If you're interested, you can estimate the profit on revenue in all countries relatively easily by multiplying the country revenue by the overall margin.
These numbers tell you how much profit _Apple USA_ made in those countries.
Say Apple USA typically makes $300 on an $800 iphone sold in Germany. Where should this $300 be taxed?
To me, it seems perfectly reasonable that most of it is taxed in the US, since the iPhone was invented, developed, engineered in the US and ultimately the business and product was created in the US.
And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains.
If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany, then you are claiming that the innovation, engineering and design that occurred in the US contributed ZERO value to the iPhone.
And even if you did that, it would not change Apple's tax liability (much) as it would just mean shifting corporation tax rights from the US to Germany.
It's not strange that all the European calls for shifting the right to tax corporates from the countries where they do the most work/create the value to other countries only seem to apply to "internet giants" but not "car giants" or "aviation giants" or "food giants" which whould result in European countries having to give up large amounts of corporation tax income to other countries.
> If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany
That's just complying with the law. The rest of your comment is irrelevant and is not how taxation works.
This is solely an issue of accounting and tax rules that allow an international company to effectively be taxed wherever this suits it best, i.e. where the rate is lowest, be reporting no or very low profits in countries with higher rates because 'profit' depends on many parameters which an international company can tweak.
This is very difficult to prevent legally because the rules companies use are reasonable when running a business and thus cannot realistically be removed.
The only solution left is therefore to tax what cannot be tweaked: revenue.
No it's not complying with any law. For example, Germany car exporters do not pay corporation tax on the _whole_ supply chain profit in the countries where sales are ultimately made.
Of that example $800 retail price, the cost break down (I'm making up these figures) might look something like: $80 German sales tax, $50 for the German retail outlet, $30 Germany logistics and distribution, $50 Ireland internationalization and packaging, $70 Chinese manufacturing, $250 USA engineering and development.
I don't see why you feel the correct thing would be for Germany to tax all of the $300 profit, given Ireland, China and particularly the US contributed far more to the value of the finished product.
This idea - when a product or service involves international supply chains - that the profit is taxable based on where the value was created has been the basis of interational trade. And there are huge bodies of work and accounting rules on how corporations are allowed to split that $800 up among all the countries involved in the supply chain.
You mentioned profits in Germany, now you're talking about the whole supply chain's profit or cost... It's difficult to follow your argument.
The issue, which I explained, is that they can set prices along the supply chain to arbitrarily end up with 0 profit in Germany (following your example) and all the profit with a notional trading or licensing subsidiary located where tax is lowest.
If it's difficult to follow my argument that's my fault.
I should have been more clear about the distinction between "profits on sales in Germany" and "profits made by the German operation".
The $300 is the (global) profit on the sale in Germany.
The profit made by the German operation would be relatively small in this case - assuming for example that the Germany operation is purely involved in logistics and retail. These type of operations are quite low margin.
It is simply not the case that corporations can arbitrarily set the prices along the supply chain for accounting purposes. There are decades of international tax case law to determine where profits can be assigned in a global supply chain. Transfer pricing is governed very strictly.
Clearly, in this example, the German logistics and retail can only claim a very small proportion of the value - given that typically their profits are single digit percentages. The US can claim nearly all of it since it's US engineering which adds the most value (like German engineering adds the most value to a car sold in the US).
Logistics and distribution are low margin operations and so make small profits and so pay small amounts of corporation tax.
If the operations of Apple, say, in those countries are mostly logistics and distribution, then the profits of those subsidiaries will be low. By international tax law your German subsidiary cannot charge $200 per iPhone to bring it from a port warehouse to a retail outlet. It can only book a "reasonable" or arms-length profit for it's part of getting an iPhone into the hands of a consumer.
Re. clutching at straws - it doesn't contribute much to offer guesses about how confident I am with my arguments. If I were not happy with my case, I would not be putting it into writing.
Logistics and distribution in Germany is irrelevant. What happens is that the product is re-sold from one subsidiary to the next in a way that allows to effectively locate profits arbitrarily.
It is avoiding to look at reality to claim that it must be that these companies report no profits in the countries I mentioned. The reality is that this is done on purpose by clever schemes.
> To me, it seems perfectly reasonable that most of it is taxed in the US
It doesn't matter what you consider reasonable. If you want to access the European market, you better pay the taxes that are demanded.
> And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains.
We are talking about tax loop-holes. This is about closing such a loop-hole.
In Apple's case it seems even worse, because Ireland gave them a special tax deal, lowering their tax rate below Irelands normal rate, which is illegal under EU law.
> And even if you did that, it would not change Apple's tax liability
The point here is that those sales in any country benefit also from the public infrastructures: even where there is the least use of the public money, those infrastructures play a big role in allowing any company, national or foreign, to exercise their activity and make profits. Most of the countries in the world have their internet/telecom networks setup by private companies, but they are helped a lot by the public sector. Those investments help the internet giants to operate and again, to make profits, so my view is that they should be taxed just the same as the local companies. Even in the US, the public sector is mandatory when there are big infrastructures to be put in place. Which is for example a reason why the foreign automakers can be taxed in the USA, because they benefit from this.
