There's been a good bit in the news lately about the way multinational enterprises like Apple, Google, and many others especially in Big Pharm and Big IP actively reduce their US taxes through offshoring that is offshoring-on-paper-only to a large extent. Apple does it by "selling" rights to its innovative IT developments to affiliated offshore entities (such as those in Ireland), and then claims that the profits from those US-based innovations are not US-income. In Apple's case, the main holding company in Ireland is run by directors in California (except for one woman who actually resides in Ireland but doesn't attend many meetings--and most of those by phone) and isn't even treated as a resident in Ireland for Irish tax purposes. See, e.g., How one Irish woman made $22bn for Apple in one year, The Guardian (May 29, 2013) [hat tip to Stevan].
That's a feat that shouldn't be achievable by any company but is a result of the lack of international harmonization in the way tax laws work and the failure of Congress to keep up with the innovations in tax law achieved by creative tax lawyers taking advantage of every discernible loophole or ambiguity. It may be legal (under our foolhardy current law that fails to treat corporations organized OR MANAGED in the US as US companies) or it may not be, depending on how willing a court would be to apply the "sham" corporation doctrine to the case. Either way, it doesn't sit very well that a company that benefited enormously from the way the US subsidizes the education (especially of the rich who pursue science careers) and research is so willing to show so little social responsibility. Congress should likely act on that, and soon, so that US MNEs do not continue to siphon out US profits to nowhere.
Even much of the ballyhoo about corporations that really "want" to repatriate their overseas profit but are "hindered" by the US taxes they would have to pay is ridiculous--they already keep most of those profits in the US in bank accounts and Treasuries, but don't claim them to be repatriated for their businesses.....
Victor Fleischer, a fellow tax prof, did a DealBook story on this last week that is worth noting. Fleischer, Calculating Apple's True Tax Rate, New York Times, DealBook (June 4, 2013).
As he says at the very beginning, it isn't easy to know what the actual tax amount paid (and hence tax rate) of big MNEs is: "it depends on what the meaning of 'pays' is."
Now, what you have to understand is that this comes in the context of Apple CEO Cook's testimony at congressional hearing as to that very piece of information. “The way I look at this is that Apple pays 30.5 percent of its profits in taxes in the United States.” Id. (emphasis added). One has to wonder about that qualifier--"the way I look at this is", instead of a plain statement about Apple's payments of taxes to the United States Treasury. For example, one wonders "which profits" Apple is using. It all depends, doesn't it, on whether Cook is counting as US income everything that should be counted as US income? In the case of many discussions of MNE tax liabilities, there is also a question of whether they are talking about taxes that the company has booked (as "deferred tax liabilities" that are someday, maybe, due and payable), though the Fleischer story says that was not the case with Cook's statement. Often you have to also ask whether the tax rate calculated as "paid" to the United States is based on tax liabilities that are offset by foreign tax credits (and thus not actually paid to the United States)--which would ordinarily be the case with most MNEs.
As Bloomberg News highlighted recently, Mr. Cook’s calculation is based on a badly distorted measure of United States income. ... Apple shifts substantial amounts of its economic profits from the United States to Ireland, where they are taxed at a rate close to zero. Those profits are then sheltered in Ireland and untaxed unless Apple decides to bring the cash back to the United States.
We can't easily figure out how much an MNE actually pays, because of a rather silly view that corporations merit having their tax returns kept fully confidential. Looking through publicly disclosed information, including financial statements, sometimes is revealing, but only after hard work and not often with certainty about the conclusions, as Fleisher notes. Felix Salmon of Reuters has suggested public companies should file their tax returns with their other information filed with the SEC. Id. Instead, they currently file all kinds of statements prepared assiduously by lawyers to hide their tax avoidance strategies from the IRS and to hide their actual tax situation from everybody. Obviously, they don't want to disclose their tax returns, but it is hard to see why that would be a bad thing to require. We require open disclosure of Form 990 for 501(c)(3) organizations to justify their tax breaks, and MNEs get tax breaks of a much greater magnitude than most 501(c)(3)s.
Fleisher has a more modest proposal--require all public companies to disclose their "true US tax rate", defined as cash payments made to the U.S. Treasury divided by worldwide pre-tax income. If you calculate that rate over three years for Apple, it's a heck of a lot less than Cook says is "the way [he] look[s] at this"--only 8.2% ($5.3 billion paid to the U.S. Treasury from 2009-2011 OVER $65 billion worldwide pre-tax profits). Id.
The point of the disclosure is to allow voters and policy makers an easy way to understand how well the tax system is working and what each corporation contributes to the public coffers. Id.