back to article World's richest hobo (Apple) has worked 'tax-free' in Ireland since '80s

Apple has been operating practically tax-free in Ireland since 1980, a former exec has claimed. The ex-Cupertino veep spoke out as the fruity firm was accused of being a "tax resident nowhere in the world" by Senator John McCain (R-AZ) during a hearing of the US Senate's Permanent Subcommittee on Investigations. The iPhone maker …

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Easy answer then

They should be defined as tax resident both in Ireland and the US and taxed by both (retrospectively) and until such time as they put a rational tax arrangement in place of this sham.

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Re: Easy answer then

Have Apple (or Google or Starbucks...) broken the law? [Yes/No]

Yes - Fine the companies and prosecute those involved.

No - Tough. Either shut up or change the law.

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Megaphone

"World's richest hobo"

"There’s a voice that keeps on calling me

Down the road is where I’ll always be

Every stop I make, I’ll make a new friend

Can’t stay for long, just turn around and I’m gone again.

Maybe tomorrow, I’ll want to settle down,

Until tomorrow, I’ll just keep moving on..."

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Re: Easy answer then

@The BigYin

Correct. More than enough sitting around and bitching has been done about this. If the various governments involved actually ploguhed their energies into researching and closing these tax loopholes for companies based (or operating) in their own countries, they may have actually made some headway by now.

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Thumb Down

Re: Easy answer then

@TheBigYin

1. Everyone is proposing the law be changed, so you shut up.

2. Just because something is legal doesn't make it ethical.

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Re: Easy answer then

1. Good. Hopefully they close a few loopholes and we can see an end to PFI etc as well.

2. I never said it did, but Apple (like any company) has no requirement to be ethical; merely legal and hopefully profitable for their shareholders.

(And for the avoidance of doubt, the "shut up" in my comment was aimed at our gum-flapping, elected officials).

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Devil

Re: Easy answer then

The problem is that laws need not follow the rules of logic. The US and a few other countries have so-called General Anti-Avoidance Rules (GAAR) that essentially state that it is illegal to game the system, even if you only use legal means.

This flies in the face of logic, but remember, lawmakers do not have a program to tell them that what they write does not compile…

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Re: "World's richest hobo"

"There's a tax that keeps on calling me,

Down the road is where I’ll always be,

Every buck I make, I’ll move out of reach,

Can’t stay for long, send me tax bills and I’m gone again.

Maybe tomorrow, I’ll want to settle down,

But if you tax me, I’ll just keep moving on..."

There. Fixed it for you.

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Jah

Re: Easy answer then

Every company in the world could do this but they choose not to because all rules can be worked around. In the US and UK, and other countries, we fund social and defence services from taxes. That is the purpose of tax. By actively working around the rules all you do is demonstrate lack of social responsibility.

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Anonymous Coward

Re: Easy answer then

"Have Apple (or Google or Starbucks...) broken the law? [Yes/No]"

In the Starbucks case, HQ have repeatedly told their US investors, on the record, that they are making significant profits in the UK, and therefore intend to continue expanding in the UK. Afaik it is illegal in the US to mislead the shareholders.

Round the same time they were saying this in the US, they were telling the UK taxman that their UK operations weren't making any significant profit, therefore there wasn't any significant tax to pay.

That may or may not be the same as what Apple and Google have been up to.

See any problem with that behaviour on Starbuck's part?

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Happy

Re: Easy answer then

Significant profits *in* the UK or significant profits *from* the UK.

AIUI, The UK pay a "licencing fee" to Swiss Starbucks who then pay it to US Starbucks as profit having had the profit taxed in Switzerland.

If they're charging a lot to the UK for licencing then they can make significant profits from the UK whilst making a loss in the UK.

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Re: Easy answer then

@david hicks

It has nothing to do with morality. I posted this elsewhere but it fully applies here, so apologies for the repost:

****

Let us suppose it turns out unbeknown to you, you had a rich aunt and you have found out about her because she has died and lawyers have contacted you to inform you she has left you a fortune. Let's say this rich aunt has dual nationality (not British). Let's say due to a some simple uncoordinated international tax rules and due to obscurity over her place of residence you have, within the rules, a choice as to the jurisdiction applied for inheritance tax on your aunt's estate. On the one hand you can choose the jurisdiction where you would pay 40% or on the other hand you can pay 5%. What rate are you going to choose ? Especially considering you have no particular allegiance to one or other jurisdiction (Apple is a US company, not British or Irish). Pretty much anyone who says "I would choose to pay 40% because it is the moral thing to do" is a liar. Moral in relation to your responsibility to pay inheritance tax where?

