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  January 22, 2018

Apple: The Biggest Tax Cheaters in History Repatriate Profits Under Trump's Tax Bill

What Apple did was outright illegal according to the European Union, but instead of taking legal action against Apple for tax evasion, the Trump tax bill will reward them says white-collar criminologist Bill Black
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William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. Black was a central figure in exposing Congressional corruption during the Savings and Loan Crisis.


SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore. Apple - the maker of iPhones, iMacs, iPads - they announced on Wednesday that it is launching a $350 billion five-year investment plan. Great news, right? It also said it will pay $38 billion in taxes that it has managed to evade for profits made abroad. President Trump immediately welcomed the announcement, tweeting, "I promised that my policies would allow companies like Apple to bring massive amounts of money back to the United States. Great to see Apple follow through as a result of tax cuts," he wrote.

Is the Apple announcement a result of Trump's tax cuts? Well, according to estimates, Apple is holding more than $252 billion, or over one quarter of trillion dollars, in profits overseas. Apple is now taking advantage of the Trump's tax bill which lowered the repatriation rate from 35 percent to 15 percent. While a $350 billion investment in the U.S. sounds good, how much is the U.S. Treasury losing from this deal? Joining me now to analyze all of this is Bill Black. He's a white-collar criminologist, associate professor of economics and law at the University of Missouri Kansas City. He's the author of The Best Way to Rob a Bank is to Own One. Good to have you, Bill.

BILL BLACK: Thank you.

SHARMINI PERIES: Bill, now according to the group Americans for Tax Fairness, Apple would have paid $78 billion in taxes under the old repatriation tax of 35 percent. Now it will be paying $38 billion, or $40 billion less than it would have had they declared their money and not evaded paying tax in the first place. And it also mentioned that it will invest $350 billion over the next five years. However, according to many analysts, Apple was planning to do these investments anyway in spite of the tax changes, the new tax bill. What is your reaction to all of this?

BILL BLACK: Okay. So let's start with the basics. What's going on is that American companies have kept overseas over a trillion dollars to avoid U.S. taxes that they owe. So Apple is the worst of these, the biggest single one. First thing you need to know is that that money doesn't really stay abroad. So you put it in a tax haven like the Cayman Islands, you being Apple, but the Cayman Islands doesn't keep $254 billion and invest it in the Cayman Islands because you can't do that. So their money actually is all over the world, and in particular, in the United States.

So the first thing about how supposedly we're going to have this massive growth because there's going to be money in the United States, that's completely false in terms of economics. Second thing, and that was the focus of your question, is we're really rewarding the cheaters. We're saying, "You didn't do what more honest companies did and actually pay taxes. You evaded those taxes." In the case of Apple, in ways that were outright illegal according to the European Union, mind you. And because you cheated, rather than charge you a bit over twice as much, we're going to cut your bill. We're going to let you have a competitive advantage over the firms, your rivals, that weren't cheating. We're going to let you pay a much lower tax rate; as you said, 15.5 percent, which is even lower than the new 21 percent corporate tax rate. So that's the second thing that's going on.

Third thing that's going on is in fact easy, as you said. Apple's not going to invest anything more, and it's not going to invest anything more in the United States as a result of the tax bill, which is certainly not a reform; it's a giveaway to the wealthiest Americans. Apple was going to invest in those data plants in the United States anyway because it turns out those kind of data plants with weak U.S. wages are actually more competitive than putting them these days in India with all the attendant risk that they have, including fraud risk, in those circumstances. So that's a business decision they were going to make anyway. So bottom line, no economic gain, huge giveaway, and creation of really perverse incentives where the worst actors like Apple are the biggest beneficiaries.

SHARMINI PERIES: Right. Now when Apple's CEO was asked about this, whether this investment was going to be made anyway in spite of the tax repatriation that's going on, he was a bit vague. And on top of that, he also said that ... He framed this whole presentation as a giveback in terms of Apple. Your thoughts on that.

BILL BLACK: Yeah. They gave back in the sense of, we subsidized them through this special lower tax rate that they got for being the biggest tax cheats in America. That was a real giveback to us. You could tell from the timing, these types of investments that they're announcing, those have had to have been in the works for years; that simply the planning for them takes that time. So no, they had nothing to do with the tax cuts.

