Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, ZEN and TECH, MacBreak Weekly. Cook, grappler, photon wrangler. Follow him on Twitter, App.net, Google+.

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Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, ZEN and TECH, MacBreak Weekly. Cook, grappler, photon wrangler. Follow him on Twitter, App.net, Google+.

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Allyson Kazmucha

How-to, jailbreak, and DIY Editor at iMore, owner at The Pod Drop AnoStyle, Potter pundit, and the ninja in your iOS

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Richard Devine

Senior Editor at iMore, part time racing driver, full time British guy

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Tomorrow Tim Cook and the gang head to Washington to have a chat with a Senate committee investigating the possibility of tax avoidance (or evasion, depending on how you look at it) by Apple. Here’s what’s at stake.

Ahead of the testimony it will be giving before the U.S. Senate tomorrow, Apple (via The Loop) offered up a nicely detailed 17-page PDF document with all sorts of good information inside. The most interesting number is this: Apple pays $1 out of every $40 of income tax collected by the US Treasury. Isn’t it incredible to think that one company is responsible for 2.5% of all US income tax collection?

Despite Apple being the single largest US taxpayer, Senators Carl Levin and John McCain are accusing Apple of establishing “the Holy Grail of tax avoidance”. You can read the entire argument made by the Senate subcommittee on the Financial Times website.

While this stuff is pretty dry reading for most tech people, I find it interesting because I spent over a decade as a stock analyst and I was always fascinated by how some companies managed to achieve very low tax rates … using perfectly legal structures.

The U.S. Government’s issue with Apple stems from two arguments relating to Apple’s arrangements in Ireland, a well known low cost country. Let’s see if I can break this whole thing down into something easy to understand.

Here’s the first major item as described by Senate:

Apple’s cost sharing agreement (CSA) with its offshore affiliates in Ireland is primarily a conduit for shifting billions of dollars in income from the United States to a low tax jurisdiction. From 2009 to 2012, the CSA facilitated the shift of $74 billion in worldwide sales income away from the United States to Ireland where Apple has negotiated a tax rate of less than 2%.

Plain English? The government doesn’t like the idea that Apple’s Irish subsidiary is treated as a cost center to the US operations, resulting in less US profit and more Irish profit. Apple’s comments regarding this structure are pretty compelling. They’ve had a cost sharing arrangement in place with the Irish subsidiary since 1980. It sounds like the Irish operations are responsible for paying for part of Apple’s US-based RD efforts, and in return it claims ownership of a certain percentage of the intellectual property that comes out of that RD. Apple says, “These agreements were sanctioned by the US Congress in 1986 and are expressly authorized by US Treasury regulations.”

Furthermore, Apple points out that these cost sharing arrangements benefit the US because it keeps high-cost RD jobs in the domestic market. In Apple’s own words, “Some commentators have urged eliminating these types of cost sharing agreements, but doing so would harm American workers and the broader US economy. If cost sharing agreements were no longer available, many US multinational companies would likely move high-paying American RD jobs overseas.”

I don’t know how other readers will interpret these documents, but I think Apple presented a much stronger argument.

The second major item the Senate is focused on:

Offshore Entities With No Declared Tax Jurisdiction. Apple has established and directed tens of billions of dollars to at least two Irish affiliates, while claiming neither is a tax resident of any jurisdiction, including its primary offshore holding company, Apple Operations International (AOI), and its primary intellectual property rights recipient, Apple Sales International (ASI). AOI, which has no employees, has no physical presence, is managed and controlled in the United States, and received $30 billion of income between 2009 and 2012, has paid no corporate income tax to any national government for the past five years.

What’s this mean? The US government is saying that Apple funnels profits to Irish subsidiaries and then doesn’t pay any tax because the Irish subsidiary isn’t a US resident, based on US tax law, but isn’t an Irish resident either, based on Irish tax law. The suggestion the government is making here is one of, “Well, if you’re not a resident of any particular tax jurisdiction, you must be skipping out on taxes!”

