The loophole allows self-dealing transactions to move local profits offshore.
Apple US buys iPods for $10 from China and sells in USA for $100. $90 profit, taxable, right? Wrong. Apple US licenses the Apple name from Apple Ireland for $89/iPod. Final tax sheet looks like:
Revenue: $100 cash from Apple store in San Francisco
Expenses: $10 Apple China, $89 Apple Ireland
Taxable profit in USA: $1 (minus labor and such, of course)
Taxes paid to US government: minimal.
The profits from firms that do lots of business in the USA are being paperwork-shifted outside the country to evade taxes.
This has been covered extensively in numerous in-depth articles about major corporations and their tax schemes.
Apple US buys iPods for $10 from China and sells in USA for $100. $90 profit, taxable, right? Wrong. Apple US licenses the Apple name from Apple Ireland for $89/iPod. Final tax sheet looks like:
Revenue: $100 cash from Apple store in San Francisco Expenses: $10 Apple China, $89 Apple Ireland
Taxable profit in USA: $1 (minus labor and such, of course)
Taxes paid to US government: minimal.
The profits from firms that do lots of business in the USA are being paperwork-shifted outside the country to evade taxes.
This has been covered extensively in numerous in-depth articles about major corporations and their tax schemes.