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Revealed: Apple’s “Offshore” Cash Isn’t Even Offshore

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

No one accused Apple of having violated US tax laws. The Senate subcommittee investigation and hearings merely exposed how Apple is dodging income taxes by doing what multinationals do: taking advantage of the handouts and loopholes that the US Congress and governments around the world are handing them. Tim Cook emerged smelling like a rose, the triumphant CEO of America’s most iconic welfare queen. Alas, much of the discussion was based on a fairytale.

Apple got into this pickle because it had decided to fund a juicy stock buy-back and dividend program by taking on a record $17 billion in debt rather than paying income taxes on “repatriating” part of its $102 billion in “offshore” cash.

The Senate investigation showed that Apple sheltered at least $74 billion from US income taxes between 2009 and 2012 by using a “complex web” of offshore mailbox companies. One such Irish subsidiary with no employees made $30 billion and didn’t pay a dime to a single government anywhere, not even Ireland. Another Irish mailbox company paid 0.05% in taxes on $22 billion in profit. Over the years, these untaxed “offshore” profits accumulated to $102 billion held by Irish subsidiaries – the moolah Apple refused to “repatriate.”

Turns out, Apple wouldn’t have to repatriate it. The money is already safely ensconced in TBTF banks in New York. The Irish mailbox subsidiaries, on whose books this money is for accounting purposes, transferred it to bank accounts in New York; it is managed by an Apple subsidiary in Reno, Nevada; and Apple’s accountants in Austin, Texas, keep the books, according to the Senate report that vivisected Apple’s tax dodge strategies.

“Apple does not use tax gimmicks,” Apple wrote lamely in response. It’s just that money doesn’t stop at borders or oceans; accounting does. So, in these crazy times of ours, where fairytales are reality, “offshore” actually means “onshore.” The difference between taxed income and untaxed income.

In this manner, US corporations have stashed away a $1.6 trillion of untaxed profits in “offshore” subsidiaries. And yet, as in Apple’s case, much of that is actually in the US. Just because the cash is nominally held by an offshore mailbox company doesn’t mean that it can’t be transferred to the US, where it can do the job money is supposed to do – beget more money.

That explains another corporate mystery. When Congress, after heavy lobbying by the largest US corporations, declared a “repatriation holiday” in 2004 to encourage the “return” of $300 billion to be invested in the US, nothing happened. The “repatriated” profits were taxed at the minuscule rate of 5.25% – less than the payroll taxes withheld from their US working stiffs. The companies made some adjustments on their books. But there were no investments and no hiring because the money had already been deployed in the US. The New York Times reported:

On the contrary, some of the companies that brought back the most money laid off thousands of workers, and a study by the National Bureau of Economic Research later concluded that 92 cents on every dollar was used for dividends, stock buybacks or executive bonuses. A study by the Congressional Joint Committee on Taxation estimated that a similar program would result in $79 billion in forgone tax revenue over a decade.

Apple is among the two dozen multinationals that are flailing their arms at Congress to obtain a new “repatriation holiday” that would allow them to “repatriate” hundreds of billions at a super-low tax rate. In return, they dangle in front of us the promise of investment and jobs. Yet much of that money is already in the US. It would not cause any additional hiring or investment. It would simply be a handout benefitting the largest behemoths, but not the hundreds of thousands of smaller companies that don’t have the resources to lobby Congress or make special deals with governments around the world. They don’t have the time and money to create that “complex web” of offshore mailbox companies but are instead struggling on a daily basis to stay alive in their dog-eat-dog world.

Beyond the unfair advantages that these loopholes bestow on a few large companies, but not on smaller ones that get raked over the coals by the tax code, there is a broader fairness problem, as Senator John McCain pointed out in his opening statement: “As the shadow of sequestration encroaches on hard-working American families, it is unacceptable that corporations like Apple are able to exploit tax loopholes to avoid paying billions in taxes.”

To identify the root cause of the problem, the Senator doesn’t have to look far. The only entity to blame is Congress. It’s addicted to the corporate money flow that keeps campaigns greased. It threatens or promises changes to the tax code to milk these companies. And it loves to succumb to lobbying. That’s how these loopholes ended up in the tax code. They didn’t get there on their own.

Last month, Senators Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, introduced a resolution calling for the end of the implicit subsidies that TBTF banks enjoy and that put taxpayers at risk. The Senate voted 99-0 in support. Now they’re turning their ideas into actual legislation. Read.... Can Two Senators End “Too Big to Fail?” 

