[edited 3:26 EST to add link to Fleischer article]
Did you hear about Rand Paul demanding an apology on behalf of Apple for the Senate investigation of the way that major muntilnational enterprises use whatever gimmick their very highly paid tax advisers and accountants can think of to ensure that profits actually attributable to the US get attributed to some tax haven (like Ireland, the Caymans, Bermuda, the Netherlands, as used in those inventive tax structures called "double Irish" and "Dutch sandwiches" and other fancy useful-only-for-tax-avoidance-purposes-chains of offshore affiliates)? If not, see this (thanks to CrooksandLiars for providing the video embed code as well as an interesting commentary).
Rand Paul seems to be getting even more radically pro-corporatist/pro-elitist than he ever was, while claiming "libertarian" leanings that supposedly support ideas of individual freedom. Can't have it both ways. The corporatist agenda is one that favors humongous bureaucracies of over-paid corporate executives and high-level managers who preside over global institutions with enormous power to influence any one country's legislative bodies and executive agencies. It doesn't have much sympathy for the little guys, whether the workers who are poorly paid or the people who consume its products who are treated as much as a commodity as the product produced by the MNEs that further their masters' corporatist agenda. The managers make sure that the laws give them a good living for life--including maintaining defined benefit plans (in the US) for themselves while casting their ordinary workers onto market-vulnerable 401(k) plans; paying themselves lucrative salaries, bonuses and perks while firing workers and getting rid of their benefits at every opportunity; setting themselves up like royalty in office suites, company jets, elite hotels and philanthropic galas (that advance their personal status agenda) while letting workers and consumers suffer whatever poor pay, environmental pollution, and inhospitable workplace vagaries their "business model" requires.
It's not that Apple is the only one of these corporate miscreants exploiting all the benefits of the United States while avoiding paying its fair share of taxes. Google (which is, like Apple, a company whose primary asset is its intellectual property developed in the good ole USA) also employs a vast array of offshore gimmicks to avoid US taxation of its profits. See Jesse Drucker, Google joins Apple avoiding taxes with stateless income, Bloomberg.com (May 22, 2013).
Google, for example, has used a pair of tax shelters known by tax attorneys as the “Double Irish” and “Dutch Sandwich” that move foreign profits through Ireland and the Netherlands to Bermuda to avoid about $2 billion in income taxes a year, according to the company’s filings in the U.S.
Like Apple, Mountain View, California-based Google shifts profits into an Irish subsidiary that doesn’t pay taxes in Ireland. In Google’s case, it says the unit is managed in Bermuda, which has no corporate income tax.
Should Google's "managed in Bermuda" save it from US taxation--nope, because it would never make the transfers to those offshore affiliates in the first place if they were third parties. Our rules let companies readily move "active businesses" offshore and our transfer pricing rules let companies pay scant taxes on transfers of their core business assets offshore. And much of the time when companies claim they are 'managed' offshore it is really just another much of flimflammery. For instance, the company may arrange a (company-paid) vacation for its board and senior managers in a tax haven island paradise once a year, and keep "originals" of records in the island hideaway while keeping digital copies in the parent CEO's hands, where the company is really run, etc. It may even have "directors" based in the island resort--like those two lawyers in the Cayman who "run" myriad companies located there. It may even hire a real director who is directed to live in the offshore resort area to add a little more (fake) substance to the offshore management claim. But can that offshore company make any decision that the parent execs don't want it to make? Aren't its engineers and (US-subsidized) research the key component of those profits? You tell me.
My colleague (formerly at Cleary Gottlieb in New York, and now as a tax professor) Ed Kleinbard got it right, in a discussion quoted in the Drucker article.
Senate investigators drilled down into a crucial component of Apple’s strategy that Edward Kleinbard, a former corporate tax attorney and professor at the University of Southern California Law School, said may make the company vulnerable to taxation in the U.S. In the panel’s report, the top Irish subsidiary receiving offshore profits was found to have held almost all its board meetings in California, with its sole Irish board member rarely attending.
“Apple says their Irish subsidiaries’ ‘mind and management’ lies outside Ireland, but the real question is, do those subsidiaries have any mind of their own at all?” Kleinbard said. “If they are not really competent to make independent decisions to take on risks and make contracts on their own behalf, then the structure collapses of its own weight, and the income properly should be taxed to the United States.” Id.
Folks, Rand Paul is right only about one think--Congress should indeed apologize to somebody, but not for what Paul wants it to apologize for. Congress should be apologizing to ordinary American people for having so long deferred to the corporatist agenda, letting US-based companies get away with running an Irish shell from California and claiming that the profits attributed to the shell are earned in an active offshore business.
Substance over form should say that any company managed by US company officers is a US company. And any company used as a conduit to shift profits offshore should be disregarded. And any company affiliate purporting to purchase critical intellectual property rights should be disregarded. Etc. Congress simply hasn't had the guts to stand up to these corporate giants, because these corporate giants employ armies of Goliath lobbyists who win almost every battle againstthe David-sized organizations representing ordinary Americans. (Latest non-tax example--the Interior Department's adoption of the ALEC-designed fracking bill stupidly allowing more climate-change-generating fracking on public lands!)
A fellow tax prof, Victor Fleischer, notes one of the reasons Congress hasn't acted on these issues--the very real (not too-well-veiled) threat by corporate executives who've made millions or billions from their US-subsidized enterprises to now abscond to foreign countries for real, moving the engineering and intellectual property development and research there. See Victor Fleischer, Finding the Roots of Apple's Economic Product, DealBook (May 21, 2013).
Recent Comments