I wanted to return to a comment by Apple in the Apple Senate testimony which set me thinking:
“AOI is incorporated in Ireland; thus, under US law, it is not tax resident in the US. AOI is also not tax resident in Ireland because it does not meet the fact-specific residency requirements of Irish law. This does not mean that AOI’s income has not been subject to tax. AOI’s dividend receipts consist of foreign, post-tax income, i.e., funds that have already been subject to tax in accordance with the laws of the countries where they were earned. AOI’s investment income earned on its cash holdings is taxable to Apple Inc., because AOI is a CFC that is wholly owned by Apple Inc.”
This is all part of complying with the spirit of the law.
Now this sounds fine, but what it ignores is the mismatch between foreign accounting income and the foreign taxable income. As a result the foreign income bears low rates of tax because some of that accounting income is not taxed because of the residence status of AOI. I like the way that AOI is described as not tax resident due to a quirk in the Irish tax rules not due to a negotiation to which Apple was undoubtedly a party.
Now lets assume that the wealthiest tax resident individual in California or any other OECD country benefited from a structure where the only tax born on their foreign income was foreign tax born at a company level. Some of their income was not taxed because a personal holding company was not tax resident because it did not meet the fact-specific residency requirements where the personal holding company was resident. No tax was due in the USA. Would this be acceptable tax policy?
The question this poses is that if it’s not good tax policy for wealthy individuals why is it good policy for wealthy companies?