****

All senior company executives have a fiduciary duty to do the best for the shareholders they can. Despite what people want to think there is nothing deceptive or manipulative about Apple's tax arrangements. If the politicians don't like them they should do their jobs properly and change the rules.

There are ethically questionable tax avoidance schemes and the rule of thumb to identify them is if a company employs a complex instrument usually employed for purpose x, when there is no benefit from employing the instrument except to avoid tax. Examples include setting up complex rotating loans (loans being an instrument to obtain finance but providing a mechanism to exploit tax laws when one subsidiary provides a loan to another subsidiary in the group as a way to shift the "jurisdiction" of incurred costs and minimise corporation tax, rotating loans are renewed ad infinitum) and offshore banking in countries where they are doing no business and gaining no advantage from interest rates etc. but only tax advantages.

Google incidentally admits employing these questionable instruments. Despite what many people want to think (do no evil etc) what Google are doing *is* ethically dubious. Though, again, they are within the letter of the law.

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Anonymous Coward

Re: Easy answer then

"All senior company executives have a fiduciary duty to do the best for the shareholders they can."

This is a meaningless statement wheeled out from time to time to justify any and all actions by a company's board. "So the best" is generally undefined. I'm a shareholder and I need money fast to pay off the mob before they break my legs. Clearly the best thing is to sell all the company's assets and share the cash out between the shareholders. No? OK, how about if I'm a long term investor and want to see growth over 30 years by building a brand associated in the public mind with ethical actions and honest dealings? You don't like that one either? Well, how about....

And so it goes on. "The best" is totally subjective and varies wildly depending on the term of investment shareholders are interested in. As such it comes down to "do what the shareholders want to do" and that is the bottom line that the "All senior company executives have a fiduciary duty to do the best for the shareholders they can" bullshit is actually attempting to hide - people are making decisions to do these things to line their own pockets. No one is being forced by fiduciary duty to do diddly squat and the responsibility - and the jail time - lays upon individuals making conscious decisions to lie about what they are doing.

If a board tells the US that they're resident in Ireland, and tells Ireland that they're not then they are lying to someone and there's no need to even waste time working out who they are lying to - simply charge them and throw them in jail.

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Re: Easy answer then

Starbucks is actually an amusing case. For when the accounts were pulled apart, it turns out that they really weren't making a profit in the UK. Add back in the royalty for the name paid to Holland, the premium on coffee beans to Switzerland etc and they still weren't making a profit.

The FT's alphaville did it once and Vince Cable had his department look at it as well: same answer both times.

Where was all the money going? Well, anyone who had read Ricardo on rent (or even Tim Halford's excellent description of it in "Undercover Economist", using the example of coffee shops)would say that it's all gone to the landlords. Who do, of course, pay tax on their rents 'coz there's no way you can hide a piece of land.

The reason that they could be saying something different to the shareholders is simply that tax accounting and shareholder accounting are not the same thing.

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Re: Easy answer then

"2. I never said it did, but Apple (like any company) has no requirement to be ethical; merely legal and hopefully profitable for their shareholders."

But haven't Apple been avoiding paying dividends to shareholders as well?

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Anonymous Coward

Re: Easy answer then

Let me pose you a problem from the other side.

Let's say someone points out that, due to a loophole in the way the latest rape law has been drafted, it's actually, by the letter of the law, legal to commit rape in the town where you live.

The Law Lords confirm this unfortunate situation.

Parliament is in recess, and it's going to be at least a week before they can fix it.

Do you go out and commit rape, because it's not against the law?

If you're thinking "no", then I hope you can see that the argument "it's not against the law" is not enough.

And the duty of directors to maximise shareholder return, within the letter of the law, period, is not enough, and needs a modifier, eg "while still doing what 'twelve good people and true' would consider morally right for the human race, which includes paying reasonable taxes (for the sake of humanity), not trying to circumvent the intent of anti-pollution laws (ditto), only using suppliers that can show they treat their employees reasonably (ditto), [you can add your own examples here]"

I'm trying to show you that if you're used to saying "tough, the duty of directors to maximise shareholder return, within the letter of the law, period", that that is actually not enough, unless you're one of the people who would indeed go and commit rape in my hypothetical situation. (Are you?)

Because there's an unspoken clause in your current belief, which people don't like to face - you're supporting the idea that the "duty of directors is to maximise shareholder return, within the letter of the law, period, however bad for the human race it is" - and that's self-evidently something the human race should not be supporting.

So please stop supporting the idea that "it's the law, tough", 'cos there's more to it than that.