Again, Apple puts forth a very straight-forward argument in explaining its setup. Apple Operations International (AOI) is a holding company incorporated in Ireland. Being incorporated in Ireland, that corporation is not a US taxpayer. End of story. It also just so happens that because of Irish law (which probably requires a certain number of employees or physical presence) it is not an Irish taxpayer either. So AOI doesn’t pay tax. But that’s missing the point. AOI is a holding company. All it does is collect payments from other Apple subsidiaries (payments that have already been taxed) and manage the money from a central location. The money AOI collects in the form of inter-company dividends has already been taxed.

Putting this in simpler terms, let’s say you had 3 separate companies in Ireland. Each company makes a profit and pays required taxes. Wouldn’t it be simpler to dump all of that money into one holding company so you can manage the investment of this money in an efficient manner? Of course. That’s what Apple is doing. Oh, and that money is managed by US people, held in US banks.

The bottom line is the US Senate Subcommittee is bitching about Apple supposedly not paying enough taxes, despite the fact that Apple pays $1 out of every $40 of income tax collected by the US treasury, and despite the fact that the US is responsible for establishing all of the laws that Apple is now abiding by. Furthermore, the Subcommittee is putting its hands where they don’t belong. The Irish subsidiary AOI is clearly not a US resident for tax purposes, since it is incorporated in Ireland. That is where the argument should end. It is irrelevant to the US whether or not the Irish government allows Apple to consider this entity a non-resident of Ireland. Maybe Ireland encourages this practise, making it an ideal place to incorporate holding companies. But regardless, it’s none of the US Treasury’s business so long as it is not a US resident corporation. Newsflash, Senate … you don’t get to control Irish law. You control your own law and the law is pretty clear. If AOI is incorporated in Ireland, it’s not a US taxpayer. End of story. Whatever the Iaw says about taxation in Ireland are none of your damn business.

Back in 1999 my father encouraged me to read a book called “The Soverign Individual”. As per the Amazon description, “In The Sovereign Individual, Davidson and Rees-Mogg explore the greatest economic and political transition in centuries — the shift from an industrial to an information-based society. This transition, which they have termed “the fourth stage of human society,” will liberate individuals as never before, irrevocably altering the power of government.”

Today the U.S. government is under pressure to collect more tax revenue. They’re fighting information-based global companies like Apple who have organized themselves, legally, in the best interests of shareholders.

This is a battle the U.S. government will lose, and they better start looking at alternative ways to solve their tax revenue problems. Picking a fight with their biggest taxpayer seems utterly stupid.

Smartphones and other mobile technology are very personal devices. Not just that they’re something that we have on us all the time, but they’re devices that we customize to suit exactly our needs and our needs alone. We get used to how they’re set up, and if we’re handed somebody else’s iPhone, well, we’re lost. Just try dealing with somebody who has different Smart Corner settings on their Mac than you – it’s maddening.

In customizing the set-ups for our devices we also customize our interactions with them. We develop weird habits and tendencies. Some of us are compulsive about the placement of icons in the launcher, others only want specific things in Notification Center. Sometimes it’s about where we put the phone, and sometimes we just don’t give a damn about some things that drive others insane.

Upon realizing that I do some weird and obsessive things with my iPhone, I asked the iMore editorial staff what weird things they do, and it turns out, we’re weird. But you already knew that.

Keeping a slot open for… – Allyson Kazmucha

My main screen on my iPhone and iPad are my most used apps. If I don’t use them on a regular basis, they’re all put into folders and not allowed to run amuck causing chaos. I don’t alphabetize things but they all have to be in correct folders under a descriptive category. My iPhone and iPad also have the same workflow so no matter what device I’m on, I know where to find things.

I’m super picky about Notification Center and what order notifications show up in. Things like email, messages, and Twitter must populate towards the top with lesser important things on the bottom.

My biggest nitpick is ugly icons. If an app has an ugly icon, it goes in a folder, no exceptions. My Home screen must be visually appealing at all times and an ugly icon will throw off that balance. Album art must also be present for everything in my music library or it makes me twitch in cover flow mode. I will literally delete a song from my iPhone if there is no album art.

