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Apple Inc. (Nasdaq: AAPL) CEO Tim Cook was summoned to Congress last week to face outraged legislators

over his company's failure to pay corporate income taxes to any national government on more than $74 illion in

overseas earnings!

This is a perfect example of a situation that is simply the tip of the "offshoring" iceerg! #elow %'ll address what it

means for your money and why the outcome may not end up at the "ovious" solution!

&o pple!

 ccording to a Congressional investigation the Cupertino giant paid no taxes whatsoever to any national

government on more than $74 illion in revenues ( a fact that pple doesn't dispute!

 s galling as this is what pple did was perfectly legal! )sing well(documented and well(known loopholes in the

)!&! and %rish tax codes pple set up %rish shell corporations that allowed them to funnel dividends and earnings

from offshore investments in such a way as to not incur tax liailities!!!in any country!

%nterestingly &enate aides associated with the investigation said they've never seen companies use susidiaries

that didn't owe taxes! Evidently they haven't looked very hard!

*hat pple's doing is nothing new or uni+ue! lmost every multinational corporation operates in the same shady

territory! ,ost have thousands of accountants and lawyers on staff whose sole -o is to make sure everything

those companies do is tax "efficient!"

.oreign susidiaries are -ust the eginning! There's transfer costing loans etween susidiaries options(ased

compensation tax deductions for malfeasance and intellectual property offshoring (( -ust to name a few of the

favorite tax dodges in widespread use today around the world +uite literally!

.or example Microsoft Corp. (Nasdaq: MSFT) sends an estimated $/!40 cents on every dollar through 1uerto

2ico to pay for patent costs associated with discoveries that are "mostly" made inside the )nited &tates

according to the %nstitute for 1olicy &tudies or "%1&" for short!

,icrosoft CEO &teve #allmer's crew stashed $0/!3 illion offshore last year alone and didn't pay a dime in )!&!

taxes! That's an estimated $5!4 illion it'd owe )ncle &am if rought home!

Pfizer Inc. (NYS: PF) sells 68(48 of its drugs inside the )nited &tates ut has reported no )!&! profits in

five years! The %1& estimates the pharma giant ooked $76 illion in profits offshore last year!

9ike ,icrosoft it paid no taxes on that money whatsoever! nd you'll love this!!!the company earned $46 illion

from ://(:/: yet still was so tax "efficient" it received $:!: illion in federal refunds over the same time period!

!erizon Co""#nications (NYS :!$)Merc% & Co. (NYS: M') Citi*ro#p Inc. (NYS: C) +PMor*an

C,ase (NYS: +PM) -elett/Pac%ard Co. (NYS: -P0) 1eneral lectric Co. (NYS: 1) 22on Mo3il

Corp. (NYS :45M) Fed2 Corp. (NYS:F64) and 7an% of A"erica Corp. (NYS: 7AC)!!!they're all in on it!

&o are do;ens of other ig companies!

<ever mind what pple owes! %n my mind the far igger prolem is that Congress has known aout this for years

and failed to do anything aout it!

They've Seen the Enemy...And It Is Them

*hich rings me to Congress!

=on't let the histrionics fool you! They're a smoke screen!

9ike a unch of spoiled kindergarteners what Congress is really mad aout is that someody figured out how to

game the system in a way that they didn't anticipate!

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%f % were Tim Cook % would have hauled a huge mirror into the chamers held it up and encouraged every

memer of the in+uisition to take a good hard look at what they see!

The reality of what's happening is that the )nited &tates runs a punitive worldwide taxation system very poorly!

 s morally appalling as this situation may e holding a corporation to task for legal ehavior enaled y decades

of ad policymaking is wrong!

Our regulators and our Congress are outclassed outmaneuvered and out negotiated at every turn ecause they

don't understand how real money works! They never have and in today's complicated financial markets it's likely

they never will!

*orse they cannot grasp the concept of responsiility for their own actions! <or evidently do they understand

the "law of unintended conse+uences" or asic economics for that matter!

%f anything Congress ought to turn on itself and keelhaul every memer who voted to implement the policies that

created this mess! =emonstrate some real leadership y looking introspectively first! Then go aout actually fixing

the issue and doing something that engenders the pulic's trust instead of tromping all over it!

