To Understand the Benefits of Tax Reform, Start by Understanding Apple's Taxes
So if you&#x27;re a US citizen or permanent resident or even just a tax resident (which includes working here on a temporary visa), the US taxes you on worldwide income. Any income from overseas needs to be reported (up to 3 times!) and taxed. With most countries you get credit for any taxes you paid in those countries. State taxes work the same in that you may have to file in more than one state and credit is given from taxes in one state to the others. This is actually all pretty sensible albeit tedious (particularly the part about reporting foreign assets and income).<p>Where it starts to go bonkers is for US citizens and PRs who live overseas. They still have to file taxes with the IRS for all worldwide income and report foreign assets and income as if they were present in the US. They get a certain amount of income (&lt;$100k) each yeah exempted from US income taxes. Most countries do not do this.<p>My first problem is this: why exactly can&#x27;t we treat companies the same way? I would be all for a 20% corporate tax rate if it meant a tax on worldwide income with credits for any taxes paid to foreign governments... exactly like individuals are treated. Why isn&#x27;t this on the table? Is it that hard?<p>Second problem: in this world of multinationals and particularly when dealing with IP, companies seem to have free reign to book income in any country they like. Like any sales in the UK (and probably the EU as a whole) are reported to Irish subsidiaries.<p>To me this is fundamentally wrong. In other instances this is called transfer pricing and is illegal. For completeness, the classic case of transfer pricing is this:<p>Acme Inc buys a sofa from China for $200 in China and sells it in the US for $1000. That&#x27;s $800 taxable profit right? Not so fast. Acme Inc instead forms a subsidiary in the Cayman Islands who buys that sofa from China for $200 and then sells it to the parent company for $990. Now only $10 is taxable in the US and $790 is taxed in the Cayman Islands at a zero or near-zero rate.<p>Now if that money is ever repatriated it&#x27;s taxed. Thing is, it never is. Not until an ill-advised tax holiday and then the whole cycle repeats.<p>This brings me to the third problem: to get around the fact that all their money is offshore, companies borrow money in the US, which up until 1-2 years ago was at zero or near-zero levels. This debt covers their expenses and saves them from repatriating foreign profits and paying tax on them.<p>So why exactly don&#x27;t we treat ever $1 borrow as repatriating $1 in foreign profits and tax it?<p>Now that would be true tax reform. Well, if we also got rid of the noticeably absent carried interest tax credit.<p>What a joke.