This is my third post exploring the chronicles of Ireland, Apple, the EU and the USA. In my first post, I introduced the context by noting that the EU had ruled that Ireland has violated the EU “State Aid” rules. In my second post I noted that Secretary Jack Lew believes that by imposing taxation on the profits earned by Apple in Ireland, Ireland is eroding the U.S. tax base. Put another way: Ireland would be imposing taxation on an “American company” that happened to be making profits in Ireland. Secretary Lew apparently believes that ONLY the USA has the right to impose taxation on an American company. (Perhaps Secretary Lew should develop that theory for Americans abroad too.)
That ONLY the USA can impose taxes on Apple, is a “Homelander Fantasy” or perhaps “Fairy Tale”. Other countries clearly have the right to impose taxes on profits earned in their jurisdictions. In fact, a fundamental norm of international tax is that the country where the profits are earned has the first right of taxation.)
What happens is that if the U.S. company brings its “offshore profits” back to the United States, that U.S. company will receive a tax “credit” for the “foreign taxes” paid. This means that the higher the Ireland taxes imposed on Apple, the larger the tax credit that Apple can claim. This is (presumably) what Secretary Lew means when he says that Ireland is imposing taxation on money that the U.S. has a claim to. Again: the more Ireland imposes taxation on Apple, the higher the taxes paid to Ireland. The higher the taxes paid to Ireland the lower the taxes paid to the USA. For this reason the U.S. Government has an interest in U.S. companies NOT being subject to higher foreign taxes.
But of course the U.S. tax “kicks in” once Apple brings the money back to the USA.
All, well and good, but Apple has stated that it will NOT be bringing their “offshore profits” back to the USA “any time soon”. If this is true, the USA will be getting no taxes on Apple. (So, what is Secretary Lew’s real concern?)
Mr. Cook makes confirms that Apple’s profits will not be returning to the United States (under the current rules) here:
Apple's Tim Cook to @SenCarlLevin that "What's made outside the USA, stays outside the USA". https://t.co/5Sitv18V8T https://t.co/cQZy5lRtNy
— U.S. Citizen Abroad (@USCitizenAbroad) September 2, 2016
The “Levin Inquisition” took place in May of 2014. It is well worth watching. You will achieve a much better understanding of the taxation of corporations and the International Tax rules that surround them.