 

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Fri, 05/24/2013 - 10:59 | 3595877 Aegelis
Aegelis's picture

"The time has come
To say fair's fair
To pay the rent
To pay our share

The time has come
A fact's a fact
It belongs to them
Let's give it back" Beds are Burning, Midnight Oil

Fri, 05/24/2013 - 10:43 | 3595831 Catullus
Catullus's picture

This is one of the dumbest articles I've seen on this site. Holy fuck, the cash isnt "offshore", it's "onshore" and therefore wouldn't create any jobs. As if jobs are the be all and end all of cash.

How about returning cash to capital investors? Or would that not produce any jobs and therefore it shouldnt be allowed?

And OMG, they have a company that only holds IP with no employees because all the data is virtual. Maybe they should hire someone to stare at a terminal server all day. Or maybe they should hire a new person every year to do that so they can claim theyre ramping up hiring internationally.

The lesson is clear: if you accumulate a mountain of cash (even AFTER you pay 1/40th of all corporate income tax collected), the government is going to try to steal it from you. And there will always envious little shit on the Internet to make idiotic claims around it.

Fri, 05/24/2013 - 09:16 | 3595546 Cursive
Cursive's picture

One of the best contributed articles ever on ZH.

The only entity to blame is Congress. It’s addicted to the corporate money flow that keeps campaigns greased. It threatens or promises changes to the tax code to milk these companies. And it loves to succumb to lobbying. That’s how these loopholes ended up in the tax code. They didn’t get there on their own.

 

Well said.

Fri, 05/24/2013 - 10:09 | 3595713 Sandmann
Sandmann's picture

Abolish Income Tax for anyone below $150,000 and impose an Establishment Tax on any  corporation operating in the US Marketplace as an Entry Fee Standing Charge. Then increase Sales Taxes to 25%. Time to shift Taxation to Economic Wealth and Economic Supernormal Rent rather than Average Incomes.

Tax Relief could be capped on Debt at 25% Interest Charge and Stamp Duty could be levied on all Debt Raising

Fri, 05/24/2013 - 03:44 | 3595133 dunce
dunce's picture

McCain used the term"shadow of sequestration" Which was likely unintentionally apt because the spending cuts are not cuts at all, just a reduction in the rate of increased spending. Really no more substantial than a shadow.

Fri, 05/24/2013 - 02:31 | 3595087 q99x2
q99x2's picture

All that cash could be worthless before long.

Fri, 05/24/2013 - 01:31 | 3595006 tom
tom's picture

True. And actually, nearly all dollars held in all banks all around the world are actually in the US.

If you are holding "dollars" at an account at a foreign bank, what you actually have is a bank deposit and promise to deliver dollars on demand, which the bank might not actually be holding at any given time. The bank will have some reserves in paper dollars, but not much. Most of its reserves are held in a correspondent account at a US bank. That US bank's reserves are in turn held at a US federal reserve bank, probably NY.

There are after all only two forms of dollars: paper dollars, and electronic reserve accounts at a Federal Reserve bank. Only paper dollars can leave US territory.

Fri, 05/24/2013 - 01:01 | 3594963 damage
damage's picture

Wasn't Rand's entire point was that the tax code was too complicated? Also, fuck John McCain.

The whole hearing thing was stupid. If congress actually wanted to fix things then they should be looking at the tax code, not dragging Apple infront of congress like they were criminals.

Fri, 05/24/2013 - 00:52 | 3594931 GoldIsMoney
GoldIsMoney's picture

I wish, I could do it like Apple. 

Fri, 05/24/2013 - 02:03 | 3595060 All Risk No Reward
All Risk No Reward's picture

Serfs always wish they had it like royalty's corporate fronts.

Go labor to keep the plutocrats happy, alrighty?

They'll give you some American Idol and you better appreciate it!

Fri, 05/24/2013 - 02:42 | 3595093 GoldIsMoney
GoldIsMoney's picture

I guess you do not have got it. I do not want to pay taxes either. If you like that that much, feel free to give government even more than you have to. You'll be a good man.

Fri, 05/24/2013 - 23:26 | 3597817 All Risk No Reward
All Risk No Reward's picture

You are dealing with chair orientation on the Debt Money Titanic.

The situation we find ourselves in is well beyond "I don't wan tto pay taxes."

Even if you didn't have to pay taxes, the system is still going to collapse - even faster, in fact.

That was my point - the major issue of Debt Based Money inflicted on an apathetic populace acting like slavery is what they want for themselves is the bigger issue.

Neither of those root cause problems get solved trying to pretend we are the inner party and can rig the system in our benefit...  like the OWNERS of Apple.

