Tim Worstall explains why both Apple and the Senate Permanent Subcommittee on Investigations can both be correct on the question of profit shifting — because the term’s meaning isn’t consistent:
Apple divides itself, roughly speaking, into two segments. The Americas and everywhere else (not that unusual for a US company, actually). Apple’s point is that it makes profits in the US selling things to people in the US. All profits from doing this pay the full US corporate income tax minus the usual deductions and allowances that every company can take advantage of.
Apple also points out that it makes the majority of its profits selling things outside the US to people who are not Americans. The iPhones are made in China and sold in Europe, just as one example. These profits are made outside the US: and Apple does not bring them into the US. Thus such profits are not liable to US corporate taxation (it is more complex than this but that’s the gist of it).
However, the Senate doesn’t use that commonsense definition of the phrase:
The Subcommittee is agreeing that these are profits made in foreign countries. Profits made by buying something in China and selling it outside the US. These profits are then not repatriated to the US. This is then deemed to be profit shifting.
It’s worth noting what everyone does agree upon.
Apple makes large profits in the US. These pay full US corporate income tax.
Apple makes large profits outside the US. These are kept outside the US and do not pay US corporate income tax.
And so the question becomes, what is the definition of profit shifting? If we take Apple’s definition, that they do not move profits out of the US, then they’re not profit shifting. If we take the Subcommittee meaning then they are. For without the corporate structures that Apple has put in place then those foreign profits would be subject to the US corporate income tax (minus, of course, the foreign taxes already paid).
The company that built the iDevices you love so much MUST BE PUNISHED because that’s what government is all about, my children.
— etherbrian (@etherbrian) May 21, 2013
Update, the second: The Register‘s report on the Irish side of the “profit shifting” story:
Irish deputy PM: You want more tax from Apple? Your problem, not ours
Póg mo thóin, you crazy Yanks