 What This Means to Your Bottom Line nd that rings me to the merican pulic and to investors in particular!

 s tempting as it is to go along with the witch hunt investors etter e careful what they wish for!

CEOs have one -o and one -o only!!!to maximi;e profits! That means they not only need to develop design

uild and sell products and services ut create tax(efficient organi;ations too! %ndividuals have the same -o

aleit on a very different scale!

,ore importantly oth have the right  to pay the minimum amounts of taxes allowed y law!

9et's not forget that pple's margins are oscenely high and that those same profit margins were eing lauded as

the stock rose to $7/!/7 per share last &eptemer!

%f Congress decides to close down these loopholes chances are good that they're going to do it in such a way

that what comes to the ottom line is going to change pple's ottom line dramatically! <ot to mention the ottom

line of every other .ortune // firm!

Take proposals from &en! Carl 9evin =(,T and &en! #ernie &anders %(>T for example!

The former is championing the Cut )n-ustified Tax 9oopholes ct which would nail down executive options

compensation pay end several oil and gas susidies and treat foreign susidiaries controlled from the )nited

&tates as )!&! entities for tax purposes!

The latter has put the Corporate Tax =odging 1revention ct on the tale! &anders' proposal would end tax

deferrals on offshore profits while also taxing gloal profits for )!&! corporations!

*hile oth ills are expected to raise nearly half a trillion dollars in additional taxes or more over the next /

years % figure they're good for at least a 6/8(48 reduction in ottom line profits if they pass! That likely

translates into a u;; cut of at least the same amount in stock prices!

<ever forget that stock prices are a function of earnings and profits! Take those away through punitive legislation

and guess what!!!prices will fall!

=et markets could implode too! Our entire e+uity pricing system is uilt upon the efficient use of det! %f you

force cash reserves to e used for taxes det to e+uity ratios go haywire as does operating leverage!

2eturn on e+uity ratios return on cash and price to earnings ratios!!!they'll all change! 9onger term the effects

would proaly e good ut the short(term ad-ustment will e a ear ( pun asolutely intended!

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 nd finally if you think offshoring or the practice of moving usinesses to other -urisdictions is galling now wait till

Congress starts fixing things!

Money Has No Borders

,oney is moile and those who control it are too! % can think of no etter way to eviscerate what's left of the

 merican industrial machine than to punitively change the tax code in response to misplaced social pressure

applied retrospectively! .ixing it is another matter entirely ?and adly needed@!

 nd any time there are ig changes new winners and losers emerge! Aou lose the dinosaurs and you end up

with homo sapiens!

=on't e surprised to see a numer of corporations give up their )!&! status as the situation develops!

2egardless of the legislation they manage to pass the est CEOs will already e well out ahead of any legislation

Congress can dream up!

&o will their profits which % expect to actually grow  as sophisticated tax(minimi;ation ecomes an even more

important element of +uarterly performance!

If a Man Can ream

%n case you're wondering how % would fix all this!!!% would do the same thing many CEOs would! %'d implement

"single company accounting" so everything is rolled up worldwide! <o more fancy engineering and transferring

assets from one pocket to the next to avoid taxes!

%'d also change corporate reporting so that anyody could verify how much corporations are actually paying in

taxes every year! s onoxious as pple's situation is people don't understand that corporations are not re+uired

to disclose their actual tax ill!

&o for all the hullaaloo noody really knows what corporate tax rates are or aren't! <ot you not me and not the

government! The /(Bs everyody looks to as a proxy reflect only the current portion of taxes due! %f the

government wants a real handle on this they need to re+uire disclosure of federal taxes paid for a given year!

Congress could legislate this overnight if it wanted to!

 nd finally %'d cut all the tax expenditures! ccording to the O the )!&! government spends as much as it

takes in! 2epealing things like accelerated depreciation perpetual income deferrals for foreign profits research

credits and special exemptions for low(income housing could put nearly $:// illion ack on the ooks! Every

year! %mmediately!

 t the end of the day if we're going to go after individuals for higher taxes ?which % don't agree with y the way@

then it's only fair we go after corporations too!

Dust do it the right way!

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