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Re: Easy answer then

Can you say "straw man argument"? Other than the completely hypothetical premis, the argument that working out a legal way the government less tax is as bad as a sexual assault is utterly rediculous.

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Re: Easy answer then

I agree with Steve your argument is a ridiculous comparison. However I understand you are trying to underline a point of principle and I don't wholly disagree with your broader point. However I return to the example I have already given you and ask again - would you personally voluntarily pay more inheritance tax given the scenario I outlined?

Higher tax isn't in and of itself a moral good. Indeed forced money transfer often results in great inefficiency and often becomes a handy excuse for people to not help the neighbour in need next door.

As it happens, I agree Apple paying virtually no tax in Ireland is a problem. However bear in mind there is stored up tax potential in those funds because when they want to move them to do something useful with them (e.g. to the US), then they have to pay tax on them. Cook is facing a very real headache that is a product of success and it is not merely a hypothetical problem. As soon as he repatriates the money, tax is paid and once tax is paid, if the money is needed somewhere else in the world for other Apple operations it cannot be transferred there tax efficiently. Why should all offshore funds result in US corporation tax being paid instead of say British corporation tax or Dutch corporation tax when there are also operations there and funds may be needed there.

The US has no moral priority in demanding payment of the tax.

Because most people don't operate trans-nationally, they simply don't get the extent to which any set of rules are quite arbitrary with regard to morally which tax jurisdiciton has priority. These are very real problems and *it is* the role of government to resolve them, not Tim Cook.

Irish politicians disingenuous to claim they have not contributed to this problem because there is absolutely no question they knew exactly what it meant to set up a near zero corporation tax zone. They knew it would result in many international businesses locating there and that is precisely why they did it. This is what disgusts me most about politicians. When they say something because they know the mass of the public only has time for the soundbite, and they know every time the public will "bite" on the claim "It's the fault of the greedy corporation making billions." So they deliberately mischaracterise because they only have to say it for the meme to stick. They know all too well how the dynamic of public opinion works and can be manipulated. It is one of the lowest forms of inauthenticity.

It is simply not realistic to expect Cook to cut down the potential of the cash hoard Apple have by billions because he personally feels more tax should be paid, but, eany, meany miny mo, let's pick the US. Governments need to coordinate to create a better ruleset than we have at present.

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Devil

Re: Easy answer then

I think currently the EU's finest are trying to figure if there is merely Tax Avoidance (can be immoral and not what intended but not actually illegal) or Tax Evasion (Illegal) or both and if both can be reduced.

But EU and USA need to co-ordinate and pressure Singapore, Caymans, Bahamas, Switzerland etc to have the same rules.

Stage one: Make everyone report earnings in Each country. Even Tesco when reporting UK results refuse to divulge Irish figures, lumping them into the UK figures! Sky Might be breaking VAT rules on Irish subscriptions.

I'll be surprised if some (many? all?) Large Multinationals are not technically doing Tax Evasion as well as Tax Avoidance.

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Headmaster

Re: Easy answer then

" simply charge them and throw them in jail." Sorry, old chap, it doesn't work this way - it's " simply charge them, _try them_ and throw them in jail _if they are found guilty_." And you can bet your boots that they can afford top lawyers at a lower cost than actually paying the taxes!

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Re: Easy answer then @ SuccessCase

I don't know if you will believe me, and don't really care whether you do or don't, but in your hypothetical situation of the unknown aunt with lots of money and no connection to Britain, my calculation would go along the lines of a) which country did she spend most time in? If there is a clear preference, pay the tax there; b) If no clear preference is shown, find a way to pay the tax in both. After all, it is money I didn't know I was going to get, anything is a bonus, and being fair is a moral duty.

For the record, I do not claim tax back on anything I could - I regard the taxation system as generally fair, and actually think that income tax in the UK is too low, especially for higher earners (which includes me).

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Re: demonstrate lack of social responsibility.

I am socially responsible. You're the one who is socially irresponsible.

The law isn't supposed to allow either of us to impose his concept of social responsibility on the other. Only impose responsibility for following the law.

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@AC 24-May-2013 19:52 GMT

I suspect you the one loosely using the language in a filing. I expect what actually was told to the US investors is that the UK operations are generating significant net revenue and therefore they plan to continue expanding in the UK. They then told the UK taxman that they didn't have significant profit because they've invested that net revenue into expanding business. Typically this is an allowable business expense. And US investors will be happy with that because their shares will continue to appreciate in value, even if no revenue is taken as profit and returned to them after two taxmen take a bite out of the profits.

Frankly, to me that seems like a decent deal to the UK. They get more jobs as Starbucks expands, and they get more VAT revenue as more cups of coffee are sold.