Sat, 05/25/2013 - 01:16 | 3597945 GoldIsMoney
GoldIsMoney's picture

"Even if you didn't have to pay taxes, the system is still going to collapse - even faster, in fact."

 

Well the sooner this system do down the better. Why should I want Systems in which states control on half of the ecomy directly and the other through laws just meant to save them for their voters? 

 

The problem I see with the going down is just: How violent will it get? 

Tue, 06/04/2013 - 02:30 | 3622762 All Risk No Reward
All Risk No Reward's picture

...and what comes out the other side to rule our chumptocracy.

The Revolution is between our ears, but almost nobody gets that.

Mention "intellectual self defense" and observe the glazed over eye response.

Fri, 05/24/2013 - 00:37 | 3594891 Walt D.
Walt D.'s picture

The problem is that the US has no jurisdiction to tax a company that sells a product it does not produce in the US in countries other than the US. 

The UK has the same problem with Starbucks. Since no coffee is grown in the UK, Starbucks can sell the coffee to its stores in the UK for any price it pleases. No different for any other import. Thus the profit made by buying wholesale in Columbia and selling it retail in London is not taxable in th UK.

Profligate socialist governments keep pushing this "Fair Tax" meme. A "Fair Tax" is like pig manure that does not stink. (The US Government is still spending millions of dollars on research grants to find out why pig manure stinks).

Meanwhile there is $120 billion in identified waste in the FEderal Budget (if we actually had one). No attempt has been made to make these painless cuts.

Thu, 05/23/2013 - 21:45 | 3594394 Pascal1967
Pascal1967's picture

I LOVE APPLE MORE THAN EVER NOW !!!   How can anyone be pissed at this?  What in the fuck do you think the dipshit, dumbass government pukes would do with the tax money?  Anyone who is pissed at AAPL is a moron ... unbelievably STUPID to think the government would do any damn useful thing with one goddamn cent of APPLE'S MONEY.  

THE MONEY IS NOT YOURS!  IT IS NOT THE GOVERNMENT'S.   IT IS APPLE'S MONEY.  LET THEM KEEP IT, EVERY CENT.

Fri, 05/24/2013 - 00:41 | 3594902 pitz
pitz's picture

Does "the money" even exist?  Apple's severe reluctance to pay it out, and leaving it in some of the worst possible investments (ie: deposits in insolvent US banks) really leaves that open to question. 

Thu, 05/23/2013 - 18:57 | 3593977 hannah
hannah's picture

"...exposed how Apple is dodging income taxes ..."...beg to differ but apple isnt doing anything illegal or 'dodging'. they are using the laws as laid out by our elected (paid for) officials. the bigger fuck you is apple offshoring work........fuck apple.

Thu, 05/23/2013 - 18:50 | 3593965 world_debt_slave
world_debt_slave's picture

Wasn't McCain one of the Keating 5, shills, all of them. Two faced shills.

Thu, 05/23/2013 - 18:59 | 3593980 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Wasn't McCain one of the Keating 5, shills, all of them. Two faced shills.

You weren't supposed to remember that.

Damn you, internet, look at the trouble you've caused.

Thu, 05/23/2013 - 22:28 | 3594538 sumo
sumo's picture

McCain even crashed an ultra-light plane, FFS. His biggest achievement was to marry money.

http://www.huffingtonpost.com/jeffrey-klein/mccains-secret-questionab_b_107409.html

 

Thu, 05/23/2013 - 16:17 | 3593489 SILVERGEDDON
SILVERGEDDON's picture

What it means, is even when Big Corporate plays by the rules, government hunger for revenue trumps membership in the Galactic Overlord Club.

ALL YOUR MONIES BELONGS TO THE BARRY OBLAMMA FAN CLUB, BITCHEZ !!!

Thu, 05/23/2013 - 15:07 | 3593177 Common_Cents22
Common_Cents22's picture

The problem is the complex tax code that is tens of thousands of pages.   It favors large companies who can pay the cost of legal and accounting maneuvering which are large costs for most small/med businesses, but nothing for a very large company.    It's a big barrier to entry that is totally artificial.

The problem here is with CONgress who could implement simple flat taxes with minimal deductions that would be fair to all.  

Thu, 05/23/2013 - 18:27 | 3593903 tango
tango's picture

What you are asking for is impossible. Even here many consider APPLE guilty for simply following current tax laws. There are reasons for certain laws - for example, the percentage write off for drilling since it is hit or miss and we still pay for risk (or used to).

Few can agree on a "fair" tax. For some, this would be 75%. To those who would lose their jobs immediately a figure around 20% sounds better. Libs / redistribution it's would never accept a flat tax and no figure will balance the budget over the long term.

