[grellas]

The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles.

The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multiplicity of entities for different purposes, (3) resources with which to hire and pay for the talent needed to sort out the tax issues and their complexities, (4) a business goal of maximizing after-tax profits, (5) a multiplicity of domiciles from which to choose, and (6) a ready means by which to direct resources from one domicile to another (as with digital assets), it inevitably follows that every sophisticated company meeting these criteria will avail itself of the tax avoidance/minimization strategies. As the article notes, it is perfectly legal and every big company does it (see, e.g., this similar write-up from a couple of years ago on Google's comparable tax strategies: http://news.ycombinator.com/item?id=1815195).

Nothing, of course, stops a given company from voluntarily subjecting itself to higher tax rates by declining to follow this formula but why would it? Big companies will routinely want to avoid high taxes if they can. So too do small businesses. People may have social views that higher taxes are desirable but, as individual economic actors, they will seek to avoid them. This may be right or wrong but it is reality.

This means that high-tax domiciles will have no choice but to continue to remain frustrated that they cannot have unchecked means of taxing their citizens. As long as people have freedom, governments have to strike a balance that people can live with. And that is not a bad thing.

[_delirium]

What's annoying to me is not that companies choose jurisdictions based on taxes, but that they get away with playing shell games to fake moving between jurisdictions entirely on paper, which also gives them an advantage over smaller companies and individuals that can't do that.

I lived in California for some years. If it were possible for me to open a P.O. box (or even rent a small office) in Reno, book all my non-California-sourced income (e.g. AdSense) to the Reno P.O. box, and avoid California taxes, maybe I would've. But that's not legal; my attempt to produce a fake domicile in Nevada for tax purposes when I clearly lived ~11 months of the year in California would be correctly judged a sham. If I wanted to claim I'd moved to Reno for tax purposes, I'd have to actually move to Reno in real life, too. Yet Apple can do effectively do that, opening a sham office where no work is done, solely to dodge taxes, because the rules for individuals when it comes to those kinds of fake domiciles are much stricter than the rules for corporations are.

If Apple actually moved its main operations and employees from Cupertino to Reno for tax reasons, that would be another matter entirely, and a more honest example of jurisdictional competition.

[byrneseyeview]

The maneuver you describe is equivalent to incorporating in Delaware (or Nevada, I suppose). You can compound your wealth in the low-tax environment, but you will pay taxes when you try to transfer it to yourself.

Just like Apple, in this case. Under the current legal regime, they have successfully deferred taxes, not evaded them. It's the same way I carefully evade sales taxes by saving some of my money instead of spending every paycheck.

[_delirium]

Afaik, incorporation in Delaware isn't usually tax-related; most Delaware corporations don't actually book their income in Delaware, but are registered there because of favorable corporate law and a business-friendly civil trial system.

You're right on the deferral/transfer with regards to international income (e.g. income Apple books in Ireland and later uses to pay for something in Cupertino), but I don't believe Apple ever pays California income taxes on the income it books in Reno, even if it immediately turns around and uses that income to pay Cupertino salaries. There's no state-to-state equivalent of repatriating income.

[el_presidente]

How much of your paycheck do you save? Apple can afford to wait until the government passes a Homeland Investment Act type law to avoid paying those taxes. OTOH, most people need to pay for things like food, clothes, whatever they're using to post comments on websites, etc.

[jarek]

This is a bad analogy to start with, but Apple's profit is around 24% of their revenue, which would be comparable to saving 24% of your paycheque, which is not at all unreasonable.

[larrys]

"which also gives them an advantage over smaller companies and individuals that can't do that."

So? They also get lower rates on car rentals, hotel rooms, components, office supplies etc. and can choose from a larger pool of potential employees. And a million other things that "smaller companies and individuals" can't.

[timr]

"The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles."

No, that's the conclusion you might draw if you choose to read the article through an extremely narrow filter where you start from the premise that the laws, as they stand, are sufficient and reasonable.

If, instead, you look at the situation and wonder at the utter inefficiency of a tax system that allows some (but not all) corporations to move profits around on paper to avoid taxation -- but only if they spend money on creating fake offices and legal castles in the sky that don't contribute to productivity -- then you start to wonder if perhaps the situation can be changed. And that's an interesting discussion.

[notJim]

I don't think your point and the point you quoted are actually at odds.