If you think that all exports to any country should be taxed only in the country of origin, no foreign company would be be taxed in the USA anymore for any of their export there, and going back to my example, no german automaker should be taxed for their cars (invented, developped and engineered in Germany) in the USA. Given that they benefit from the public spending on the roads and so on, that wouldn't be fair also.
So in a way, this french digital tax is just the same as the USA not allowing the deferred taxation of foreign income, albeit about a single sector. Therefore, I don't quite see why the USA are seeing it as unfair, given they are doing the same thing.
Actually, what all countries should do is to have the exact same law as the USA, to be able to tax all companies (internet giants included) for the real profits they make locally, by removing intra-corporation licenses or fees that allow for the tax evasion to work. But obviously, those companies would probably find another scheme to do that, so I am really wondering whether taxing the income and not the profits is such a bad idea. It would have to be offset by a mechanism on the real expenses excluding intra-corp ones.
I agree with a lot of what you say here. Corporations benefit greatly from public infrastructure and they should pay taxes for the benefits they derive from it. A sales tax or VAT achieves these goals.
But you misunderstand my argument - I have never claimed that Apple only pay corporation tax in the US. My arguement is that Apple should (and do) pay taxes based on where the work/value was done.
In a post above I suggest that an $800 iPhone could consist of something like: $50 for the French shop selling it, $80 French sales tax, $30 French logistics and distribution, $40 Irish localization, $40 Chinese manufacturing, $300 US engineering and and management. Leaving $300 or so profit.
International tax law says that each of the countries involved in this supply chain: USA, China, Ireland and France only get to tax the value added in that country. This is why nearly all the profit is taxable in the US and very little is taxable in in France (and Ireland for that matter) as logistics does not hadd a huge amount of value.
And I disagree with you that all the $300 profit in this example should be taxable in France just because the sale occurred in France.
> But you misunderstand my argument - I have never claimed that Apple only pay corporation tax in the US. My arguement is that Apple should (and do) pay taxes based on where the work/value was done.
But the mechanism we use to determine value is markets. Unless apple allows me to buy the same phone hardware without logo and slap my own initials on it, we can never know the value generated by this step. As such, we have to treat everything done internally / without markets as a single black box and tax it accordingly. The problem is this black box spanning across tax jurisdictions with no good way to determine where what share lies. The easy fix would be require all transactions between countries to be between independent companies on a market. I don't ever see this happening (for good reason), so different countries will have to work together to find ways everyone gets a fair share.
So Ireland added $35+bn worth of PROFIT/year through its irish subsidy? And the rest of the EU basically nothing? Ireland‘s illegal Apple tax deal was ok?
France says internet giants circumvent their tax system (and it‘s obvious they do). It‘s France right to try to stop that.
No - it's about $4bn by my calculation. See https://www.irishtimes.com/business/technology/apple-records... on Apple's Irish tax bill. This is probably a reasonable margin given that the vast bulk of the revenue accrues from low margin logistics and packaging.
France can tax whatever it wants. But it should later complain if this provokes a tit-for-tat reaction from the US or other trading partners if they decide to tax French imports.
I know it's not a popular argument here but I genuinely fear a future world with escalating tarrifs and trade barriers and I think there is a huge amount of FUD spread about how international trade works.
>Commissioner Margrethe Vestager, in charge of competition policy, said: "Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014."
You're quoting a number from the Vestager ruling as if it were generally accepted but it has been contested and currently up to the European Court of Justice to decide whether she was correct in her interpretation.
France tried something similar against Google and it was thrown out twice by French courts - https://www.reuters.com/article/us-france-google-tax/google-... - because the attempt to tax Google for value generated in the US does not comply with international transfer pricing rules.
So if company Y created a genetic variant of a vegetable in Country X, and if this vegetable is shipped and sold in supermarkets around the world, the profit made from sales of that vegetable should only be charged in Country X, and not in the country that made the sale to the end consumer?
To be straight here, yes that's pretty much how it's supposed to work. There would have to be sales, logistics and back office functions in the consuming country and those operations would be taxable. There would like to also be general sales tax in the consuming country but these would apply to all sales, not just the sales of "foreign" goods.
Countries have tried heavily taxing revenues of "foreign" imports - they're called tarrifs or import duties - and generally the result has been to make everyone poorer.
But it's a populist meme at the moment - both on the left and on the right - Trump's misguided/dangerous trade policies for example - that international trade is impoverishing or a zero-sum game.
These numbers tell you how much profit _Apple USA_ made in those countries.
Say Apple USA typically makes $300 on an $800 iphone sold in Germany. Where should this $300 be taxed?
To me, it seems perfectly reasonable that most of it is taxed in the US, since the iPhone was invented, developed, engineered in the US and ultimately the business and product was created in the US.
And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains.
If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany, then you are claiming that the innovation, engineering and design that occurred in the US contributed ZERO value to the iPhone.
And even if you did that, it would not change Apple's tax liability (much) as it would just mean shifting corporation tax rights from the US to Germany.
It's not strange that all the European calls for shifting the right to tax corporates from the countries where they do the most work/create the value to other countries only seem to apply to "internet giants" but not "car giants" or "aviation giants" or "food giants" which whould result in European countries having to give up large amounts of corporation tax income to other countries.