The Goals Of Cash Management

We examine the effects of transfer pricing on shareholders of multinational corporations and the United States government through a case study on Apple. Apple was able to successfully dodge billions of taxes in the U.S. through the use of aggressive transfer pricing with their Irish subsidiaries. We found that Apple was never fined by the IRS because they were exploiting a loophole in the arm’s length principle. While shareholders stand to profit from aggressive transfer pricing practices, they must be aware of the risk that aggressive transfer pricing imposes and be aware of companies’ motivations and morals for engaging in transfer pricing.

However, the companies only have to pay the U.S. tax for foreign revenues once they bring the profits back to the United States. As a result of these current tax laws, U.S. companies that seek to avoid high corporate tax rates hold their foreign earned profits overseas. “It just makes no sense to pay a substantial tax on it,” said Joseph Kennedy, a senior fellow at the Information Technology and Innovation Foundation (Rubin, R.). It is far too easy for an IT corporation to create a patent in a foreign country and direct revenue to a corporation within that country, thus avoiding the much higher U.S. tax rates. According to Joint Committee on Taxation estimates, the lost revenue is increasing over time as corporations find even more creative ways to make their U.S. profits look like offshore income (Richards, K., & Craig, J.). As result, multinational American corporations have as much as $2 trillion held in overseas subsidiaries and if brought into the United States with the current tax laws, the federal government could benefit by nearly $50 billion per year.

Throughout years large American industrial companies have been running away from U.S. taxes, but there has been a new change. Companies such as Apple and Google have been affected by a change foreign countries are going through collecting higher taxes than before. It seems as if no longer can these companies get away with paying low taxes. This is happening because the European Commission have passed an order to collect high taxes. One example is Ireland who was ordered to collect fourteen billion dollars from Apple, which brought a surprise to this company. Companies have run out of places to run and pay one percent or less of taxes in foreign places, instead of paying back home.

More than 25 years ago, there was a major overhaul of the U.S. corporate tax system. The Tax Reform Act of 1986 reduced a corporate tax rate from 46 percent to 34 (Gross & Schadewald, 2012, p. 40). The federal budget deficit forced the government to lower the corporate tax rate. The level of corporate tax rate in the USA was lower than it was in Canada, Germany, and France. The tax rate for corporations remained unchanged until 2011. In 2011, fiscal barriers led to changes of the tax reform. Today, the reform package includes the exclusion of deductions and credits, and tax rate reduction. However, the net effect of those components may boost the tax liability of domestic companies.

“The United States has the highest corporate tax rate of the 34 developed, free-market nations that make up the Organization for Economic Cooperation and Development (OECD). The marginal corporate tax rate in the United States is 35% at the federal level… according to the 2013 OECD Tax Database. The global average is much lower, at 25%” (Fontinelle, 2014). Even though there are ways for businesses to decrease or even avoid these payments, this high figure deters foreign investors from considering the United States for business and sends them looking in more favorable countries like Canada or Ireland. Adding to pushing away potential foreign investors, U.S. firms flee to those tax favorable places to avoid it. “When these companies move their headquarters or create foreign subsidiaries, jobs and profits move overseas” (Fontinelle,

Being a giant corporation has its ups and downs, and sometimes there are certain elements that have both positive and negative qualities. One of these is insulation, which protects large companies from environmental downturns and risks but also prevents their taking advantage of certain opportunities that might come along. As one of the largest and wealthiest companies in the world the largest and wealthiest company in the world, at certain times and according to some measures Apple, Inc. is most definitely insulated, and thus things like fiscal and monetary policy tend not to affect it a great deal. No company can truly avoided being affected by something like an increase in government spending of course, but Apple is a very unlikely recipient of government spending in any direct sense; increased spending by the government ought to raise consumer spending levels, but this would not have any reason to benefit Apple more than other retailers and thus while lifting Apple's boat it would lift others as well. In a relative sense, Apple, Inc. might actually be harmed by increased government spending on small businesses and independent technological innovations, through programs that Apple itself previously took advantage of (Boushey & Ettlinger, 2011).