[temphn]

Exactly. And this extends down to the personal level. Elizabeth Warren, a millionaire Senatorial candidate who supports the Buffet Rule, nevertheless did not voluntary pay a higher tax rate:

http://www.realclearpolitics.com/articles/2012/04/20/warren_...

I think a number of people reading the article have the tacit impression that if the government taxed the money from Apple, that they would somehow benefit to a greater extent. But given that the US Government spends $11.5 billion more per day[1] than it receives in taxes, even seizing all of Apple's worldwide profits would just be a drop in the bucket.

A separate question is why the New York Times has declared war on Apple. It looks like with the departure of Steve Jobs, the Times has started to treat Apple with the hostility normally reserved for Exxon, what with this article and the iEconomy series of articles. It would be interesting for a large technology company to turn the lens on many of the Times' own abusive practices, or the Times journalists' entitlement complex. It would be particularly interesting to look at the tax status of the pensions[2] which rather well-paid reporters like Charles Duhigg and David Kocienewski wish to keep receiving.

[1] http://www.cbo.gov/sites/default/files/cbofiles/attachments/...

[2] http://www.huffingtonpost.com/2012/04/19/new-york-times-vide...

[notJim]

> I think a number of people reading the article have the tacit impression that if the government taxed the money from Apple, that they would somehow benefit to a greater extent. But given that the US Government spends $11.5 billion more per day[1] than it receives in taxes, even seizing all of Apple's worldwide profits would just be a drop in the bucket.

What about the net effect of the government going after every company that does this?

> Exactly. And this extends down to the personal level. Elizabeth Warren, a millionaire Senatorial candidate who supports the Buffet Rule, nevertheless did not voluntary pay a higher tax rate:

I think it is entirely consistent and rational to support a rule for higher taxation while still striving to pay the minimum required amount.

[greedo]

>I think it is entirely consistent and rational to support a rule for higher taxation while still striving to pay the minimum required amount.

Yes. It's called hypocrisy. Rational yes, consistent with the idea that there are rules for me and rules for thee.

[clavalle]

It is not hypocrisy.

Say in the NFL a group of players started advocating for a change in rules. Say, they want a rule where a player must be evaluated and sit out of a game after taking so many hits of so many g forces to the head.

If certain teams decide to implement the rules unilaterally it would put them at a disadvantage. The rules have to change for everyone for it to make sense. It is perfectly reasonable for a team or player to advocate for a rule change without acting as if that rule is in place without a hint of hypocrisy.

[redler]

In the press, it seems like Apple went from years of being unmentionable without the term "beleaguered" straight to being a manipulative, dominant monopolist. The company has certainly undergone a striking and highly unlikely reversal, and perhaps that's a reason for the tonally confused seas. "Beleaguered Apple Inc. now the most profitable company on Earth".

[greedo]

Monopolist. Let's look at Apple's product lines and see:

1. MP3 players. Yep, they own the largest portion of this shrinking market. But their monopoly share doesn't seem to have hurt the customer; and in fact, I still can find numerous non-Apple MP3 players without much trouble.

2. Smartphones. Nope, not even 50% of the US, much less the worldwide market for smartphones. The fact that they are much better than their competition at extracting profits is immaterial.

3. Tablet Computers. Clearly a yes, but in any market segment that explodes like this one, you'll have market shares that swing wildly. Currently Apple dominates this segment; but it's not clear that they will retain a monopoly position. And again, I still can find numerous non-Apple tablets without much trouble. And I don't see any damage to the consumer.

4. Personal Computers (i.e notebooks and desktops). Clearly not a monopolist in this segment.

5. Software. LOL

I do agree that Apple is going through a "striking and highly unlikely reversal" in terms of how it's portrayed in the media. Perhaps that's due to competitors not liking the fact that Apple is eating their lunch?

[robomartin]

There's also the very real and reasonable question of where capital might be used more efficiently. Having seen first-hand how government agencies make spending decisions it is my opinion that a huge percentage of tax dollars is wasted. Private industry is almost always far more efficient in allocating resources out of necessity. I have seen cases where government agencies pay double --or more-- what a private entity would pay for exactly the same product or service.

[notJim]

I'm not really convinced that private industry is any better at avoiding waste than government. I must admit I haven't worked in government, but when I worked at large companies, I was shocked and appalled by how incredibly inefficient and wasteful their internal affairs were.

Furthermore, many of us [of course, you may disagree] would like for the government to provide more services, and that money has to come from somewhere. Even if it's ultimately private companies administering these services, they would need to at least be subsidized by the government to be accessible to the people who need them most.

