(Actually my money is they lied to both the US and Australian governments)
Australian parliamentarians, already hostile to international IT vendors over their pricing practices and use of transfer arrangements to offshore their tax obligations, are now at the point of grabbing torches and pitchforks and heading in the direction of Cupertino. At issue is what looks like a contradiction between the …
(Actually my money is they lied to both the US and Australian governments)
Give them a break. They can't just tell the same story everywhere.
- Local responsible : "no, I don't set prices, the mothership set it."
- Global responsible : "No, I don't set prices, it's locally set."
Actually, it looks like the usual "Pass the blame" corporate game...
'Actually, it looks like the usual "Pass the blame" corporate game...'
Actually it /looks/ like a massive fraud is being committed against everybody basically everywhere. Though it's not just Apple.
Not for nothing but if people bothered to pay the taxes they're supposed to pay tax rates could come down or we could live in a better world depending on your political point of view.
Oh come on, is anyone really surprised to hear this? A company that I worked for back in the 90's did exactly the same thing - they told the IRS one story and HM Revenue and Customs a different story and just pocketed the profits at both ends.
Get real - there are no penalties for this sort of thing if you are big enough, "you're either a cop or little people"
Why does it matter how any company prices their products? If they are priced too high then people won't buy them. Apple is a great example: Nobody can convincingly argue they had to have anything made by Apple. They just really wanted it and they were willing to stump up the cash to get it.
All the talk of free markets is just a bunch of self serving garbage. People want the government to control pricing on everything except their product. People want their intellectual property protected but not that of companies with too large a market share. Dealing with any government is like dealing with the Devil. Once you start working with them they creep in until everything is pear shaped for everyone involved.
It's not the pricing - it's what Apple singapore (or Apple Ireland) does.
They claimed to the US that Apple Singapore is a real company that markets and sells apple computers, buys Apple products at wholesale from the US, runs it's own operations and makes it's own profits and so all the profits made by Apple Singapore don't go back to the US and don't get taxed.
If in fact Apple Singapore is simply a brass plaque on a wall somewhere and Apple US make all the decisions and sales it' s a little harder to claim that all the profit should be taxed in Singapore or Ireland
Ah. Thanks for the info. I really didn't get that from the article.
Good clear break out there. It is that level of understanding that is going to cause problems for the 'double Irish Dutch Sandwich' or whatever it is as the more the decision making process is exposed to sunlight the harder it is to double-talk the profits away from the jurisdiction investigating you.
Yes. I've long believed that marketing, PR, brand equity etc. all act against the free market because they leverage the irrational responses of the market participants. (A truly free market must rest on the pillar of rational consumption, which would require a ban on all advertising, and no business is going to like that).
It should not be important if the Singapore operation is legitimate or not. The bigger question is whether companies should be allow to use transfer prices as a means of calculation profits for taxation purposes.
A transfer price is an internal transaction. it is not real and usually have no bearing on cost. In a true economic sense it also has no bearing on profits. Given modern information technology it would not be difficult for local authorities to calculate what the true cost of an item is by examining the companies books and calculate true profits the true profits in each jurisdiction. Of course the laws would have to outlaw transfer pricing, at least as they relate to profit calculations.
Both great for profit margins.
Yeah it's inconsistent, but I can't for the life of me see what difference it makes. The issue at stake is whether the price is (a) unfair to Australian consumers or (b) involves a wholesale transfer pricing that is unfair to the Australian tax office. Whether the price is set in Australia, Cupertino, Ireland or Timbuktoo hardly matters.
It doesnt really matter how important a detail it is, but whether through incompetence or malice, they have given two governmental legal inquiries contradictory answers.
Worse, in both cases they gave an answer likely to be accepted by the questioner as reducing their liability, which implies the truth is probably neither of them.
Lying to gain a financial or material advantage is pretty much the definition of fraud in every jurisdiction.
Don't you have enough choices to tell Apple to shove off? Sheese!
No we don't, because Apple have sued all the other choices off the shelves.
