Wednesday, May 22, 2013

Apple's taxes

Tim Cook, Apple's CEO, testified in front of Congress the other day about Apple's tax-avoidance strategies. One of the main topics was the so called "Double Irish" scheme, which Joe Nocera describes:
This strategy, which was the primary focus of Tuesday’s hearing, involves setting up a shell subsidiary in an offshore tax haven — a k a Ireland — and transferring most of Apple’s intellectual property rights to the dummy subsidiary. The subsidiary, in turn, charges “royalties” that allows it to capture billions of dollars in what otherwise would be taxable profits in the United States. In Ireland, according to Apple, it pays an astonishing 2 percent in taxes, thanks to a deal it has with the government.
Nocera thinks this is bad business for Ireland, somehow:
Question for the government of Ireland: Do you really want your country to be known as an offshore tax haven? Indeed, at a time when your citizens are dealing with the pain of an austerity program, how can you justify allowing Apple to pay virtually no taxes on a subsidiary established solely to avoid taxes in the United States? Just wondering. 
These kind of rhetorical questions often mask stupid arguments, and that is true here. In fact, Ireland has nothing to lose by allowing Apple to do this. As noted in Nocera's column, Apple has no employees and no offices in Ireland. Yet it pays taxes there! Nocera says it is "an astonishing 2 percent," which he later calls "virtually no taxes." But two percent of a very big number is a very big number. Apparently Apple pays 2 percent of its IP royalties to the government of Ireland. I would say that is astonishing indeed—and a great deal for Ireland.

So to answer Nocera's question directly: Ireland can justify allowing Apple to pay virtually no taxes because virtually no taxes is better than actually no taxes. Isn't this pretty obvious? Just wondering.


  1. Can I get my Social Security check mail directly to Ireland and pay only 2 percent on my lousy small check of $14,000 annually. Two percent is better than the 26 plus rate I pay in the US in a combined income tax return with my husband.


    1. If you can somehow manage that legally, yes, you should. And more germanely, if Ireland can find a way to extract 2% of your income while providing you no services, they should definitely do that.

  2. Mr. Nocera's argument is very strange. Presumably, the 2% in taxes is working to help lessen the severity of the austerity measures that Ireland put in place.

    Also, I wonder where one draws the line between tax haven and not a tax haven. Would a 4% tax make it not a tax haven?

    1. Good question. Basically I think it means anywhere that has significantly lower corporate taxes than the U.S.


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