ABC News: “How Apple’s Phantom Taxes Hide Billions in Profits.”
It’s really just simple accounting, but since ABC can put “Apple” in the headline, they can generate their own profits. Anyway, here’s how it’s done:
Where Apple does differ from other companies is that it sets aside a portion of these overseas profits, marking them as subject to U.S. taxes sometime in the future. Essentially, it’s saying “this is money that we’ll likely have to pay U.S. federal income taxes on” because we intend to repatriate it, says Willens.
But because Apple doesn’t actually bring the profits into U.S. accounts, it doesn’t pay the taxes. Instead, it records a tax liability. When Apple reports quarterly results, it subtracts these liabilities from its profits, even though it hasn’t actually paid the taxes.
Apple — and everyone else — keeps their foreign profits overseas for a very good reason: Our tax system is evil and corrupt and induces such “bad” behavior.
I could be wrong here, but I believe the US is the only country to tax overseas profits. If Apple were a British corporation and sold an iPad in Germany, then Germany would (as it does now) collect the tax on any profits Apple made in Germany. Britain has no business in the transaction, but would be happy when Apple brings home its German profits and sticks it in British banks and then invests them in British businesses.
We do things a little bit differently here.
When Apple sells an iPad in Germany, Germany taxes the profit. If Apple wants to repatriate its profit, Washington demands that Apple pay the IRS, as if it had sold the iPad right here in the US. Washington wants to collect taxes on profits it had nothing to do with. Germany built those roads, to put things in Obama’s language. And so Apple, like any other American company, wisely keeps its overseas profits overseas. But Washington doesn’t care that Apple paid what it owes, to the country to whom it was owed. Washington’s attitude is straight out of Goodfellas: “Fuck you, pay me.”
This is what Democrats call “corporate greed.”
ONE MORE THING: When Apple takes my money, I get shiny new iDevices. When Washington takes my money, I become a silent partner in Solyndra.