marktheknife

What was your road into software engineering? I’m a lawyer now, and make pretty good money, but I can’t quit the thoughts of how much better legal tech could make it. So I’ve found myself interested in software but not wanting to drop my pay…at least for too long.

The tax part is pretty inaccurate. If you use business IP and transfer it to Delaware you will not avoid California tax on income from that IP. The unitary business and formulary apportionment approach of California income tax (also the dominant approach of multistate income tax in other states) easily beats that strategy, by treating formally separate entities as one for taxation. The sort of income shifting described in the article works better in international taxation since there the dominant approach is a “separate accounting” aka separate entity approach.

Indeed, even the Geoffrey case the article notes is famous for Geoffrey losing in South Carolina, and having its income taxed in that state.

Nonbusiness income is taxed to commercial domicile, which does promote moving headquarters to a tax haven. But much less income is considered nonbusiness income than you’d expect, and further commercial domicile is a separate concept from place of incorporation.

By far the dominant reason for Delaware as a corporate place of incorporation is its well developed corporate law and courts. It is more favorable to corporations in part, but not excessively so—VCs would not be pressuring corporations to incorporate in Delaware if it purely screwed shareholders at the corporation’s benefit.

There are also estate planning and asset protection benefits of using Delaware (and certain other states) LLCs.

I'm going to quibble a bit, hopefully not in an annoying fashion.

The distinction is that the tax system does not give a deduction to individuals who are spending their money on personal "consumptive" reasons. By and large, the system does give deductions for expenses incurred for business.

In this light, the double taxation of corporations is unusual. Clearly, the dividends are to pay back investors, just as interest is part of paying back lenders. But interest is deductible; why not dividends? Many theories have been advanced to justify this double tax, but none have won wide support among scholars.

(Interestingly, in your example, what probably would happen is that Bob would essentially be the effective managing partner of a general partnership. So we would be under partnership tax rules.)

A last quibble: partnership tax actually taxes partners even while the income is held by the partnership. (Well, generally; there apparently are some odd trust schemes that sort of avoid this.) in general, Partnerships must allocate the income to the partners, who bear the burden of tax. Then, they must later distribute the income in accord with how they've allocated it.

You could have done it just a few years ago. The international tax rules are tightening though, so you've missed the boat.

It doesn't appear there was one. Apple used a loophole in Irish tax laws that meant Ireland wouldn't tax certain income. It sounds like Ireland apparently acknowledged in a ruling this was a correct reading of the tax laws, which binds Irish tax authorities to not challenge Apple on the issue.

The thing is, if my understanding of the facts is correct, it was a correct reading of the tax law, not some special one done for Apple. So this ruling was not a "deal."

You would now that they've changed their law. You would not have even a few years back.

Apple's structures are a correct reading of international tax rules. The rules should be changed; Apple should not be punished for following the law.

In general, U.S. reduces its tax by $1 on foreign income for every $1 of foreign taxes paid on it. So if Apple decides to repatriate the money after paying foreign taxes on it, the U.S. is in effect paying for the increased money going to the EU. (Or presumably would; perhaps the U.S. could argue this additional payment is not a creditable foreign tax.)

You're wrong, Sangnoir. The IRS has a 3 year statute of limitations on most audits (beginning from date of filing return or date filing was due), 6 years if essentially the numbers on the tax return are way off, and unlimited if there is tax fraud. There was no fraud here.