SHARMINI PERIES: In fact, they should be framed as not giving back, but actually tax evaders. Give us a sense of their history here, Bill, in terms of how they've managed to avoid and master the art of tax evasion.

BILL BLACK: So Apple has been probably the single most aggressive, really large company. It's done a lot of it through Ireland, and there are a bunch of scams you play. So Ireland created this race to the bottom of a much lower corporate tax rate. Now the U.S. is responding and Ireland will quite possibly lower it further. And you can see that this dynamic leads to virtually no taxation worldwide on corporations, which is their greatest Christmas present ever and what's really going on.

So how did they do it? So part of it was just going to Ireland that had a dramatically lower corporate tax rate. The second part is called "transfer pricing." And what you do is claim by how you charge yourself. So you've got all these subsidiaries, these affiliates that are sister companies; well, I could just charge ... When I sell from one affiliate to another, a whole lot more or a whole lot less than is the real market situation. So what do I do? I sell to my Irish subsidiaries in ways that make it look like the huge proportion of the profits was earned in Ireland even though I've got a really small staff of people in Ireland that do very little. Okay, that's a common scam not unique to Apple. But again, Apple is the biggest perpetrator of this scam.

But that wasn't enough. Those first two scams weren't enough for Apple. So their third scam was going to the Irish government secretly and saying, "Hey, let's make a extra-special deal. I know your statute says we're supposed to pay this amount of tax, but why don't you give us a really much, much, much lower tax, secretly?" And Ireland did that. That's what I was alluding to when I said that the European Union has actually ruled that this was unlawful. This is done not just in Ireland, but by a host of bad U.S. companies, in Luxembourg as well, where you go in, you make secret deals with a government. These are relatively smaller nations so they don't care. They could have a one percent tax rate of a huge amount and they're living great. Luxembourg has no people. The Republic of Ireland has about five million.

And then that still wasn't enough, so they also did what's called the "double Irish," where you first really, dramatically reduce the already dramatically reduced Irish tax rate, and then you do it in conjunction with sales back and forth with the Cayman Islands which has zero tax rate on a lot of this stuff, and you get effective tax rates sometimes that are one percent. Which is to say, again, we are rewarding the absolute worst actors who have been keeping the money that could have funded all kinds of schools and such and healthcare, and we are rewarding them for being cheats and scoundrels.

SHARMINI PERIES: So Bill, is this kind of tax evasion on the part of Apple just a pebble in the ocean, or is it a massive problem we're experiencing with other corporations as well as, obviously, Apple?

BILL BLACK: It's the biggest single stone. It is $250 billion we're talking about.

SHARMINI PERIES: But aggregately, where I was going with this is, Bill, aggregately in terms of corporate tax evasion of this kind, how much are we losing in terms of the public treasury?

BILL BLACK: In terms of the treasury, of course what we're losing has now been dramatically reduced because they've cut corporate tax rates so much. But under the prior rates, we were losing in the hundreds of billions of dollars in tax revenue every year. And it was getting worse because, if I'm not playing the scam, I'm at a huge competitive disadvantage to my competitor that is playing this scam. So this creates -- again, we call it "Gresham's Dynamic," in which bad ethics drive good ethics out of the marketplace -- and that's why you saw all these, they're called "tax inversion deals," where companies were pretending they were no longer U.S. companies, but instead typically Irish companies and such with much lower rates. And as I said, that's just the first stage as other countries push back by lowering their corporate tax rate. Then you know what we're going to hear from Trump. "Oh, we're no longer competitive. We need to cut our corporate tax rates further."

SHARMINI PERIES: All right. So, Bill, what's the solution to all of this?

BILL BLACK: Well actually, corporate taxes are really, really hard to implement and they are subject to these kinds of cons. There are two ways you can do it. You can reach a broad agreement which the Organization of Economic Cooperation and Development, which is roughly the 30 biggest economies, had done until the Bush administration, this is Bush two, killed that deal where there was going to be international cooperation to have reasonable corporate tax rates and avoid this race to the bottom. Alternatively, you can switch to other taxes like value added and such.


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