abroad are taxed twice. Once in the country they live in, and another time, if they earn more than the earned income exclusion, by the US. It’s interesting to note that the only other country in the entire world that does this is Eritrea.

Yet Apple isn’t even a resident of another country. Their subsidiaries are, but those subsidiaries only make money for the US company; Apple doesn’t have separate business entities for different countries or territories. (Though they manage to avoid paying VAT in all EU countries but one by “locating” their iTunes Store activities in Luxembourg, where VAT is only 3%, thereby denying VAT income to other countries where digital content is purchased.)

It’s obvious that expatriate Americans get little or nothing in exchange for their taxes. Other than the low-probability events requiring getting bailed out by the US Consulate, Americans abroad get no Social Security benefits, no unemployment, no health care, or anything else for their tax dollars. Apple, however, and other global corporations, get huge benefits from the US legal system, research infrastructure, publicly-subsidized education system, and the many international treaties and agreements governing such key factors to their success as intellectual property and trade regulations. So all of Apple’s sales overseas benefit from the broader fact that it is a US company.

So let’s treat Apple – and Google, Amazon, Yahoo! and all the others – like American citizens. Tax their overseas income, don’t let them set up a web of tax shelters, but make them pay their share.

19 thoughts on “Why Apple Should Pay Income Tax on Overseas Earnings: Because Other Americans Do

  1. Kirk, I think you’ve chosen the wrong victim.

    Most of the countries where this “illegal” activity is taking place, encouraged these corporations to set up in their countries to create employment. Mostly under extremely unusual and advantageous tax regimes. You will note that the UK has proposed exactly that recently to “encourage” the film industry back there.

    Can those corporations be the guilty one’s if they accept offers from ‘the government of the day’ who clearly are bending rules?

    Maybe you should grow your business to the point that a Govt. somewhere makes you an offer you can’t refuse!

    • Yes, but the point is that one government allows another government’s rules to supersede their own. Naturally, the tax system is outdated, and not up to speed for the current globalized, digital economy. There needs to be an improvement in the way countries agree on these things.

      But the point of the US government taxing non-resident US citizens is important; it’s a good counterpoint to Apple’s arguments of doing everything according to the law. If this is the way the law is, either corporations should be taxed like individuals, or the US should stop taxing non-resident citizens (which I’d very much like to see; it’s quite ludicrous to be the only major country in the world to do this).

      As for different government schemes for the film industry, I think these are slightly different. These only affect production costs in the host country.

      • Yes, but my point is, that I still don’t see Apple guilt here, it’s the system that all jurisdictions play with when it’s their advantage!

        Sorry for your position, but don’t make Apple guilty for following the rules.

        • I’m not saying they’re guilty of anything (though the morality of what they’ve done is another question). I’m saying that the US government is treating corporations much better than individuals. I’m saying that if the US is going to tax individuals on overseas income, then they should do the same to Apple.

          • Good to hear your problem is Uncle Sam not Apple.

            Guess you have to wait for the jamboree called the US Presidential election to exert pressure for a law change.

            • There’s a lot of lobbying by expatriate groups, but to use a familiar phrase, we suffer taxation without representation; there are no elected officials that represent overseas citizens. (Unlike many other countries who do have at least an MP for their expats.)

      • I agree that the rules should change. Taxes on corporations are in effect taxes on consumers of whatever that corporation makes. We should just tax consumers more. It’s more honest. And get rid of all corporate taxes, which would mean higher tax incomes for government, more jobs to pay taxes on, more growth, more wealth, and a better life for everyone. What’s wrong with that? Well, our economically ignorant, ideologically driven, propagandized electorate would never permit it.

  2. You lost me as a reader on this one – there is a fine line between posting your political views for the only reason that you like to sound of your own voice – and writing posts that bring value to your readers.

    Your opinion on this topic is not only primitive and vaguely stupid, it also means you aren’t so interested in the value you bring to you readers as much as gloating you self-justified opinions. Bye.

  3. There does seem to be a lot of attention on this issue of companies exercising their ability to use tax loopholes, because Apple does it, and because Apple is a frequent punchbag because of their success.

    Just as a citizen can hire a tax adviser to maximize earnings and reduce what is taxed, I believe we see companies doing the same as unfair, either because the opportunities are greater (at corporate scale), or because the amounts being saved (not taxed) are so large in comparison to what individuals make and pay.

    I think Kirk’s own experience and relationship with Apple (as a writer about their products) made this an interesting and original post. He’s offering another look at a newsworthy story from his unique viewpoint as an American living and working oversees.

    I ultimately don’t feel this is an “Apple” issue as much as one on American tax law. Not to mention other countries’ tax laws. Apple is simply used as an example, and in so doing, becomes a target for criticism.

    Apple is however free to not exercise these “options,” which is something Kirk leaves open as a matter of morality. Personally I’d rather see Apple use their earnings for good in the US in ways other than just paying Uncle Sam. This speaks to my trust in the govt. in maximizing the reach of what they get and how it is spent.

