> I'm curious about is why you think any answers lie with Apple and not some branch of the UK government.

It appears that it's very tough for governments to stay ahead of the tax shenanigans of enormous multinational corporations with immense resources at their disposal.

The UK tax laws could certainly do with improvement, but in my opinion this is deeply unethical behaviour by Apple, even if it's difficult to establish whether it's actually illegal.

The problem isn't that the law is poorly drafted, it's that the underlying premise is flawed.

For example, suppose the UK operation needs money to buy inventory. One possibility is to sell its own shares. Then it has "free" money, zero borrowing cost, so it makes profits. Another possibility is to go to a lender and borrow the money at interest. Then the interest payments eat its profits.

That difference in treatment is intended. The idea behind the distinction is that loan interest doesn't depend on the success of the business. If the business does poorly the investors make less profit but a lender isn't owed less interest. If the business does well the investors make more profit but a lender isn't owed more interest. That's the difference between profit and interest.

But in this context the retail operation has highly predictable costs and revenues, and it's easy to adjust things in real time as sales volume increases or decreases. It's not like R&D where you have to spend for five years before you start making potential returns. So it's easy to borrow exactly the amount of money you need at market interest rates in an arms length transaction, and have the interest eat up your profits.

And none of that is "wrong" -- profits come from investment. If nobody made any initial investment into the UK operation and it had to borrow all of its operating capital, it's completely expected in an efficient market that the borrowing costs would eat all its profits. The expected return (profit) on investing no money is no money.

The problem isn't transfer pricing. The amount they're paying can be the amount you would pay in an arms length transaction and still have it eat all their profits. A retail operation that has taken no investment will legitimately have minimal profits.

The underlying premise is "does it really make sense to treat the UK operation as a separate item, or should we be dividing UK revenue by global revenue and demanding a tax on that percentage of global profit of Apple Inc?"

Except that Apple Inc doesn't exist in their jurisdiction, and there are good reasons why it doesn't work that way.

Consider the possibility that they just not operate in the UK at all. They sell iPhones to a global retailer in the US, the independent retailer imports them into the UK and sells them to customers there. Apple sells exactly the same number of iPhones to exactly the same end customers, but now they're not subject to UK jurisdiction at all.

If that's all it takes to avoid the global "profit tax" then that is what would happen. But that makes no sense. There is no sense or benefit in making the global tax contingent on whether the final low margin retailer in your jurisdiction is a subsidiary or not.

But if you still want to impose the same kind of global tax even through an independent entity then you have to go all the way back through the whole supply chain or it can be trivially avoided again, at which point all you've basically done is reinvent VAT.

> or should we be dividing UK revenue by global revenue and demanding a tax on that percentage of global profit of Apple Inc?

This also doesn't work for another reason.

Suppose a company (not necessarily Apple) has two lines of business. One is high volume low margin manufacturing commodity hardware, the other is a high margin software development. The hardware business is responsible for most of their revenue but only a small fraction of their profits, because the margins are very low.

If they sell a lot of hardware but not a lot of software in the UK then your formula is unjustly allocating profits from the global software business to the UK where they sell mostly hardware, and then they would have the incentive to stop selling you hardware because the tax would be more than their actual margin on the hardware. But if you let them apportion profits accurately based on different lines of business then we're right back to them being able to shift them into whatever jurisdiction they like by engaging in high margin transactions in low tax jurisdictions.

There is no such thing as profit as distinct from revenue. All revenue is profit to somebody in the supply chain. If you want to tax profit throughout a supply chain, all you have to do is make sure that you only tax revenue exactly once and you're done. But that's still just VAT or sales tax. Pretending corporate income tax is something fundamentally different is just introducing exactly the sort of complexity that allows international corporations to avoid paying the same taxes that domestic corporations still have to pay.

> If you want to tax profit throughout a supply chain, all you have to do is make sure that you only tax revenue exactly once and you're done. But that's still just VAT or sales tax. Pretending corporate income tax is something fundamentally different is just introducing exactly the sort of complexity that allows international corporations to avoid paying the same taxes that domestic corporations still have to pay.

You make an excellent point, and I agree fully. I wish more people understood it!

I'd also suggest an alternative way of looking at it: Rather than, as you suggest, taxing every dollar that is spent exactly once (thereby ending up with a VAT), you could instead tax every dollar that is earned (by a real person) exactly once. In this model all income would of course be treated the same. The current scheme where investment income receives a lower rate is required in order to make up for the cut already taken via corporate taxes, and once again, the second you start allowing different rates for different dollars earned by the same person, you end up with complex shenanigans whereby people find ways to shuffle dollars into the more favoured category. If you abolish corporate taxes, you can abandon special rates for investment income and capital gains, which removes the need for a ton of tax planning and structuring.

I'm not suggesting that as a good policy, I just find the logic interesting. Either way you look at it, corporate taxes create enormous scope for distortions and games that make us all worse off on net.

> Rather than, as you suggest, taxing every dollar that is spent exactly once (thereby ending up with a VAT), you could instead tax every dollar that is earned (by a real person) exactly once.

One of the problems with income tax is that there are a lot of things you don't really want to tax. For example, suppose you don't want to tax childcare. With VAT, you simply don't require childcare providers to collect VAT. With income tax, you need every individual taxpayer to file a tax return at the end of the year identifying how much childcare they paid for, and they have to accurately predict ahead of time how much that will be or they may overpay or underpay their taxes.

It's also an invasion of privacy -- you end up having to tell the IRS all about your life in order to get the tax deductions, instead of just not taxing those things to begin with.

Meanwhile there are a lot more individuals than businesses, which increases administrative costs and overhead.

If it's all the same in the end anyway then why choose the wasteful complicated invasive one?

> tax every dollar that is earned (by a real person) exactly once.

This has exactly the same jurisdictional problem, though? The "real person" will end up domiciled in Monaco or Panama.

Yes and no; some countries have much more stringent rules about what you have to do to avoid being resident for tax purposes. You might want to route your income through Panama, but very, very few of the ultra-wealthy want to be forced to actually live there.

Countries that currently have lax rules about tax domiciles do so in large part because it has no real impact due to other loopholes, but if you start to remove those, then tightening up residency rules will have a much larger payoff. Nothing stops the UK from saying that spending more than, say, 20 weeks a year in the UK makes you liable for UK income tax on your entire worldwide income (which is, very very roughly, the rule the US has).

That being said, it's always going to be easier to hide income, which is the practical advantage of a strong, universal VAT. It's much harder to hide consumption than income. (Or even better, land value taxes!)

As it happens, I have written to my (labour) MP, hard to see anything coming out of it since they've not been in power since 2010?

To be fair, my position varies between blaming the companies for the financial shenanigans and blaming the politicians for the messy tax code, not that I said anything about this in my previous post.