[temphn]

There is something called "career status" in the federal government that is worth taking into account:

http://www.aphis.usda.gov/mrpbs/hr/job_opportunities/fed_emp...

  Permanent – Career status as a federal employee is 
  achieved by fulfilling 3 years of substantially continuous 
  service as a career-conditional employee in the 
  competitive service.

http://ohmygov.com/blogs/general_news/archive/2010/08/18/dea...

  The service requirement for Career Tenure is 3 years of 
  substantially continuous creditable service to become a 
  career employee, i.e. obtain career tenure...Obtaining 
  Career status is crucial for federal employees, 
  especially, during times of instability and economic 
  downturn like we are in today. 

In short, after just three years in the federal government, you effectively cannot be fired except for gross malfeasance. This radically distorts the cost structure of the federal government.

There are many additional checks and balances on private companies. Perhaps the most important is that a poorly managed company will eventually go bankrupt, while the federal government can defer that for decades via quantitative easing.

[notJim]

> Perhaps the most important is that a poorly managed company will eventually go bankrupt, while the federal government can defer that for decades via quantitative easing.

This would be true in an idealized capitalist society, but many companies are one or more of the following:

   - propped up by the government (automotive companies, financial institutions)
   - in industries with incredibly high startup costs and difficult to obtain special knowledge (defense companies like boeing and lockheed)
   - have effective monopolies or oligopolies (utilities in some places, telcos)

Of course these are all far from immune to disruption, but they operate at such a scale that even when disrupted, the competition is often available only for small projects/few customers. The result is while yes they will eventually fail if they are poorly managed, it is unlikely that will be in our lifetime. Personally, I'd rather not wait that long.

Additionally, as I mentioned before, there are some services that I would like to have made available that can't be operated for a profit without government intervention. I am willing to tolerate inefficiency to achieve those goals. (Just as we as a society are apparently willing to tolerate governments other inefficiencies.)

Regarding your point about career tenure, I've often thought that one of the most effective reforms government jobs could get would be making it easier to fire ineffective employees just like a well-run company would.

[chernevik]

The sheer size and complexity of government in the US has reached the point of effective opacity. It's no longer possible to really assess what the government is doing, or what the costs of those activities are. The political class has every incentive to enhance this opacity. Their poor understanding of economics and management -- they are neither selected for nor disciplined on these skills -- only add to the confusion.

At this point all we really _know_ about the government's activities is that they are overpriced, under-effective, and understated in their size.

There is no rational discussion of government's role until these conditions are resolved.

[notJim]

> At this point all we really _know_ about the government's activities is that they are overpriced, under-effective, and understated in their size.

If the government is as opaque as you describe, than we know nothing at all. You're falling back to a popular assumption for lack of information.

>There is no rational discussion of government's role until these conditions are resolved.

Are you going to lead the revolution [edit from here on] or just throw up your hands?

[chernevik]

I invite you to choose one government program and state what it does, what it costs, how well it works, and the specific individuals accountable for its success or failure.

Just one.

But don't forget to include the pension liabilities and regulatory impacts. Or to mention any other social or economic forces affecting the mission targets.

[ashconnor]

It's a valid point. I think that there are a few reasons why this occurs.

1. Tax payers aren't as resilient as shareholders:

2. There's a psychological tendency to think that "this is not my money" leading to excessive spending.

3. The accountability isn't there. If a politician wastes taxpayer money then he's still a politician for the time being.

But it's not always valid. Many government projects are carried out by private firms that aren't efficient. You just have to look at the NHS IT project here in the UK to see how £12 billion can be wasted by private firms.

[ImprovedSilence]

In private industry, you promoted and seen a valuable if you make money for the company. In the government, you are promoted and seen as a power player if you spend more money. There are lots of super-competitive A-types in govt work who will spend a million dollars just to get another feather in their programs hat.

[notJim]

This seems like you have an idealized vision of private industry. From what I've seen, politics and being friends with the right people is the determining factor in both fields.

[chernevik]

Private industry is ultimately disciplined by a marketplace. It can take a while, but managements seeking goals other than returns ultimately lead their companies into losses. The companies either improve or are bankrupted and their assets transferred to more capable managements.

U.S. auto companies are an edifying exception.