Actually they could both be right.
The dark heart of Apple (Cupertino) says the price for the next iphone should be at least $599 (in order to maintain their extortionate profit margin). Apple Singapore then gets a small amount of leeway to say if it's $599, $600 or $620, depending on how much they think they can get away with, or where they think the currency markets are going.
Thus Tim Timothy gets to claim both, and keep his company jet whilst the good times roll.
Plausible deniability 101
This isn't (really) about high street price, it's transfer price.
The Aus subsidiary doesn't make widgets, it buys them from another company in the group for an inter-company "transfer price", and then sells the widgets at a street price.
The profits are then worked out by "street minus transfer". By adjusting both transfer price and street price, a multinational company can move the bulk of the taxable profit into the country of their choice while still having huge margins.
If the transfer price is unreasonably high, the taxable profit will be unreasonably low and taxes have probably been evaded. If they are reasonable, then taxes are merely avoided.
This is what Starbucks did in the UK with the beans - they had to buy them from a foreign Starbucks subsidiary at a surprisingly high price. (They weren't actually convicted of anything though)
Good, clear summary Richard.
What I find interesting / curious / worrying * is the various Governments' apparent addiction to rhetoric rather than action in the current climate.
Nearly 20 years ago I worked with some high-end management consultants whose previous assignment had been to be paid a medium sized fortune by a global car manufacturer to provide a large, detailed, fact-and-data-heavy report to a government's Revenue department who suspected them of playing tricks with transfer pricing. The Revenue very much held the whip hand, the company was extremely worried and the onus was very much on it to prove that it wasn't playing games with its internal pricing because if it failed then the government would come down on it like a ton of bricks.
It would be nice to see the same today, rather than the vast amount of hot air and appeal to morality that seems to be the current favoured approach.
* Delete according to preference
Whatever entity is chosen to set the transfer price probably has a fair bit of leeway. Make no mistake about it what we would call the real cost of the widgets is nothing compared to the final price of the equipment. The whole purpose of the price setting operation is to maximize profit from whatever region they are transferring the widgets to. If the US, you can probably command $400-$500 street. For reasons I don't fully understand, they seem to be able to also make it the same numeral for Euros or Pounds. These days its probably the same for Canadian dollars although at one time it would be 10-15% more. Sell it for Pesos in Mexico and it will have a whole different price, maybe 50% of what it would be in exchange rate US dollars. Africa maybe 20-30%. Because of all those varying rates, the transfer rate for each operation will also be different. So your concept of a transfer price is entirely theoretical.
At least with physical widgets, there is some real world floor for the price even if it is minimal. I've bought software for a US based 501(c)3 organization. Most people wouldn't believe the discount rates. And I'm sure they still had a margin on it.
xpusostomos, it makes a difference if you can suggest that as a result of the inconsistencies you have been dealing with a liar whose tax affairs can then be considered to be less than truthful. Especially in the present febrile climate that does open the door to taking further action. Tax authorities have a record of either sleeping on the job unless prodded, in the view of some commentators, or always getting their person. See the case of the IRS and Al Capone.
Now it is big 'if'' time, IF Apple or anyone else has been pulling fast ones then most tax authorities can charge both back tax and additional costs and get a nice little earner for their exchequer.
It is not a good time to go to meeting in effect saying, "here is my head would you like it curried, roasted or boiled?"
The reason the IRS got Al Capone, is that with the IRS unlike the courts, you usually have to prove your innocence.
That's not as true for multi-nationals. Because the the subcorps are legal entities existing in other jurisdictions, until such time as they transfer something form one place to another there is no record which is required to be reported to the IRS. So there is some sense in which the IRS has to prove that there should have been a transfer which should have generated the paperwork. So for them the IRS looks a bit more like the court system than it does to your average citizen.
I'd simply tell apple that unless they give me a lower price than the US, they can stuff their sale and we'll give the cash to some other company that will comply.