    It will be interesting to see where this goes or how it unfolds, given the attention it is getting.

    • It’s worth noting that this is getting attention on both sides of the Atlantic. There are two issues over here (England). Companies like Amazon and Google structure their operations so they don’t have to pay much, or any, income tax in the UK. With Amazon, much of what they sell is sold by a shell company in Luxembourg. This means they don’t consider these sales to be made in the UK, and they don’t charge – and pass on to the state – VAT at the UK rate. Customers do better, because Amazon can charge lower prices, since they’re only paying 3% VAT, but the state loses out. And local businesses suffer from unfair competition.

      The second issue is that of Google, which, according to a former employee, pretends that deals are made in Ireland, when they are actually made in the UK. This borders on criminal activity, and there are investigations into a lot of this.

      It’s worth noting that France has also gotten a bit upset about the fact that Google makes money in France but pays no taxes there. I think that many governments are going to get together and try and straighten this out. At a minimum, they need to make a level playing field so local businesses don’t suffer from these unfair advantages.

  4. I think the issue boils down to this. The best Govt. employees earn less than a quarter of their equivalents at a big Corp.

    Govt. with their low wage employees write the rules, in seconds big Corp develops strategies to avoid said rule.

    Until we’re prepared to ensure Govt. employees are the best and paid accordingly, this is a no win situation.

    But, I’m absolutely certain I don’t want to live in a society where Govt. decides (refilling olive oil pots is fine by me EU!)

    • The government/government employees are pure OVERHEAD. They are not useless (always) but they should be minimized as much as possible and exist only so that there is a safe environment for companies and people to prosper.

      As to where on earth you get the idea that Gov employees are poorly paid? You have got to be kidding me! I live in California, one of the wealthiest states in the US and we are being crushed by excessive tax burden in large part because of crazy compensation to government employees (as well as a host of other things)

      I’ve posted it before and I’ll post it again. It makes no sense to Tax corporations. They will simply pass it along to the consumer and it becomes a tax on the average person.

  5. Why should a corporation be taxed like a citizen? They aren’t citizens, it is the employees that should be taxed (and are).

    I don’t see why there should be such a thing as corporation tax. What do the corporations gain from it?

      • Yes, but the company is at some level owned by individuals who pay taxes on the dividends or on the sale of stock (that has appreciated if the company has retained any profits.) When you get down to it, the governments are double/treble/etc. taxing because it’s not obvious to the economically naive ordinary citizen (like the author of this article.) Governments are always looking for sources of more income that taxpayers don’t see come directly out of their paychecks, because it is more palatable. In the end, consumers of the companies’ products pay the taxes in the form of increased prices (because the companies pass along the taxes as part of their cost of doing business, unless they go bankrupt first.)

  6. Kirk, you certainly haven’t lost me as a reader. I think some readers need to re-read your first sentence and realize just how much a 100 billion dollars in cash is. That’s an obscene amount money and wealth. On top of that there are individuals and families who are billionaires, and time and time again they find loopholes to avoid paying their share of taxes. I’m not even sure how anyone or corporation spends billions of dollars of personal wealth, even in ten lifetimes. It’s a lot of money, while the fast majority of the planet’s population barely scrapes by. Why do people so easily want to give corporations and individuals a break?

    • These governments want to do a form of social engineering via tax policy. They try to create certain incentives for companies and individuals to invest in certain ways. Actually it is politicians who are essentially selling their influence for money or votes (or both.) Companies make a nice scapegoat, because they aren’t actual persons and politicians can deflect responsibility for the decisions they’ve made to overspend or to kowtow to from companies, unions, or special interest groups for their votes/money. In the end, assuming the company doesn’t go bankrupt, the consumers of the companies’ products end up indirectly paying higher taxes, as it is passed along as an indirect tax in the form of higher costs/prices for the company.

  7. some countries require certain conditions in order to sell products there. Like in Canada to do business in multiple provinces it has to be a Canadian Incorporated business “Federally incorporated companies can carry on business anywhere in Canada, and the CBCA does not set restrictions regarding the province or territory where the head office is located, corporate records are maintained and annual general meetings are held.” The financial rules make this an independent company with Apple Canada purchasing computers from Apple Inc, so some profit is recognized in the US, it isn’t the full amount, so some of this money sits in Canada.
    It isn’t 100 billion sitting in a single overseas “shell company” it is sitting in several countries. (I do believe I read that most other countries don’t buy the systems from Apple US, but from another overseas entity – possibly Ireland or in Asia, so more profit is likely diverted away from the US company, unlike the Canadian arrangement)

    Another point is, both Steve Jobs, and Time Cook have recommended changes to the system that would have them bring this money back into the “parent” designing company, just not at the 35% rate it is currently. As a business it just doesn’t make sense when they have also used this money in other countries to fund improved production and parts guarantees. Most shareholders would also reject the idea for the company to give up 35%

    So in the end I guess my comment is just, it isn’t simple.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.