That is the other argument, and definitely makes sense, but that's also where things get complicated.
Normally you tax profits, which are gross revenue minus cost of goods sold (and yeah, I'm oversimplifying a bit). But in Europe, Apple has only profits, no cost of goods sold at all, since the costs are incurred in the USA. This would seem to lead to super-high taxes everywhere else, where profits are close to 100%, but huge losses in the USA, where the costs for the whole world aren't met by enough gross revenue to cover them.
To avoid that, the European entity takes on a share of the costs by "buying" from the USA entity. And that's where the games come in. What are they buying? The physical goods? Are what markup? Are they also buying the advantages that come from the Apple name and logo?
They can basically set the cost of that IP to whatever they want, and therefore show as much or as little net profit as they choose. Which is what they've been doing. Again, oversimplifying a bit, they recorded all European revenue through Ireland, and set the cost of product + IP + ad share + everything else so high that the net profit was very, very, very low, and sad that very, very, very low number is what they had to pay taxes on.
You could certainly make that argument but with a multinational company with sales in every country it's not exactly obvious where the money is "made":
Scenario A: Apple (USA) pays $200 for an assembled iPhone from their Chinese manufacturer. Then they turn around and sell the phone to Apple (Europe) for $1000. Apple (Europe) then sells the phone to a customer for $1000. Apple (USA) records a profit of $800, Apple (Europe) records a profit of $0.
Scenarion B: Apple (USA) pays $200 for an assembled iPhone from their Chinese manufacturer. Then they turn around and sell the phone to Apple (Europe) for $200. Apple (Europe) then sells the phone to a customer for $1000. Apple (USA) records a profit of $0, Apple (Europe) records a profit of $800.
In scenario A the money is "made" in the USA. In scenario B the money is "made" in Europe. Apple argues that since they are paying taxes on that money in the USA, they shouldn't have to double-pay taxes to Europe as well. Europe disagrees because they want a slice of those taxes.
(Note that no complex IP transfer schemes are involved here, it's solely a question of which entity records the difference in the retail price of the phone vs the cost of goods sold. Also note that in either case, sales tax/VAT is paid to the appropriate country.)
It gets even more complex and game-able when you consider how easy it is to shift deductible expenses to different locations. Suppose you fix things and force Apple(USA) to sell iPhones to Apple(Europe) for $600. What's to stop Apple from moving $400/unit of debt payments to their European subsidiary?
pwinnski|5 years ago
Normally you tax profits, which are gross revenue minus cost of goods sold (and yeah, I'm oversimplifying a bit). But in Europe, Apple has only profits, no cost of goods sold at all, since the costs are incurred in the USA. This would seem to lead to super-high taxes everywhere else, where profits are close to 100%, but huge losses in the USA, where the costs for the whole world aren't met by enough gross revenue to cover them.
To avoid that, the European entity takes on a share of the costs by "buying" from the USA entity. And that's where the games come in. What are they buying? The physical goods? Are what markup? Are they also buying the advantages that come from the Apple name and logo?
They can basically set the cost of that IP to whatever they want, and therefore show as much or as little net profit as they choose. Which is what they've been doing. Again, oversimplifying a bit, they recorded all European revenue through Ireland, and set the cost of product + IP + ad share + everything else so high that the net profit was very, very, very low, and sad that very, very, very low number is what they had to pay taxes on.
nodamage|5 years ago
Scenario A: Apple (USA) pays $200 for an assembled iPhone from their Chinese manufacturer. Then they turn around and sell the phone to Apple (Europe) for $1000. Apple (Europe) then sells the phone to a customer for $1000. Apple (USA) records a profit of $800, Apple (Europe) records a profit of $0.
Scenarion B: Apple (USA) pays $200 for an assembled iPhone from their Chinese manufacturer. Then they turn around and sell the phone to Apple (Europe) for $200. Apple (Europe) then sells the phone to a customer for $1000. Apple (USA) records a profit of $0, Apple (Europe) records a profit of $800.
In scenario A the money is "made" in the USA. In scenario B the money is "made" in Europe. Apple argues that since they are paying taxes on that money in the USA, they shouldn't have to double-pay taxes to Europe as well. Europe disagrees because they want a slice of those taxes.
(Note that no complex IP transfer schemes are involved here, it's solely a question of which entity records the difference in the retail price of the phone vs the cost of goods sold. Also note that in either case, sales tax/VAT is paid to the appropriate country.)
ThrustVectoring|5 years ago
MuffinFlavored|5 years ago
valuearb|5 years ago
- then the remaining profits are taxed again by the US government when Apple repatriates them to the US.
- Then the remainder are taxed again by the state Apple reports them in.
- Then they are taxed again by the federal government when Apple shareholders receive the remainder as dividends.
- Then they are taxed once more by the Shareholders state, finally allowing the shareholder to spend (or reinvest) what remains.
Strom|5 years ago
--
[1] https://www.apple.com/ie/contact/