ARI SHAPIRO, HOST:
Here in the U.S., the negative response to the commission's Apple ruling went beyond the Treasury Department. Republicans and Democrats in Congress condemned it, calling the decision a money grab. All this comes after Apple has been criticized in the last few years for avoiding taxes here in the States by setting up subsidiaries in Ireland. To understand this, I spoke with Edward Kleinbard, a professor of law and business at USC.
EDWARD KLEINBARD: Logically the United States should be troubled by the low tax rate in Ireland, and it should be not at all troubled by the commission's finding that Ireland entered into a one-off negotiated deal to subsidize Apple.
SHAPIRO: But (laughter)...
KLEINBARD: But the politics being what they are, it's natural for politicians to get a little confused and to think that those guys are ganging up on our guys. There's also a sense that, you know - who are these snail eaters to tell us what to do?
SHAPIRO: Which is so funny because American political leaders have also criticized these companies for trying to dodge taxes by being located in countries like Ireland in the first place.
KLEINBARD: Exactly. But there is one other thing going on, which is that the U.S. Treasury Department is smarter than this. The U.S. Treasury Department put out a large policy paper last week in which it came to the defense of Apple, and in part it's because of just political - the same kind of political considerations. But it's also because there's a tax agenda underneath the surface.
U.S. companies have been so successful at this stateless income game mostly at the expense of Europe that they have well over $2 trillion in super low-taxed foreign earnings that have not been taxed in the United States, essentially taxed nowhere in the world.
And what the United States is playing for is that when it comes time for corporate tax reform, there will be a one-time tax charge on all of those offshore earnings as part of the transition to the new system. Let's call it 10 percent. Well, 10 percent of $2 trillion is $200 billion of free tax revenue.
SHAPIRO: Oh, so if this is revenue that has been taxed in Europe according to this court ruling, then it is revenue that the U.S. cannot someday in the future tax once this reform gets implemented.
KLEINBARD: Essentially That's exactly right.
SHAPIRO: Is there any chance of this bringing business back to the United States?
KLEINBARD: No (laughter). You know, Apple is a really interesting example of this. Today in its press conferences and two years ago in Tim Cook's testimony before the Senate - tried to make the point that the real brains of the operation of Apple, the real drivers of its profitability are its software engineers in Cupertino. Well, if that were true...
SHAPIRO: Then they should be taxed at California tax rates.
KLEINBARD: Well, they should be taxed today, exactly, on the current basis by the United States. Apple is trying to have it both ways. On the one hand, they want to tell Europe that profits are really because of the genius of the American operations, and they want to tell the United States that the operations are really located outside the United States.
The pincer movement is forcing the essential incompatibility of these different stories to the fore. But this is not about real jobs. This is about shifting of profits through paper transactions.
SHAPIRO: Edward Kleinbard, professor of business and law at USC, thanks very much.
KLEINBARD: Thank you, Sir. Transcript provided by NPR, Copyright NPR.