Corporate Tax Reform on the Horizon?

Corporate Tax Reform on the Horizon?

Through its various offshore structures, transactions and other arrangements, the technology giant, Apple, has been accused of dodging billions in taxes. In a 40-page memorandum released last month, the Senate Permanent Subcommittee on Investigations identified three subsidiaries that have no tax residency in Ireland where they are incorporated, or in the United States where the executives manage those companies.

Apple said in a comment posted shortly after the release of the memorandum that it does not use “tax gimmicks” and that they “comply with the laws.” Other U.S. technology giants including Hewlett-Packard Co and Microsoft Corp. have also been accused of similar tax avoidance strategies.

The following are just several (legal) ways Apple (and other companies) lessen their tax burden:

  • Transfer pricing – multinational corporations often value goods and services moving across international borders and manage them in order to reduce global tax costs.
  • Cost-sharing agreements – allows corporations to co-develop and share the risk of developing new products with foreign subsidiaries.
  • “Check-the-box” and “look through” – allows certain entities to be treated as disregarded for U.S. tax purposes.

After the showdown on Capitol Hill, Apple CEO and the Senate panel found common ground: the need for, if not the approach to, reforming tax law for corporations.

President Barack Obama “thinks it is inexplicable that our tax code would actually be written in a way that rewards companies for taking jobs and profits offshore.” Senator John McCain praised Apple as a success story, but he said the company’s tax strategy reflected a “flawed” tax system.

Apple Chief Executive Officer, Tim Cook, agreed with those in Congress who want corporate tax reform and called for changes that include lower corporate income tax rates and a reasonable tax on foreign earnings.

Currently, Apple holds over $102 billion overseas.

NEED MORE INFORMATION?

If you have any questions about this World Business & Tax Update, please contact your WithumSmith+Brown professional, a member of WS+B’s International Services Group or email us at [email protected].

Kimberlee Phelan, CPA, MBA
Practice Leader, International Services Group
609.520.1188
[email protected]

To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Learn More About our International Services>>