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@Robert Long 1

Meaningless to you perhaps, even more so because you misquote it, but quite meaningful to even the least capable lawyer who has passed the bar.

Management and Board (all of it, not just senior but only the top executives are typically held accountable because once you get too far down the chain there's no extra money to recover) have a fiduciary responsibility to the shareholders. "Fiduciary" means financial interests. No other. And if you don't take it seriously, you will be sued. I know this based on sitting on the Board for a 501(c)3 [not profit making to you Brits] where the lawyer brought this up every session because we were all "amateurs" in the field of corporate governance. And lawyers get antsy when the budget amateurs are handling approaches $1 million (I hear through the grapevine that they are now approaching $3 million).

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Re: But haven't Apple been avoiding paying dividends to shareholders as well?

Apple aren't under an obligation to pay dividends. They are under an obligation to provide a return on the investment. If that return is in the form of increased share price, that is as much a return as a dividend. In fact, in some cases in the US, boards have been sued because they paid dividends instead of pursuing business plans that would have expanded the share value and generated even larger share price returns. The issue being that increases in share price are not subject to the income tax the company has to pay, only the capital gains tax to which the dividends are also subject.

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Anonymous Coward

Re: @AC 24-May-2013 19:52 GMT

"[starbucks] then told the UK taxman that they didn't have significant profit because they've invested that net revenue into expanding business."

Some folk might have given you and Starbucks the benefit of the doubt, but Starbucks misleading and entirely implausible use of transfer pricing means that Starbucks no longer deserve the benefit of the doubt.

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GBE

Why do people get upset at Apple for this?

Do you give the government more tax money than the law says you owe?

Why would anybody expect Apple to do so?

If you invested in Apple, do you want them to give more of your money to the government that the government says they have to?

If you don't like the tax rules, you should bitch at congress, parliament, the IRS, or whoever makes the rules...

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DJO
Bronze badge

Re: Why do people get upset at Apple for this?

Do you give the government more tax money than the law says you owe

Obviously not, but I do pay the amount that's due unlike Apple, Google et al who by creative application of corporate residency and dodgy cross-border sales manage to pay a fraction of the tax money the law says they should owe.

If all companies actually paid all the tax they should then income tax could be dropped by one or two pence in the pound which would stimulate the economy a treat. I’m not saying the government would reduce tax, but they could.

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Re: Why do people get upset at Apple for this?

Obviously not, but I do pay the amount that's due unlike Apple, Google et al who by creative application of corporate residency and dodgy cross-border sales manage to pay a fraction of the tax money the law says they should owe.

No, by creative application of corporate residency they pay exactly the taxes the laws say they should. If you don't like how the tax laws are set up, you shouldn't have voted in the clowns that set them up.

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Mushroom

Re: Why do people get upset at Apple for this?

DJO, you're wrong - they do pay what is due. They break no laws and they have a legal obligation to their shareholders to minimise their costs (within the law). NOBODY pays more tax than they have to.

I'm as angry as anybody else is about the low rates and financial gymnastics these companies manage to get away with, but the bottom line is that it is the line of responsibility goes like this

LAW > GOVERNMENT > (AS A DEMOCRACY) - YOU AND ME!

There are reasons that the tax rules are the way they are, and it's partly because the tax laws had good intentions. The idea was to stop double taxation, but then those clever accounts found legal ways of making that "no or low taxation" and the authorities did nothing about it, because basically every country has large companies taking advantage of it, and they are competing against other large companies in other countries, who are also taking advantage of it. If we changed our laws unilaterally then all we would achieve is ultimately putting companies like Vodafone and Rolls Royce out of business.

The laws need to be changed globally and I think thats what you are going to finally see happen in the next few years.

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Re: Why do people get upset at Apple for this?

Looks to me like it's Ireland that is playing a game with the rest of the EU, not Apple.

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DJO
Bronze badge

Re: Why do people get upset at Apple for this?

pay exactly the taxes the laws say they should. If you don't like how the tax laws are set up, you shouldn't have voted in the clowns that set them up.

1) I did not vote for this bunch of idiots we currently have in power.

2) The confusion here is the difference between the spirit of the law and the letter of the law, they may well follow the law to the letter (although some of the cross-border sales stuff might not be as legal as they might like) however they ignore the spirit of the law entirely.

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Meh

Re: Why do people get upset at Apple for this?

There is no legal requirement on any company to minimise costs, their only obligation is to run the company honestly according to the appropriate laws; profit and other performance issues are between the directors and the shareholders (owners) - if the latter aren't happy they can replace the directors as and when they choose.

