The House Ways and Means Committee of the US
Congress, which is responsible for tax issues, held a hearing on Thursday on
corporate tax reform and a prominent tax expert said on Apple that the question
is not where the "minds and management" of the Irish "shell companies" might be,
but whether they have any minds at all?
|Edward Kleinbard, a professor of law at the University of Southern California's Gould School of Law. |
Dave Camp, the Republican chairman, said: "Whether a country has a
hybrid system similar to the current US worldwide system or a dividend
exemption system like that of our major trading partners, it is important to
develop strong base erosion rules that protect against aggressive transfer
pricing, anti-migration of intangible property overseas and foreign earnings
And let me just say that it is important to remember that the most effective
anti-base erosion rule is a lower corporate tax rate. But unfortunately,
while a lower rate is necessary, the rate alone is not sufficient."
Pascal Saint-Amans, director,
Centre for Tax Policy and Administration, Organisation for Economic Co-operation
and Development (OECD), who is currently responsible for preparing proposals
on corporate tax avoidance for a July meeting of the G-20 leading developed and
emerging economies, told the hearing that a "key element is to better align
taxation and the substance of taxpayers’ value
He also highlighted the importance of transparency: "This includes the
provision of better information by taxpayers
to tax administrations and more effective cooperation among tax administrations.
example, many countries, including the United States, have rules that require
certain types of aggressive transactions, and work is expected to develop
regarding the design of such rules."
One proposal before the Committee is for income from intangible assets such
as patents and trademarks earned by US companies overseas, would be subject to
an immediate 15% tax rate compared with the standard 35% rate, which can be
deferred by keeping profits abroad.
Companies would also get an immediate
deduction for taxes paid.
"Companies would feel less pressure to shift income to low-tax jurisdictions
because that income would be taxed at the same rate - whether it is earned in
the United States or Bermuda," Camp also said on Thursday.
Edward Kleinbard, a professor of law at the University of Southern California's
Gould School of Law and former chief of staff of the US Congress’s nonpartisan
Joint Committee on Taxation, however said it would be extremely difficult to
estimate the profits from intangible assets.
He referred to the Senate’s Permanent Subcommittee on Investigations (PSI) May
case study of Apple’s stateless income generation strategies.
He proposed a 25% tax on worldwide income and mandating that companies reveal where their income is earned and the
tax rates they paid around the world.
That would help solve the problem of 'stateless' income, which came up at the
PSI hearing last month on Apple Inc.'s tax planning.
"What struck me as most remarkable about the PSI report and the hearing itself
was the baldness of Apple’s tax planning. It did not involve 'Double Irish Dutch
Sandwich' structures, exotic forms of Lichtenstein trusts or reliance on obscure
treaties. Instead, the entirety of the business arrangements that explain why
virtually no tax anywhere in the world on $38bn of income in the period
alone from research and development work conducted in California boils down to
1980 Apple created a shell company subsidiary in Ireland, capitalized it, and
a special kind of contract with this shell company (a 'cost sharing agreement'),
the shell company returned to Apple some of the capital seeded to it by Apple,
first purportedly acquiring ownership in all of Apple’s intangible assets
Americas. This description is a bit simplified, but in essence, that is the
entirety of the
I refer to Apple’s Irish subsidiaries that purportedly own and exploit some
world’s most valuable assets as 'shell companies' because they are. Until 2012,
Irish subsidiary (Apple Sales International) had no employees and no independent
to act according to its own perceived interests. What little activity the shell
performed ('negotiating' a cost sharing agreement with the parent company, where
shell companies act through the mouthpiece of senior Apple Inc. employees who
‘dual hatted’ to the Irish companies as well, and 'negotiating' contracts with
manufacturers of Apple products, like Foxconn, when the record showed that those
contracts again were in fact negotiated by Apple Inc. employees, and just mirror
the contracts used by Apple Inc.) were not in any way performed by actors
independent of Apple Inc. Nor have the subsidiaries done anything with their
crown jewel intangible assets that is separate from what Apple Inc. does. These
truly are shell companies.
Written testimony of witnesses
articles on corporate taxes
out our subscription service, Finfacts
at a low annual charge of €25.