These companies NEED these deals, not the other way around. Mind you, when you work for the gov it's not your money and is essentially a bottomless pit, so whatever.
for the last year the AUD was > USD. did the price drop below $1k? Did it hell.
Not 'should be' -IS INFURIATING
there are Aussies who are stupid enough to buy Apple products.
And when it comes to the Aussie federal government, all they need to do is to ensure that Apple products are not approved for purchase for any federal government department or any project financed by them.
Paris, because surely even she knows better than to buy an Apple product.
<- No fixed abode, like where they pay their taxes to.
I don't see the contradiction.
Apple Operations International and Apple Sales International are Irish companies but their managers (mostly) reside in Cupertino. So saying that the decision is made in Cupertino doesn't mean that it's not made by the international companies.
That's the beauty of this whole scheme. The tax authorities shot themselves in the foot.
It's very simple:
What happens when you turn the truth upside down? It becomes a lie!
What happens when you turn a lie upside down? It becomes the truth!
Ergo: What is a lie in the US is the truth in AU, and what is a lie in AU is a truth in the US.
Next up: how sheeps' bladders can be used to foretell earthquakes....
In an economic sense TRANSFER PRICES are not real. They should not be allowed to be used in Profit calculations in a local Jurisdiction for tax purposes. For a company the size of APPLE and others like Microsoft and GOOGLE it should not be difficult for tax collectors to calculate the real cost of each unit and hence be able to calculate the true cost and revenue associated with operations in each jurisdiction for the taxation purpose.
The joke is that the law makers keep wining about the low taxes paid by many companies without enacting the proper laws to address company use of transfer prices to under report profits.
Its not that the tax laws are a joke (though they may well be), it's that our elected representatives are a joke, but we are failing to hold them to account.
Indeed, governments worldwide have been really slow to react to how big global corporations are running rings round their tax departments. Not good at all.
However, one thing that politicians are good at is getting angry. The more votes there are in getting angry the angrier they will get. And the angrier they get the more reactionary and swingeing their acts will become. And they'll quite happily stoke up the public mood even further so that they can step up their own anger-act.
At the moment there seems to be a global wave of consumer annoyance at large firms paying no real tax. Politicians are pretty sensitive to this sort of public mood, and sooner or later they're going to start getting really angry on our behalf and start passing penal tax laws. Then all it takes is for a few of the world's monetary politicians to have a quiet chat about coordinated action at the next G8/22/xx and a bit of dutch courage, and then the money could find itself with no place left to hide.
The big corporations are in a bit of a bind. They're more or less obliged by their shareholders to pay as little tax as is deviously possible. However, by tweaking the political tiger's tail like this (especially at the moment) they're risking provoking a global political backlash which could turn out to be veeeeery expensive indeed.
However, if they were to stop what they're doing that would only highlight the fact that they've been taking the piss all this time. But it's probably better to stop doing it before the politicians finally get their arses in gear. Hell, it might even improve sales, so long as it doesn't look too cynical.
Thing is if there is a global tax grab against these major corporations that are hoarding cash out of site one has to stop and consider who loses out. Answer? The shareholders. And they, lest we forget, are quite often our pension plans...
The thing is that cash locked up abroad is of no actual use to the shareholders at all who, in the absence of a decent dividend, have to make do with rising share prices whilst hoping the bubble doesn't burst. And if the money was repatriated, and tax paid, that lessens the tax burden on the individual right now.
Of course, all the above could be just naïve claptrap, but that doesn't mean to say that the general public won't be thinking along similar lines. People looking at their small and decreasing pay packets will sooner or later start wondering why they're pouring money into foreign firms that don't otherwise contribute to their country.
I think the Australian government should put a duty on all such imported goods and software, equal to twice the difference between the Australian wholesale price and the American one. If they, for example want to jack up the Australian price by $100, an added duty of $200 would seriously hurt their sales - and perhaps enable the government to subsidise or train local software developers.
That's great mate, but what happens to your corrupt little banana republic when your trading partners slap retaliatory tariffs on Australian goods?