Guardian: Apple would still be highly profitable if production was in U.S.

[alfred russel]

When an iphone is sold in the US, which taxing authority has jurisidiction over the profits realized from that sale?

I don't know the ins and outs of apple's corporate structure, but in general high margin goods are produced in low tax jurisdictions through corporations located in those jurisdictions.

A very generic example would be:

IPhone production is the responsibility of Apple China, which pays $20 for it to be produced by a third party (say Foxconn). Apple China then sells the I Phone to Apple USA, which then sells it to Best Buy for $200.

Apple China and Apple USA are both subsidiaries of Apple. Apple would argue for a very high price on the sale of the IPhone between Apple China and Apple USA, which would leave most of the bulk of the profit in China.

A related (and more complicated) issue is the tax revenue on IPhones significantly designed in the US, built in China (under the supervision of a Chinese corp), and sold in Europe (under the supervision of a European corp). The US taxes worldwide income, so the IRS should be getting tax revenue from US based activities, but Apple is going to argue that the US is as incidental to the transaction as it can get away with. Keeping production off of US shores is a key part to making a more convincing case.

[Razgovory]

You mean class traitors! 

I mean hard working Americans trying to provide for their families.

Murder is hard work.  Just ask the Pinkerton's or the Coal and Iron Police.

[Neil]

Nah, I am not saying I am unwilling to take steps, I am experssing skepticism that the types of solutions generally proposed by government in the form of regulation and legislation are not likely to work. My resistance is purely practical, not ideological.

I do realize this is a bit of a bullshit position. I think there is a problem, but not only do I not have a solution, I am fundamentally skeptical of the very means by which a solution could be crafted even in theory.

Well that's fair enough, even if it is a bit hopeless.

[alfred russel]

I guess he is talking about property taxes and that sort of thing, granted those would not be related to the corporate tax rates and alot of states would give them tax breaks.

No, income taxes. This is why globalization is lowering effective corporate tax rates in the US.

[Valmy]

No, income taxes. This is why globalization is lowering effective corporate tax rates in the US.

You mean...on employees?  So you mean labor costs?

Oh wait what you are saying is Apple would have to pay tax on goods sold overseas that were produced in the US.

[alfred russel]

No, income taxes. This is why globalization is lowering effective corporate tax rates in the US.

You mean...on employees?  So you mean labor costs?

No, corporate income tax rates.

[crazy canuck]

When an iphone is sold in the US, which taxing authority has jurisidiction over the profits realized from that sale?

I don't know the ins and outs of apple's corporate structure, but in general high margin goods are produced in low tax jurisdictions through corporations located in those jurisdictions.

A very generic example would be:

IPhone production is the responsibility of Apple China, which pays $20 for it to be produced by a third party (say Foxconn). Apple China then sells the I Phone to Apple USA, which then sells it to Best Buy for $200.

Apple China and Apple USA are both subsidiaries of Apple. Apple would argue for a very high price on the sale of the IPhone between Apple China and Apple USA, which would leave most of the bulk of the profit in China.

A related (and more complicated) issue is the tax revenue on IPhones significantly designed in the US, built in China (under the supervision of a Chinese corp), and sold in Europe (under the supervision of a European corp). The US taxes worldwide income, so the IRS should be getting tax revenue from US based activities, but Apple is going to argue that the US is as incidental to the transaction as it can get away with. Keeping production off of US shores is a key part to making a more convincing case.

Thanks Alfred, that helps me understand your point much better.

Do you think there is some form of tax reform that might prevent Apple from pooling its money in low tax jurisdictions?

[crazy canuck]

Rather than paying people to act in a certain manner, we need to structure the system so that people simply act in that manner because it makes good sense for them to do so

If such an act is against their self interest - eg the Guardians suggestion that Apple take a 30% hit to their margins, that will necessarily take some kind of government intervention and likely some kind of tax policy implementation.

An example for you to consider is the tax credit the Canadian Federal government gave for home renovations to try and keep the construction industry going after the real estate markets stalled after 08.

Prior to that credit the black market was a real problem - ie contractors working for cash and not reporting the income.  When the government brought in the tax credit that black market essentially disappeared because the home owner needed to prove the expenditure to obtain the credit.  Overnight what had been a cash based business became a business run on payment by cheques and reciepts for payment.