In Apple's case it appears that shareholders have missed out on a lot of income over the years due to the way the company has organised its finances; presumably they haven't complained because they've done nicely out of the rise in the share price.

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Mushroom

Re: Why do people get upset at Apple for this?

"NOBODY pays more tax than they have to."

Not true. Mitt Romney did exactly this for the US presidential election :D

In all seriousness though, anyone who does not declare every last deduction (or take advantage of every last tax haven) is technically paying "more than they have to" - and this does happen, all the time. Kinda tired of hearing that argument thrown about when it's backed by nothing.

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Anonymous Coward

Re: Why do people get upset at Apple for this?

I wonder if Apple's bank account number in Ireland is 666?

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Happy

@DJO

"If all companies actually paid all the tax they should then income tax could be dropped by one or two pence in the pound which would stimulate the economy a treat."

Don't you realise that they are stimulating the economy by not paying a tax, just like paying less income tax would stimulate the economy. The whole point is that a government can never stimulate an economy. That's because they only way they can do it is to spend money, but money they have taken from taxpayers. It's a lot more efficient for the public to do the stimulating themselves by spending their money as they wish than for the government to spend it on big wasteful projects like HS2 (which will only start years after the recession has finished).

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Re: @DJO

But the public isn't getting this money either, are they?

(rhetorical question. of course the the peons aren't)

Wait, was that sarcasm?

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Re: Why do people get upset at Apple for this?

Hey GBE, who do I bribe to get the Apple treatment?

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FAIL

Re: @DJO

Hey, that's a great plan Axe.

A question though: who is going to build the roads? Who is going to build the schools to educate people so they can work for Apple? Who is going to invest in these big wasteful projects?

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Anonymous Coward

@arrbee (Re: Why do people get upset at Apple for this?)

"Commercial expectations of directors

- As directors, you are generally expected, in the ultimate test, to drive

the bottom line and provide appropriate shareholder returns."

from Directors’ Responsibilities: The reality vs the myths.

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Re: Why do people get upset at Apple for this?

'you should bitch at congress, parliament, the IRS, or whoever makes the rules...'

and why exactly do you think this is all happening (at last)?

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Doh! you went and fucked it up!

" because the tax laws had good intentions."

How extraordinarily naive! the tax code is the way it is because big corp paid the gov for it to be that way. The only conceivable reason for anyone to create such a complex system is so 'clever accountants' can game it.

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like HS2 (which will only start years after the recession has finished).

so all the apple execs can get from london to brum quicker, which it the part you clearly fail to get - not all benefits show up easily on a speadsheet

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Anonymous Coward

Re: Why do people get upset at Apple for this?

"No, by creative application of corporate residency they pay exactly the taxes the laws say they should. "

No they don't.

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“but money they have taken from taxpayers”

The Axe, this is patently incorrect. Any government with monetary sovereignty need not exclusively spend money collected from taxpayers. Why, a few months ago, I’d even posted a proposal where a government could stimulate an economy on a long-term basis without using any such money, and even without increasing its debt. (And despite the tongue-in-cheek topic there, the same procedure could be used to solve more immediate infrastructure problems.)

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Anonymous Coward

Re: Why do people get upset at Apple for this?

"DJO, you're wrong - they do pay what is due."

Prove it. My feeling is that even if you want to pay what is due (and they don't) when you're a large multi national it's probably impossible to work out what that amount actually is.

"They break no laws and they have a legal obligation to their shareholders to minimise their costs (within the law)."

No they don't. They have a legal obligation to act in the interests of the shareholders, and those interests are the subject of voting. It is completely rational for "the interests of the shareholders" to include "not being seen to be dodging tax in a recession and thereby alienating customers". There is no legal obligation at all to minimise costs if the shareholders think that doing so would cause long-term harm to their investments.

"NOBODY pays more tax than they have to."

Many many people do, in fact. I know I do. What you mean is that most people can't afford the time it takes to find all the ways of avoiding tax - legal or not - which they can get away with. Apple can.

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Happy

Re: Why do people get upset at Apple for this? @ Tom38

"If you don't like how the tax laws are set up, you shouldn't have voted in the clowns that set them up." Unfortunately, there are very few countries in the world, if any at all, where non-clowns stand for election!

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@Greg 16 Re: every country has large companies taking advantage of it

I'm quite sure that if any country in the chain truly felt they were being taken advantage of, they would change their tax laws. The fact of the matter remains that Ireland (who seems to be the linchpin in the current arrangements) felt they would gain by changing the tax law to force Apple to pay more than they currently do, they would. By whatever calculus they are using, the Irish deem their law fit for purpose.

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