However, the introduction of such a law becomes increasingly difficult when the companies being questioned are some of the largest and wealthiest in the world. In order to truly understand the stature of these companies, one would need to look into some of the statistics regarding them. Remarkably, according to Al Jazeera America “the largest 500 U.S. companies would owe an estimated $620 billion in U.S. taxes” if they had to declare all their overseas stockpiles, of around $2.1 trillion (“Al Jazeera America”). In addition, it found that “three-quarters of the 500 biggest companies utilize tax havens”. The top three offenders included Apple, General Electric and Microsoft. In many cases according to the report, the money is not being utilized to improve foreign economies. By this they mean to say that, U.S. businesses were not using their overseas profit to build factories and employ individuals. Instead, the overseas profit was a result of accounting tricks purposely implemented to benefit the business alone. To put all of this in perspective, the United States is losing billions of dollars to foreign economies. These taxes are being introduced into countries such as Ireland and Luxembourg. In other words the money that should be invested in the United States of America on public services, is being

7. Whether the cash flows of foreign operation directly affect the cash flows of the reporting entity.

Americans may ponder the thought of struggling economy barely gaining momentum while corporations have witnessed some of the largest quarterly profits ever recorded. The driving force behind the extreme profits gained by many corporations is simply put as tax inversion. Tax inversion is nothing more than an American firm combining with a foreign firm in a country with beneficial and lucrative tax laws (Financial Times, 2014). The American headquarters will now be moved to the new foreign firm where they will enjoy the lower taxes and evade the taxation of the United States government (Financial Times, 2014). More and more American firms have been taking advantage of inversion while still being able to enjoy sales in the American market.

The current effective US federal corporate tax rate is 35% (Usa-federal-state-company-tax.com, 2015). Luca Maestri confirms that using offshore funds would “incur significant cash tax consequences and we don't believe this would be in the best interest of our

Apple’s annual report, as submitted to the United States Securities and Exchange Commission (SEC) on Form 10-K, lists its total assets as $47,501 for fiscal year 2009 and $75,183 for fiscal year 2010. Its largest asset for the same two years was $18,201 in short-term marketable securities in 2009 and $25,391 in long-term marketable securities in 2010. Accounts payable listed as $5,601 in 2009 and $12,015 in 2010. All figures are noted in millions (Apple, Inc. Annual Report). Apple does not report taxes collected from its customers that are paid to governmental authorities. Apple’s 2010 annual report lists cash, cash equivalents, and marketable securities valued in 2010 as $51,011 million and in 2009 as $33,992 million. Total current assets in the year of 2010 were $41,678 million and for the year ending 2009 were $31,555 million. Current assets are listed in the order

A reason for the high amount of offshore cash was that 61% of Apple’s revenues came from offshore locations.

Apple Inc. is one of the companies implementing tax minimization strategies to lower taxes. Apple received a lot of criticism from various parties (media, governments, and international organizations). It is because the estimation of tax savings from the company are very high as its worldwide earnings are so high. Apple set up new companies in tax havens country and shifts the profit to those companies. This article will give an explanation on how Apple Inc. lower its taxes through international tax minimization strategies.

The actions of multinational corporations (MNCs), which derive from their morally dubious goals, may be completely legitimate within a capitalist society. One of these actions that will be examined in this essay is the use of tax havens, as a way of avoiding higher tax liability. This paper will utilise the case study of Apple’s tax avoidance, in examining the legitimation of a company’s goal of profit maximisation, a goal that is against the moral/social consensus

It is evident that Apple does not satisfy s 177K since according to the Financial Review analysis estimated that Apple’s Australia paid Apple Sales International in Ireland $7.2 billion profits in the span of 4 years (Chenoweth, 2014). It may lack detailed evidence of a specific year but $7.2 billion is a large amount for a company especially across 4 years. The next tests would be s 177L, where it evaluates the tax liability by comparing the taxpayer reduced tax liability in foreign law and Australia law. If the tax liability reduction is more than 20% compared to Australia then the test fails. It is apparent Apple has failed this test seeing as they only had to pay corporate tax rate of 0.005% in 2014 which far inferior than 80% of