Question

2. What if the U.S. tax structure moved away from taxing income to taxing the value a company added? Do you think Apple would prefer:

(a) tax on income (at 2018 rate)

(b) a Value Add Tax (VAT) (enacted in other countries and being considered for the U.S.)

and/or (c) goods and services taxes (GST)?

Answer 1

The U.S. tax system is set up on both a federal and state level. There are several types of taxes: income, sales, capital gains, etc. Federal and state taxes are completely separate and each has its own authority to charge taxes. The federal government doesnt have the right to interfere with state taxation. Each state has its own tax system that is separate from the other states. Within the state there may be several jurisdictions that also charge taxes. For example, counties or towns may charge their own school taxes that are in addition to state taxes. The U.S. tax system is quite complex.

Income Tax

Income tax is probably one of the most well known forms of taxation. If any of you earn income in the U.S. you will see the deductions on your paycheck. Every person who earns income in the U.S. is supposed to pay income tax on both the federal and state level. Federal taxes include social security and FICA. Each state also has its own form of income tax that employers also withhold from your paycheck. If you earn over a certain amount, $6,750, you must file both federal and state taxes before April 15th of each year.

Sales Tax

Another form of tax that you will become very familiar with is sales tax. This is the tax that is charged on your purchases, such as if you buy a pack of gum. Sales tax is a state tax and varies from state to state as well as within the state. For example, NY State Sales Tax is 7% and NJ is 3%, but Albany has 8% sales tax while Syracuse has only 7%. Within the state, municipalities have the right to raise the sales tax above the state limit. There are also other rules surrounding sales tax, such as which items are taxed and which are not. For example, in NY gum is taxed, but milk is not. In NJ food is taxed, but clothes are not. As you can see the tax system in this country is quite complex.

In addition to the many types of taxes, there are also discrepancies between individuals and businesses.

We discussed briefly last week how the different business entities were taxed. Hopefully, we can now discuss that in a little more detail. As stated above, individuals must file their income tax before April 15th. If the person has a sole proprietorship, those earnings will be included on their personal income tax form. If a person is part of a partnership, their earnings from the partnership will be included on their personal income tax form. There are no taxes on the partnership as a whole, but on the earnings passed down to the partners. Partnerships are required to file a tax return, but it is only an informational return.

Corporations are a separate legal entity and are subject to corporate tax on taxable income. Corporate tax rates are different than personal tax rates. Corporate earnings are subject to double taxation. What this means is that corporations� pay taxes on their earnings and then with after tax income they pay stockholders dividends, which are subject to capital gains tax. The dividends must be reported on the stockholder�s personal tax form and are taxed at capital gains tax rates. This is what is commonly called double taxation. I�m sure you will hear about this concept again.

Countries around the world usually implement one of three types of tax systems: residential taxation, citizenship-based taxation, or territorial taxation.

The general rule of thumb with the residential system is 183 days; in other words, if you spend more than the allotted 183 days in Country XYZ, your worldwide income will be taxed. In other cases, just being a resident in a certain country is enough to become subject to the country’s tax on your worldwide income.

Citizenship-based taxation is the most draconian form of all and is only used by the African country of Eritrea and the United States. Citizens of these two countries will never escape the demands of their nation’s tax man, although those living outside the country have the opportunity to exclude some of their foreign income from the country’s strict taxation.

Fortunately, there are countries that administer a territorial tax system — one in which countries only tax the income that was earned in their geographical limits (i.e., income you have earned in Singapore is only subject to tax IN Singapore.)

It is incredibly important to be aware of the difference in these systems and keep tabs on which country uses which system. Once you know how each country operates, you can keep the citizenship of your country of origin, live in another country, and earn money in another one without having to pay taxes in any of them.

Apple believes every company has a responsibility to pay its taxes, and as the largest taxpayer in the world, Apple pays every dollar it owes in every country around the world. We’re proud of the economic contributions we make to the countries and communities where we do business.

We’re presenting the facts on this page in response to reporting by the International Consortium of Investigative Journalists. Among the inaccuracies in these reports:

• The changes Apple made to its corporate structure in 2015 were specially designed to preserve its tax payments to the United States, not to reduce its taxes anywhere else. No operations or investments were moved from Ireland.

• Far from being “untouched by the United States,” Apple pays billions of dollars in taxes to the US at the statutory 35 percent rate on investment income from its overseas cash.

• Apple’s effective tax rate on foreign earnings is 21 percent — a figure easily calculated from public filings. This rate has been consistent for many years.
• We understand that some would like to change the tax system so multinationals’ taxes are spread differently across the countries where they operate, and we know that reasonable people can have different views about how this should work in the future. At Apple we follow the laws, and if the system changes we will comply. We strongly support efforts from the global community toward comprehensive international tax reform and a far simpler system

Apple Go with the option of A

Thank You