My bet is the government obtained more net revenue with the credit.

[alfred russel]

Thanks Alfred, that helps me understand your point much better.

Do you think there is some form of tax reform that might prevent Apple from pooling its money in low tax jurisdictions?

I'd be in favor of cutting corporate rates to the bone, and jacking them up on high earners. It is too easy to move operations overseas, it is much harder for a high earner to move to another country.

Barring that, bringing US corporate tax rates down to international norms (we currently have the highest rate) while moving to a territorial tax system would help. I think in the US this is understood, and the Obama administration has indicated this may be on the agenda after the election, but the problem is our government can't afford to reduce revenue streams. Obama wants to close "loopholes", but I'd rather see the revenue made up with higher tax rates on people. I'm not sure the "loopholes" to be closed aren't just targeted taxes at the more politically vunerable.

[Oexmelin]

Not somebody, whoever that might be, coming forth and telling us we cannot do anything.  We are not fools.  The huge international nature of corporations means that our ability to control their behavior through political action is seriously reduced.  That is a fact.

Lots of people are telling us we cannot do anything, even if not in so many words. Capitalists are saying that if we do some things, then economic apocalypse would be upon us. We can't let investment banks fail because they are too big. We can't give investment banks public funds because it would disrupt the market. We can't erase debt, it will have an impact on interest rates. Corporations are saying that they can't chose to employ well-paid earners because they will be less competitive. Banks are saying they can't afford losing brilliant economists by paying them less. Universities can't lower tuition because they will be underfunded. Employees should not ask for more because that would bankrupt their firm / the state and they would lose their jobs.  Unions can't strike because it hurts the economy. People can't demonstrate because that disrupts the peace. Politicians are repeating they have no power on tons of things because it is the way the market goes.

Even if, indeed, a lot of these things are fact the message remains the same: bow down your head and hope for a change that will come from nowhere, and especially not from you - because you can't enact it, can't decide it, can't control it. And you certainly shouldn't look for it in others. For an ideological world which was built upon the premise that man could potentially change anything, it is a huge, bleak, and disheartening paradox. For those who are liable to profit from that world - bright people, priviledged people, beautiful people - they can afford not to care, to spend times calmly discussing the fine points of policy, to denounce the lack of nuances in the unwashed masses. We shouldn't be surprised that people are more and more angry that they are being told to accept their fate and that times are unchanging - yet it wouldn't be the first time such philosophies came to the forefront. Except that now, the powers that be have means of coercion and control that medieval lords and early modern tyrants could never have dreamt of.

But, maybe, perhaps, we can also recognize that even these facts are chains we have forged for ourselves - that they are facts because we have made them so.

[crazy canuck]

You seem particularly ideological these days.

Our ideal, at least after the brief flash of 1989, has been political irrelevance - the idea that politics can not, and indeed, should not, matter to what actually should - the market.

I suppose if you set up the argument that way you are bound to despair.  But as a practical matter I have never experienced the politics become irrelevant, nor have I known anyone who thought that it was.  I also highly doubt you could find enough Canadians, in all of Canada, who believe the only thing that matters is the market, to fill a hockey arena.

[PDH]

Good thing I am already 46 and more than halfway to death.  The world sucks today.

[CountDeMoney]

Good thing I am already 46 and more than halfway to death.  The world sucks today.

"Hey Herbie, how's life?"
"Takin' forever."

[crazy canuck]

Good thing I am already 46 and more than halfway to death.  The world sucks today.

You might live past 100.  Your own fault for getting back into shape.

[Oexmelin]

But as a practical matter I have never experienced the politics become irrelevant, nor have I known anyone who thought that it was.  I also highly doubt you could find enough Canadians, in all of Canada, who believe the only thing that matters is the market, to fill a hockey arena.

The voters turnout in most western countries seem to indicate - your entourage notwithstanding - that a huge number of people think politics irrelevant, and that, even amongst those who do vote (some out of civic habit), the trust in politics to actually enact profound change is pretty low (I seem to recall numerous polls on such topic).

And while I am pretty sure an overwhelming majority of Canadians would agree that there are much more important things than the market, I strongly doubt that a) politics and b) the capacity of politics to have significant impact on their lives, except as mediated through "taxes", would rank much higher.