Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains. California’s corporate tax rate is 8.84 percent. Nevada’s? Zero. Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world. Almost every major corporation tries to minimize its taxes, of course. For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $45.6 billion in its current fiscal year — which would be a record for any American business. Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan.”
Why indirect taxes pose a growing risk to global companies
Managing global indirect taxes is rising up the agenda of the tax function, which is no surprise given the scale of the numbers involved and the fact that it is an above-the-line tax. We look at leading practices in managing the burden of global indirect taxes and why companies should assess and manage the growing risk of indirect tax controversy. Economists and other public finance experts may differ in their definition of “indirect taxes.” However, here we refer to them as any taxes not directly imposed on the income of a person or organization. Globally, then, indirect taxes may include value-added taxes (VAT), goods and services taxes (GST), sales and use taxes, withholding taxes on cross-border purchases from suppliers, withholding taxes on business travelers, and customs and excise duties. Economists often praise indirect taxes as less damaging to the economy than direct taxes on income, while public officials frequently praise them for producing a more reliable revenue stream (1). In the last two decades, governments have become increasingly dependent on the revenue generated by indirect taxes, especially the VAT, or its twin the GST. In the 34 economically advanced countries that belong to the Organization of Economic Cooperation and Development (OECD), consumption taxes now provide 30% of total tax revenue from individuals and businesses, and indirect taxes now account for 75% of total taxes remitted by businesses. The European Union is so reliant on the VAT that every Member State must maintain a standard rate of at least 15%. Many nations have exceeded this requirement, and in just the first few months of 2011, seven of the 27 EU Member States enacted higher VAT rates, bringing the average rate over 19% (2). The rising importance of global indirect taxes stands in stark contrast to the historic pattern of “benign neglect” of indirect tax management among most global corporations. Most global companies’ central finance, tax and legal departments had, until recently accepted the idea that they did not have (or need) full global visibility and control over the wide range of indirect taxes, particularly in jurisdictions outside their home country or in emerging markets. From a corporate perspective, indirect taxes have traditionally been administered in a decentralized fashion, often country-by-country and by a wide range of corporate departments, ranging from finance to accounting to logistics. This is in stark contrast to the centralized approach that corporations typically take when administering corporate income taxes. Managing the multiple burdens of indirect taxes
However, the corporate approach to managing indirect taxes is changing now, thanks to pressure from multiple sources. As...
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