The SEC Agrees That There's Nothing Wrong With Apple's US Taxes - Forbes

A few months back we had that wonderful shouting match as various members of Congress found out that the laws they wrote meant that Apple wasn’t paying quite as much tax as various members of Congress thought Apple ought to. That led to the SEC asking Apple for more information about how it was detailing what it was doing with tax. And now we’ve got to the end of this little process and the SEC is stating that, as far as the SEC is concerned, Apple’s doing nothing wrong at all.

It’s worth reminding ourselves what this is all about. Apple’s tax structure is not dissimilar from that of the other tech giants. Actually, as far as taxes on profits made domestically in the US it’s simpler and less tax avoiding than some others. But that’s not what got various Congresscritters up in arms. In the US Apple sells product, makes a profit, takes off the usual tax allowances (for R&D and all those sorts of things) and then pays the IRS the full whack as demanded by law. Overseas it’s a little different.

Apple uses a company in Ireland to actually purchase the iKit from the assemblers in Mainland China like Foxconn. Or even to buy all of the components from the various suppliers then ship them to Foxconn who then assemble them. That Irish company then sells the iPhones, iPads and the like to the various Apple subsidiaries around the world. To Apple UK, Apple Germany, Apple Australia and so on. The various Apple national companies are left with only just enough margin to cover their costs: so there’s very little if any profit left in any of those national companies. The vast margins that Apple is able to produce thus end up piling into mountains in the Irish company. Where some think they are taxed at 12.5%: but they’re not. There is no special deal here for Apple, not at all. It’s just that Ireland runs a territorial tax system. You only pay that 12.5% on the profits that you actually make in Ireland: not on what an Irish company makes elsewhere. So all that cash made by selling to Apple UK etc is not taxed in Ireland.

Which brings us to the US end of it. If Apple were to bring the money into the US so that it could pay it out as a dividend then it would pay US corporate income tax minus any foreign taxes already paid. We know from Apple’s SEC filings that the foreign tax is around 2% at present: meaning that bringing the money into the US would lead to 33% going to Uncle Sam. Not unnaturally, Apple prefers not to pay that much. And the US only does tax such profits if they are brought into the US: this is an entirely common treatment in tax law please note, it was at the heart of the UK argument over Vodafone a few years back for example. So, the money remains outside the US and isn’t paying US tax.

Do note that Apple hasn’t actually dodged tax by these actions. In the end the point and purpose of a company is to enrich the shareholders: that means getting that cash to them somehow as a dividend or through share purchases. And that cannot be done with offshore money. So, at some point that money does have to come onshore so that it can go to shareholders. Apple is not so much dodging tax as delaying the moment at which it must be paid.

But all of this above is what Apple is actually doing. The question becomes well, is it OK for Apple to be doing this? The SEC has just said that yes, this is fine. Although do note, the SEC isn’t ruling on the tax laws themselves. It’s ruling on whether Apple is disclosing enough to everyone so the stockholders, current and potential, have enough information to decide whether they’re happy with these arrangements or not. It would be the IRS ruling on whether Apple is indeed obeying the tax laws as they are and we’ve no evidence at all that they think they’re not. Indeed, we’ve reasonable evidence that the IRS thinks that holding that cash offshore is just fine: for they’re not going after any of the other myriad companies doing exactly the same thing.

It could be though that the politicians in Congress who did the original complaining don’t think this is fine. That even though Apple is obeying the law as it is and revealing enough information about doing so perhaps the law should not be as it is. Which is just fine: for of course it is those people in Congress doing the complaining who have the power to change what the law is. And if they don’t like it then they can get on with changing it.

via apple - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNEs2yl_sFq16y1u4g1l2aWXK8FLRg&url=http://www.forbes.com/sites/timworstall/2013/10/08/the-sec-agrees-that-theres-nothing-wrong-with-apples-us-taxes/