Thu, 05/23/2013 - 16:18 | 3593493 cougar_w
cougar_w's picture

Every page of the 10,000 page tax code represents $500,000 in bribes paid to various congress-critters over the years.

Every new page nets some current elected fucker another $500,000 in bribes. They run for office specifically to have a shot at this process.

I hope you see the problem now; they have a direct financial interest in moar.

Thu, 05/23/2013 - 14:59 | 3593136 SmittyinLA
SmittyinLA's picture

McCaaain biggest whore in the US senate, hey the cold war ended, did Russia ever release McCain's demoralization & re-education file?

Thu, 05/23/2013 - 15:42 | 3593328 imaginalis
imaginalis's picture

It would be interesting to compare that evil commie file with the outstanding American file which programmed the thinking of such wonderful moral characters as Angelo Mozilo, John Corzine and Jamie Dimon.

Thu, 05/23/2013 - 15:25 | 3593260 machineh
machineh's picture

'The shadow of sequestration' ... LOL!

Every night I wake up at 3 am in a cold sweat, terrified by sequestration ... NOT!!!

Thu, 05/23/2013 - 14:35 | 3593006 cougar_w
cougar_w's picture

All this outrage. I think we can all agree that the confluence of multinational corporations and big government (elsewhere referred to as "Fascism") has destroyed the human world and a large part of the natural world, and from there destroyed itself.

Okay, well that was interesting. I guess. Time to move on, maybe?

We need to replace both of these, and quickly, before they pull us all down in their sinking undertow. We need to recharter corporations to have defined life spans and scopes of work so they do not enrich themselves for hundreds of years and take over all life and commerce on the planet. We also need to collapse government back to the local level where average people can have human-scale relationships with their leadership (meaning: we can drag the criminal fuckers from their beds and hanging them from a lamp pole every so often).

No, I don't know how to do either of these. But if we can all agree that these are the tasks before us, and this is the work of the moment, then I suspect it will get done regardless.

Thu, 05/23/2013 - 18:39 | 3593943 NotApplicable
NotApplicable's picture

Step 1) Stop referring to action items needing to be executed by "we." You can act, and I can act. We, however, is but an abstraction, capable of nothing.

Step 2) As an individual, stop supporting the beast in any way you can. Once a critical mass is achieved, the beast will die on its own.

Of course, the hardest part (well known to TPTB), is achieving critical mass. Since you cannot teach an old dog new tricks, you have to bide your time by going after the youth. Hence the absolute requirement for government schooling.

Thu, 05/23/2013 - 14:21 | 3592969 moneybots
moneybots's picture

"Last month, Senators Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, introduced a resolution calling for the end of the implicit subsidies that TBTF banks enjoy and that put taxpayers at risk."

 

So now they say they are concerned about the tax payers.  Such the scam.  It is 700 billion dollars too late.

This is just round 2 of the scam. 

Thu, 05/23/2013 - 18:40 | 3593944 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

So now they say they are concerned about the tax payers.

Yes, that is what they are saying. Passing the resolution 99-0 was nothing more than 99 rubber stamps on a letter with sternly worded generalities expressing an almost convincing sense of concern that something should be done by somebody.

Thu, 05/23/2013 - 14:12 | 3592934 Downtoolong
Downtoolong's picture

We want a tax break to incentivize us to do what we have secretly already done. What lies and hypocrisy.

It kind of reminds me of the competitive electric energy schemes in the late 1990’s many of which originated following political outcry for lower rates. Most were designed to look like competition, but, were actually sponsored by regulated utility companies themselves, and structured in a way that guaranteed customers would pay more for their power. Some were labeled “Green”, or had other bogus features to differentiate themselves and justify the higher rates. In the end, the whole thing was intended by the utility companies to be a hard lesson for consumers, “Challenge me and it’s going to cost you”.

Fri, 05/24/2013 - 01:20 | 3594996 pitz
pitz's picture

That particular scam made energy traders rich.  Engineers used to economically dispatch power without the nonsense of paying billions to bankers. 

Thu, 05/23/2013 - 14:07 | 3592909 Bastiat
Bastiat's picture

So if they paid 25% tax on that money it would be equal to about 2 days of Bennies QE?

They could rebuild Moore, OK for about 12 hours worth of Bennies green machine.

 

Thu, 05/23/2013 - 15:08 | 3593184 Matt
Matt's picture

If all the corporations repatriated all their $1.6 trillion and paid 25%, it would be, at $400 billion, almost 5 months worth of QE, or 4 months worth of US Federal Government deficit.

