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Apple, others reach impasse with White House on repatriation

updated 07:00 pm EDT, Wed March 21, 2012

Both sides defend their positions

Thus far, the Obama administration has resisted calls for a "tax holiday" on corporations that want to bring foreign profits into the US, despite recently stepped-up pressure from Apple in the form of comments during its recent investor conference call. The iPhone maker is one of a consortium of US-based multinational companies that have argued that the high tax rate of repatriation provides "significant disincentives" to import it.

The case put forth by businesses is straightfoward: foreign profits have already been taxed in the country in which they were earned, and counting the money as additional US income and taxing it at America's current 35 percent corporate tax rate amounts to sky-high double-taxation that keeps companies from using the money in the US. Congress on several occasions has tried passing bills that would temporarily lower the tax rate to five percent in these situations, but the president has effectively stopped each one by promising to veto it.

The administration's argument is that previous "tax holidays" of this type (most recently tried in 2004) did not result in money being reinvested in company growth, research and development or US jobs; the hundreds of billions that were "repatriated" at the tax-holiday rate in 2004 went almost entirely to investors, stock buybacks and executive bonuses that failed to strengthen or even stimulate the economy. Obama's counter proposal has been an offer to permanently lower the corporate tax rate from 35 percent to 28 percent, simplify the tax code and impose a "minimum tax rate" on companies that attempt to move profits offshore specifically to avoid paying US taxes.

The White House argues that a "tax holiday" would bring in repatriated cash at a lower tax rate, and then when the "holiday" was over companies would revert to their present behavior of storing cash offshore and simply wait and lobby for another "tax holiday," effectively lowering the corporate tax rate to five percent. Part of the US deficit, the administration's supporters contend, can be blamed on corporations dodging their societal responsibilities to contribute fairly in taxes.

Offshoring and other techniques have made it so that many large companies, most notably General Electric, effectively pay no tax at all. Multi-national corporations employ a variety of techniques unavailable to individual US citizens to avoid paying even low rates of US taxes. Apple pays an effective 24 percent rate on its income, according to the company's SEC and investor filings.

Apple and other companies argue that the repatriated income would be used for a variety of purposes, including job creation and growth, but that their fiduciary responsibility to shareholders to maximize profits means that they must pursue the course that leads to the smallest tax bite. Corporations perceive the US corporate tax rate as "punitive" and anti-business despite the fact that few companies actually pay the top rate and US corporations, led by companies such as Apple and Exxon Mobile, routinely report record-setting profits.

While Obama's proposal would actually save most companies more in the long run, this is primarily because the US is still one of the world's largest and most profitable markets. As other emerging economies grow, such as India and China, business analysts argue that the impact from a permanently lowered US corporate rate would diminish over time as companies invest more in non-US markets and growth. As an example, Apple recently purchased an Israeli flash technology company called Anobit and is now setting up a technology research center in the country, paid for with profits made outside the US.

Former CEO and Apple co-founder Steve Jobs reportedly took Apple's views on the issue straight to President Obama himself, warning the President that he was headed for a "one-term presidency" due to a perception of being anti-business as expressed through the administration's blocking of repatriation efforts. During Apple's stock-buyback and dividend announcement on Monday, the company explicitly said it would be funding the incentives by using the domestic portion of its nearly $100M cash stockpile to fund the programs, leaving some $64 parked overseas, and publicly rejected any contemplation of repatriating the money at the present time.







By Electronista Staff
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Comments

  1. Nigel2112

    Fresh-Faced Recruit

    Joined: Sep 2009

    -6

    Societal responsibilities???

    A corporation owes the government nothing if not legally obliged Mr. Obama. Excess taxation strangles innovation, hampers progress and encourages entitlement. You allow over 10 MILLION illegals to live here without consequence while chiding businesses for wanted to keep more of their own money?
    A pox on you.

    Comment buried. Show
  1. apostle

    Junior Member

    Joined: Apr 2008

    -14

    Hear Hear

    This whole administration has been an "Obama-nation"...slightly off topic, =0)

  1. climacs

    Forum Regular

    Joined: Sep 2001

    +5

    oh my you are sooo clever

    apostle. Did you think of that all on your own? Run along now, the adults are talking.

  1. Ashari

    Fresh-Faced Recruit

    Joined: Nov 2003

    +11

    Taxes

    Everybody seems to think that if you don't pay taxes, the country will somehow get out of debt. I'm sorry but when you have a country where the citizens and the companies don't pay taxes, you get Greece.

    If you want the USA to be like Greece, then you don't deserve to be here.

    If a company makes money, they owe their fair share of taxes. If they don't want to pay the taxes, well... Join the party! I don't want to pay them either! But since I am a US citizen, I have to. IT'S THE LAW!

  1. Inkling

    Dedicated MacNNer

    Joined: Jul 2006

    -3

    Chicago & lawyers

    With Obama's re-election campaign reduced to bashing corporate 'fat cats,' offering tax-funded birth control for law students, and denying any responsibility for skyrocketing gas prices (despite a campaign promise to do just that), we're not seeing the real Obama. Never forget that he is, in his heart of hearts, a Chicago machine politician. Slip him some money--he's a bit short on cash right now--and Apple and the rest will get what they want come 2013.

    Personally, I'm less than enthusiastic about this idea. True, the U.S. has some of the highest corporate taxes on the planet, so imposing those taxes on income that's already been taxed in its country of origin is a bit fair. On the other hand, Apple seems to have little interest in spending its billions outside Cupertino and the already affluent Silicon Valley. Give them a bit more money, and they'll just use it to hire more lawyers and sue more of their fellow high-tech companies. And that's not something I consider very useful. There's already far too much suing going on in high-tech.



  1. facebook_Hero

    Via Facebook

    Joined: Mar 2012

    +4

    Why the color switch?

    first graph has US in red, the second graph has US in blue. r u trying to confuse us, or is this a mistake?

  1. sunman42

    Fresh-Faced Recruit

    Joined: Nov 2011

    +4

    Typo

    The last sentence should refer to $100B (not $100M) and $64B, not $64. I know $1B isn't what it used to be, but still....

  1. chefpastry

    Mac Enthusiast

    Joined: Nov 2005

    +2

    @ Ashari

    They're not saying they don't want to pay taxes. They're just saying that 35% is excessive.

    The US did not become the US because England was taxing. It was because the taxes were excessive.

  1. testudo

    Forum Regular

    Joined: Aug 2001

    +3

    see

    This is how the guys on wall street have screwed over the american economy. Corporations, the 'people' who create the jobs, create the products to sell, and drive the economy, are taxed heavily. However, the investors, who's only task is making money on insider information and stock manipulation, who've driven this country into the toilet financially, get some of the best tax rates and loopholes going, even though they do nothing to help the country economically (except keep some of the luxury goods businesses from closing). Heck, they've got it so good that people who make money by investing other people's money gets to charge that as capital gains rather than income, even though they aren't even investing their own money!

    Which is why they should switch it, give tax breaks and lower the rates to the companies, with even some credits for job creation in the US, and start taxing capital gains for what it is, income.

    But it would never fly. Those with the money to invest heavily have enough to pay off enough politicians to kill any such tax reform.

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