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Every second, Apple makes $1,444 of profit.
That's more than any other company, and almost as much as Alphabet, Microsoft and Facebook combined.
A bank account of $285 billion makes it more country, than company.
Anyone else would kill for pockets so deep.
But Apple is wary.
And while most companies beg not to be taxed, countries beg not to tax Apple.
The strange story about Apple's finances explains how it got so wealthy, why this is a problem, and what they'll buy next.
Companies pay taxes to the country in which their money is made.
A toy might be invented and manufactured in Antarctica but if it's sold in Germany, that's where it pays taxes.
And because these taxes vary by country, so do the costs of products.
The iPhone X is $1000 in America but $1368 in India and $1455 in Hungary.
In fact, if it weren't for import taxes,
it'd be cheaper to fly to the US, buy an iPhone and fly back.
But there's an exception to every rule.
And that exception is always America.
It's the only country that taxes based on citizenship.
That means a US citizen living and working abroad still owes taxes back to the US.
You could renounce your citizenship, but you'd be taxed for that too.
And for American companies this means paying the highest tax in the world on profit made everywhere.
So this won't fly.
When Apple pays tax overseas,
America subtracts that amount from its tax rate,
and then reaches out its hand.
This is where Apple, Google, almost every major company says, "Hmm..."
"Actually, I think we're gonna keep our money out here for now."
That money goes into a subsidiary:
a company that is legally different, but really just a foreign bank account.
These are located in countries like Ireland and Jersey.
Not for the cows, but the very generous tax code.
And Ireland's economy runs not despite being a tax shelter but because of it.
What they lose in taxes, they make back from the jobs these companies bring.
So when the European Union stepped in and said, "Hey Apple, you've been getting far too fair a deal."
"Time to pay your dues,"
Ireland rolled its eyes and shook its head,
passing up on 5% of its entire GDP.
But what about the 30% of revenue Apple makes in the US?
Well, one way to pay less taxes is to make less money.
At least on paper.
All of Apple's products depend on patents.
And unlike people, places, and things, patents have no precise value,
making them a handy way to move money. So they give
their patents to the Irish subsidiary,
who then "rents" them back to Apple for a "fee."
When Apple makes money in the US, it can wink at the IRS and say
"This isn't profit, we owe it to the owner of the patent in Ireland."
"Sorry, America. It's just not our money to give."
This is how profit escapes its country whether it's
made in Spain or Maine, and technically
Ireland taxes that money whether it
stays in the country or moves offshore. But where there's a will and $285 billion,
there's a way. If money is
transferred to the Netherlands, a handy
loophole makes it nearly tax-free. So it
briefly flashes in a Dutch bank account
owned by a non-existent company, with no employees to check a legal box. And then
it returns back to Ireland, this time a
subsidiary located in the country but
legally a resident of Jersey, where it
can finally retire to the cows and
castles in peace. The richest meal for a
corporation isn't gold covered chocolate
or expensive caviar, but an Irish and
Dutch subsidiary sandwich.
All of this is 100% legal and 100%
common. But because Apple makes so much
more money, it's in an unusual position.
No matter how big the pile grows, it's
all frozen just out of reach. It's like
being given the world's largest bank
account with no ATMs to withdraw from. And the problem is actually much deeper than that.
To pay American bills, Apple takes
American loans, money for which it
already has, just not as far as the US
is concerned. But it can't keep up with
how fast the pile is growing. To you and
I this would be the opposite of a
problem. Because it's easy to imagine
Apple as a giant fat cat, swimming in
money and worrying only about how to
spend it all. Giving away billions would
be mere pocket change to someone that
wealthy. And maybe it should pay higher
taxes. But there is no singular Apple. The
CEOs of the CEO are shareholders and
when someone buys a portion of the
company, he does so in hopes of earning
more money tomorrow than he paid today. Stocks can cost pennies or hundreds of
thousands of dollars. But what matters is
how much that number changes. And that's
the problem.
To an individual, money in a bank account
is money it can use. But to a shareholder
all that money means nothing, if it sits
watching grass grow. That's money not
being invested in making twice as much
tomorrow.
The desire to minimize taxes kept money
offshore. But that made it useless for
what they care about most: investing back
in the business. But everything is about
to change.
When the US lowers its corporate tax,
Apple can finally bring back its money.
The question now is how to spend it all. It may research future products, acquire
small companies, and buy back shares. But
why not acquire something big? Articles
like this one suggest Apple buy Tesla,
Activision, and Netflix. And to an
investor, this makes perfect sense.
Diversifying a business so dependent on
just one product, and without making too
big a dent in its wallet. But implied in
this argument is another. If Microsoft
and Google successfully acquire
companies left and right, but Apple
rarely does, they must be sleeping on the job.
Microsoft just bought LinkedIn for eight
times more than Apple's ever paid for a
single company, but never assumed the
world's most profitable company is bad
with money.
Apple's strategy is to shop for talent and
technologies, never trying to make a
quick buck. When it needed Touch ID it
bought Authentec, when it needed a voice
assistant it bought Siri, and when it
needed Steve Jobs,
it bought NeXT. Suggesting they buy
Activision or Netflix is suggesting that
Apple stop being Apple. Because
absorbing a company also means absorbing
its culture. And forever changing its
most valuable asset: extreme focus. It's
the same reason they make so few
products and design them so minimally.
Saying no to what every other
company would say yes to
is exactly what makes Apple so successful.
If you have thoughts
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I'd be happy to take a look. Thanks to
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a try. If you enjoyed this video you'd
probably also like "The Grand Theory of
Apple", where I explain Apple's overarching
philosophy, from why they removed the headphone
jack to how they prioritize their products.
Captions By: joshuaktanki
Please play the YouTube video first