[kalleboo]

Wasteful empire-building and waste-what's-left-of-my-budget-so-I-don't-lose-it-next-quarter is so common in private businesses it's even a recurring joke in Dilbert http://dilbert.com/fast/2012-04-07/

[yequalsx]

Your first sentence of your last paragraph shows one of the problems with globalization. We have seen in the U.S. municipalities competing with each other to see who can give the most subsidies to large corporations. The effects have not been so desirable. Now we are seeing this played out on a grand, global scale. It's potentially a race to the bottom.

I think globalization without a proper international regulating agency is a bad thing. It's great for the people who have the ability to move from one country to the next. Who can find the optimal place for them to live in. Most people don't have this luxury.

[mattchew]

> Most people don't have this luxury.

Maybe one way to make globalization great for more people, is to make international mobility practical for more people.

[yequalsx]

Indeed. As it is mobility barriers partially serve to keep masses of people stuck and this could possibly lead to a new, modern form of feudalism.

[RawData]

> Most people don't have this luxury.

Why not? Seriously. What's stopping anyone from doing this exact thing? Inertia...that's really all - when you get right down to it..

[yzhengyu]

Well, you may call it inertia. But really, once you add up all these challenges, it tends to be quite substantial.

For example, say, you are a skilled plumber who owns a similar business repairing/installing plumbing in Shanghai, China. Theoretically, all these skills would actually make him/her eminently employable or set up a similar business, say in Sweden.

Unfortunately, that is really not the case.

Be as much as most of us would wish, capital has really achieved utter victory over labour. Till we have some major innovation which will neutralize the advantages of having mass amounts of capital, we are transitioning towards a new feudalism.

As I was mentioning to a colleague, the only reasons why we have a job is that software development/programming/computer systems is still sufficiently complex enough for up to 80% of the world population.

Or else we would actually be quite screwed as well. ;)

[RawData]

OK...skilled plumber...he might not be able to move...I studied economics in college and there are examples of industries that the professors would always cite...like hair stylists...plumbers...etc. Sure.

BUT...that plumber could create a company hiring local plumbers in 20 different countries, and sell plumbing services locally in each of those countries, and incorporate the overall business in a friendly tax country.

So your example isn't really valid. I argue that ANYONE can take advantage of globalization with a little thought. If you choose not to, and Apple chooses TO do...well its really your own fault and choice...isn't it?

That's just one simple example...that plumber could create a digital course that teaches others to become plumbers...or teaches plumbers to market their services better...he could package that digital product, incorporate a company in singapore or WHEREVER he finds the best corporate tax rate, and take advantage of the same things Apple does...

I could go on and on...it's all choice. You chose to be proactive or you choose to snipe at others who do...A thing is not unfair if everyone has the ability to take advantage of it...and some simply choose not to because it's hard.

[yzhengyu]

Ah. Be careful where you are stepping.

Yes, its one choice. But personally, I find that to be rather too smug / elitist and smacks of "Oh, its HIS/HER choice - there's nothing DEFICIENT or FLAWED with the current setup" rather than recognizing that the market/world is inherently complex and difficult to navigate.

Arguing that it's one choice is just sophistry. Kinda like those just world people I meet who argue that the poor deserve their station because its their choice.

[RawData]

Sure there's tons of stuff flawed with the current system...but that's the system, not Apple. Change the system if you don't like it, don't penalize companies like Apple who play by the rules of that system. You can't have it both ways...

I don't think my argument is sophistry...choice is very important. It's the cornerstone of my beliefs and it's a valid philosophy.

[CapitalistCartr]

Try emigrating from China to the USA. Its not inertia. There are many millions of people who would gladly move to another country given the opportunity.

[RawData]

We aren't talking about emigration...we're talking about corporate domicile creation...the red tape is substantially less...

But even emigrating...why not? My girlfriends brothers wife emigrated from China to the US...my brothers exwife emigrated from Sri Lanka to the US...I have lots of friends who's families have done this...what's the problem?

[jarek]

Where do you currently live? What are the immigration requirements to move to, say, Australia?

[rmc]

Visa issues? You cant just move and work in any country you like.

[RawData]

I'm pretty sure I could incorporate a business virtually anywhere I liked (within reason - there are obvious exceptions). No one is going to throw me in prison if I try to start a company in Singapore, or Chile, or Hong Kong, or any other whatever. You don't have to physically MOVE there in most cases...and even if you did...what's stopping you? And as to Visa issues...there's ways to gain residency in most countries...you can make it happen if you want.