My weirdest quirk is probably that I need to have at least one empty slot on my first Home screen. I’m not quite sure why but I’ve done this as long as I can remember. I don’t know why it bothers me to have a full page of icons but it does and I must have one free slot on my main page or I feel dirty. Call me weird, I already know I am and I accept it.

Default all the things – Chris Parsons

I have to have my main home screen stock. I do it on all devices except for Android, because Android such a cluster f*** of ugly icons some of it has to be hidden.

Triple-teaming the ringer switch – Derek Kessler

I know the ringer switch vibrates when I switch it to silent and doesn’t when I flip it to noise. But when switching from silent to ring without looking at the screen, I always have to flip it three times: ring, silent (so it buzzes), and back to ring. Sometimes I do the same thing when switching to silent: silent (buzz), ring, silent (buzz). I don’t know why, but it’s like I subconsciously don’t trust the switch.

I’m a little psychotic about my app organization. The first page is home to the apps I use the most, and those are alphabetically arranged (excepting the dock). The next page is also alphabetically arranged, with my tier of second-most-used apps but not daily or need-quickly apps out and everything else is put into folders which are… alphabetically-arranged and separated. The only exception are my games, which are put into their own folder, yet still alphabetical inside. Reason being: I’m usually looking for a specific app (except for games), not a category of apps, and muscle memory can guide me. And organization, man.

Updates… what updates? – Georgia

The strangest thing about myself and my iPhone is that I rarely let it be far from my side.

So if I have to go somewhere and my outfit has no pockets ill place my phone in the inside of my pant belt so I can keep my previous close at hand.

My phone is also always on silent with no vibration on. So calling me rarely gets a immediate pick up. I started this due to my job as a therapist but then quickly realized that I am more relaxed when I am not hopping for my phone.

I also don’t ever update my phones applications unless there is something I really want in the update. Strange part is that I never read what the update so I find things out by people telling me something cool has changed. At one point I had 150 plus updates on my phone.

And no I don’t wear my iPhone as a hat, that rumor was a lie.

Weirdos all of you – Leanna Lofte

Um… I don’t do anything weird with my iPhone that I know of. I don’t organize my apps… my home screen isn’t even that thought out. I could care less how my apps are organized because I just use Spotlight. Spotlight is way faster.

You’re all a bunch of freaks.

That like-new look – Peter Cohen

I like to leave the home screen bone stock.

I pile it full of apps on the second page and beyond, but I want my home screen to look like it did when it came out of the box.

Captain Default – Rene Ritchie

I keep my iPhone Home screen stock. What Apple loads, I keep. That’s because I switch devices and restore devices a lot. I do add a few apps to the empty spaces, namely Fantastical, the iMore app, and Tweetbot. If I haven’t switched or restored in a while, I’ll add Launch Center Pro to my dock, because, awesome.

So I may not be Captain Default exactly, but I’m not Mr. Excitement by any means either.

Line it up – Richard Devine

I’m absolutely no tidy freak, far from it. Just take a look in my office any given day of the week and you’ll see that. But, for whatever reason I am totally OCD about where stuff sits on my desk, especially my iPhone. It has to be in one of the corners, and it has to sit absolutely in line with both straight edges of the desk.

I also put it on something, like a magazine, or some random paper. Because I don’t keep it in a case at home — cases aren’t nice in hero shots — and I absolutely hate the idea of any thing on the desk damaging or just making dirty the back of my phone.

How weird are you?

There you go, we’ve bared our weirdness to the world, and, well… what weird people we are. It takes some self awareness to realize these oddities, and if there’s anything we should be as technology users, it’s aware of how we use that tech.

We’re all weird, but in our own unique ways. Except for the Captain Default crowd out there, you’re just weird together. What weird iPhone habits and compulsions have you picked up over the years? Sound off in the coments.

Richard Devine

Senior Editor at iMore, part time racing driver, full time British guy

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Richard Devine

Senior Editor at iMore, part time racing driver, full time British guy

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Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, ZEN and TECH, MacBreak Weekly. Cook, grappler, photon wrangler. Follow him on Twitter, App.net, Google+.

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Nick Arnott

Security editor, breaker of things, and caffeine savant. Writes on neglectedpotential.com about QA security, and as @noir on Twitter about nothing in particular.

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