Thu, 05/23/2013 - 15:15 | 3593218 Urban Redneck
Urban Redneck's picture

You calculation doesn't appear to include offsetting the damage caused by the liquidation of $1.6 trillion in domestic financial assets that the FED would have to offset less the fiat/debt Ponzi collapse, which they could just call QE^iCrap.

Thu, 05/23/2013 - 13:54 | 3592842 IamtheREALmario
IamtheREALmario's picture

... and so in complete irony, Apple borrowed some of its offshore money from the TBTF bank so that it could pay out a cash dividend.... without paying taxes on teh money that is in the US, but not accounted for in the US.

Thu, 05/23/2013 - 14:14 | 3592945 Urban Redneck
Urban Redneck's picture

If Apple really wanted to be wise asses they should have bought the whole Apple debt issuance themselves, paid their offshore subsidiary (read themselves) interest (US tax deferred) and then deducted that same interest expense by the US parent from their joke of a US tax bill. 

For the life of me I can't figure out why people don't understand that the money never goes anywhere.  Perhaps there is something to the European gripe about Americans not having passports and not traveling, because not even a US Congresscritter would be dumb enough to think that some multinational "parks" all their hard hoarded "cash" in what passes for bank in BVI or the Caymans if they strolled in and talked to what is supposed to pass for a "trusty" banker. 

Thu, 05/23/2013 - 18:37 | 3593938 spinone
spinone's picture

Cash is transferred electronically in seconds all around the world.  But there is a paper trail.

Thu, 05/23/2013 - 20:49 | 3594260 JuicedGamma
JuicedGamma's picture

No, there is a trail of ones and zeroes which can easily be wiped clean by EMP at any time.

 

Thu, 05/23/2013 - 13:45 | 3592789 Dan Conway
Dan Conway's picture

The game is on.  The elite want some of apple's cash horde and of course the politicians here and everywhere will want some of that cash.  Look at microsoft, they became the ATM for the us and europe.  Microsoft got smart and hired lots of lobbyists and attorneys.  And the irony is that apple, like microsoft and google, are loaded with libtards that will dutifully send campaign donations to the likes of levin and obama while getting slapped around and extorted. 

Thu, 05/23/2013 - 19:24 | 3594037 Eally Ucked
Eally Ucked's picture

Ha, ha that's good and you got 4 greenies!

Thu, 05/23/2013 - 18:19 | 3593875 tango
tango's picture

Surely the most preposterous sight this side of Obama prattling about how he values the rule of law is listening to some Congressional nitwit lecturing a company that pays their salary about financial responsibility.

Thu, 05/23/2013 - 18:34 | 3593922 NotApplicable
NotApplicable's picture

Amazing what sort of shit you can get away with when you're surrounded by enough guns. Then there's a few billion hollow-points in case they need to clarify.

Thu, 05/23/2013 - 14:07 | 3592910 NotApplicable
NotApplicable's picture

And all it took was one incoherent monopoly charge.

Fri, 05/24/2013 - 10:52 | 3595855 agent default
agent default's picture

Microsoft was and is still abusive in many of their practices.  But instead of doing something meaningful about the core of the issue, they settled for a handful of cash.  A racket through and through.

Thu, 05/23/2013 - 13:46 | 3592788 Dingleberry
Dingleberry's picture

if corporations are "people" then they need to pay taxes like us "people".

 I can't offshore my earnings tax-free. I can't bribe my congressmen for loopholes. i can't lobby for tax-repatriation holidays. 

Fuck this shit.

Thu, 05/23/2013 - 14:44 | 3593055 Milestones
Milestones's picture

Dingle, I raised that isssue several month ago. To cut to the chase; if corporations are "people" and all the wealthy businesses and people own stock, it seems to me that this is a direct violation of the 13th Amendment which outlaws one person owning another "person". It is SLAVERY no matter how you cut it; It is flat out illegal for one person,(corp., from owning another person (corp). (STOCKS AND BONDS)

In my post "The Confluence of power and the failure of "Democracy" and went into detail about the absolute lies of the Corporations  as people and also the abject lie concerning the Federal Reserve Act of 1913.

As regards corporations as people read a 2 page decision rendered by the Supremes: "Western Turf Assn v Hyman Greenberg 204 U.S.359 1907 and the use of Western decision used by the Suprenes as case law in the 1912 case of Selover, Bates and CO. v walsh 226 U.S.112 1912.

Something is severally retarded at the top of this mangy government.       Milestones

 

 

 

 

 

 

 

 

Thu, 05/23/2013 - 14:05 | 3592895 Bastiat
Bastiat's picture

Some "people" are more equal than others.

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