• Monthly
  • $25
  • $50
  • $100
  • $other
  • use PayPal

ONE WEEK TO DOUBLE YOUR DONATION!

A generous CounterPuncher has offered a $25,000 matching grant. So for this week only, whatever you can donate will be doubled up to $25,000! If you have the means, please donate! If you already have done so, thank you for your support. All contributions are tax-deductible.
FacebookTwitterRedditEmail

Apple and Corporate Taxes

A “territorial” tax system – in which overseas profits of U.S. corporations would be lightly taxed in the U.S. or not taxed at all – is likely to be the top tax reform proposal advocated by Apple CEO Tim Cook when he testifies before the Senate on Tuesday.

Apple – like hundreds of other high-tech and pharmaceutical companies that enjoy enormous profits from royalties or licensing agreements – is able to attribute these profits to offshore subsidiaries located in low-tax havens like Bermuda or the Cayman Islands even when sales revenue and profits are earned primarily in the U.S.

Under current law, these companies continue to owe taxes to the U.S. Treasury on these overseas earnings, as technically, the taxes have only been deferred. But the taxes don’t come due until the profits are repatriated – that is, brought back to the U.S. parent company. A territorial tax system would let these companies repatriate profits without paying the U.S. taxes they owe.

The argument in favor of allowing companies to repatriate offshore profits while paying no tax or a small tax in the U.S. is that corporations will put these funds to work here at home. The promised payoff is increased investment, increased employment and increased economic growth. There is good reason to be skeptical of this promise.

The U.S. tried just such a tax break in 2004, declaring a temporary tax holiday for offshore profits. According to a report by the non-partisan Congressional Research Service, approximately one-third of offshore profits were repatriated in the following year. Academic studies, however, found no evidence that companies used the repatriated profits to increase investment or employment and no evidence that they increased economic activity.

Instead, they freed up other funds that these companies used for stock buybacks and to pay dividends to corporate shareholders. Indeed, many of the companies that benefited from the tax holiday on offshore profits actually reduced employment in the U.S.

It is also a myth that these profits are languishing in offshore in low-tax jurisdictions. According to the Wall Street Journal, a lot of this cash is actually held in U.S. banks or invested in U.S. government and corporate securities. As long as these profits don’t come back to the parent company, they are not taxed in the U.S. But this cash is already at work in the U.S. economy – which undermines the argument that a territorial tax system would bring huge hoards of cash back for investment. The only thing companies can’t do with these funds is reward shareholders.

U.S. companies are supposed to account for offshore profits by setting aside funds to cover future tax liabilities when these profits are repatriated. Few companies actually do this. Most simply declare that the funds have been permanently invested overseas, which frees them from this obligation. Google, Oracle, Microsoft and numerous other companies have taken this route. As a result, these highly profitable companies owe very little in corporate income taxes.

Apple, which currently has $102.3 billion in offshore profits, has not taken advantage of this provision. Its accounts show that it has set aside billions of dollars to cover future tax liabilities on offshore profits. According to the Financial Times, Apple set aside $5.8 billion last year, 70 percent of its reported tax liability, for this purpose. This boosted Apple’s apparent corporate tax rate to 25.2 percent – far above Google, Microsoft and others – and spared the company the public outrage directed at highly profitable companies that pay little or no corporate income taxes. However, the $5.8 billion is an accounting entry that had no effect on the actual taxes Apple paid.

A territorial tax system would further increase incentives to locate jobs in low-tax countries, as profits earned in these countries could more easily flow back to U.S. shareholders. A better solution is to eliminate deferral of taxes on profits stashed offshore and, instead, to allocate taxes on profits based on its activity in various jurisdictions.

About half of U.S. states that have a corporate income tax use such a method for U.S. companies that operate in multiple states. Earlier this year, California adopted a sales-based corporate tax system that taxes companies that sell products or services in California, no matter where in the world they are located, based on the proportion of their total sales revenue generated in the state. This could serve as an example for tax reform that is both simple and fair.

Eileen Appelbaum is a senior economist at the Center for Economic and Policy Research.

This article originally appeared on Economic Intelligence.

More articles by:
bernie-the-sandernistas-cover-344x550
Weekend Edition
October 18, 2019
Friday - Sunday
Anthony DiMaggio
Trump as the “Anti-War” President: on Misinformation in American Political Discourse
Jeffrey St. Clair
Roaming Charges: Where’s the Beef With Billionaires?
Rob Urie
Capitalism and the Violence of Environmental Decline
Paul Street
Bernie in the Deep Shit: Dismal Dem Debate Reflections
Andrew Levine
What’s So Awful About Foreign Interference?
T.J. Coles
Boris Johnson’s Brexit “Betrayal”: Elect a Clown, Expect a Pie in Your Face
Joseph Natoli
Trump on the March
Ashley Smith
Stop the Normalization of Concentration Camps
Pete Dolack
The Fight to Overturn the Latest Corporate Coup at Pacifica Has Only Begun
Jeremy Kuzmarov
Russophobia at Democratic Party Debate
Chris Gilbert
Forward! A Week of Protest in Catalonia
Daniel Beaumont
Pressing Done Here: Syria, Iraq and “Informed Discussion”
Daniel Warner
Greta the Disturber
M. G. Piety
“Grim Positivism” vs. Truthiness in Biography
John Kendall Hawkins
Journey to the Unknown Interior of (You)
Christopher Fons – Conor McMullen
The Centrism of Elizabeth Warren
Nino Pagliccia
Peace Restored in Ecuador, But is trust?
Rebecca Gordon
Extorting Ukraine is Bad Enough But Trump Has Done Much Worse
Kathleen Wallace
Trump Can’t Survive Where the Bats and Moonlight Laugh
Clark T. Scott
Cross-eyed, Fanged and Horned
Eileen Appelbaum
The PR Campaign to Hide the Real Cause of those Sky-High Surprise Medical Bills
Olivia Alperstein
Nuclear Weapons are an Existential Threat
Colin Todhunter
Asia-Pacific Trade Deal: Trading Away Indian Agriculture?
Sarah Anderson
Where is “Line Worker Barbie”?
Brian Cloughley
Yearning to Breathe Free
Jill Richardson
Why are LGBTQ Rights Even a Debate?
Jesse Jackson
What I Learn While Having Lunch at Cook County Jail
Kathy Kelly
Death, Misery and Bloodshed in Yemen
Maximilian Werner
Leadership Lacking for Wolf Protection
Arshad Khan
The Turkish Gambit
Kollibri terre Sonnenblume
Rare Wildflower vs. Mining Company
Dianne Woodward
Race Against Time (and For Palestinians)
Norman Ball
Wall Street Sees the Light of Domestic Reindustrialization
Ramzy Baroud
The Last Lifeline: The Real Reason Behind Abbas’ Call for Elections
Binoy Kampmark
African Swine Fever Does Its Worst
Nicky Reid
Screwing Over the Kurds: An All-American Pastime
Louis Proyect
“Our Boys”: a Brutally Honest Film About the Consequences of the Occupation
Coco Das
#OUTNOW
Cesar Chelala
Donald Trump vs. William Shakespeare
Ron Jacobs
Calling the Kettle White: Ishmael Reed Unbound
Stephen Cooper
Scientist vs. Cooper: The Interview, Round 3 
Susan Block
How “Hustlers” Hustles Us
Charles R. Larson
Review: Elif Shafak’s “10 Minutes 38 Seconds in This Strange World”
David Yearsley
Sunset Songs
October 17, 2019
Steve Early
The Irishman Cometh: Teamster History Hits the Big Screen (Again)
FacebookTwitterRedditEmail