THE REACTION TO APPLE’S TAX AVOIDANCE

Think different. Imagine your friend earns $1,000,000 and pays $600 in tax. Or earns $10,000,000 and pays $6,000. Well, on $30 billion of net income ($30,000,000,000), Apple paid $21,000,000 in tax. That’s a tax rate of 0.06%.

Exhibit #1a

According to a May 21, 2013 memo on offshore profit shifting (get the PDF)

"Apple Inc established an offshore subsidiary, Apple Operations International, which from 2009 to 2012 reported net income of $30bn, but declined to declare any tax residence, filed no corporate income tax return and paid no corporate income taxes to any national government for five years.“

Apparently, Apple didn’t do anything illegal and has been named the most valuable global brand by Marketing Week.

“We not only comply with the laws, we comply with the spirit of the laws.”
— Tim Cook (May 21, 2013)

Really? Since the 1980s, Apple has been avoiding tax and invented strategies like the “double Irish with a Dutch sandwich” (InfoWorld, May 24, 2013). Apple’s creativity cost Americans $44 billion in tax revenue in the last 4 years (including $9 billion in 2012) (Bloomberg, May 21, 2013).

In 1952, corporations paid 32.1% of all federal taxes. That’s dropped to 8.9% today. Government expenditures have grown in the last 60 years. Who’s making up the shortfall?

The Scope

Tax avoidance isn’t restricted to Apple or the US. Canadian companies are clever too with “nearly $60 billion flowing from Canada to Barbados, which has a statutory tax rate of roughly 2 per cent for foreign firms” (Global News, May 21, 2013).

Muted Response

There hasn’t been much outrage about what Apple is doing. Some senators even congratulated the company.

On minimizing taxes, Senator Rand Paul said, “It would probably be malpractice for them not to do so”. He even said “I frankly think the committee should apologize to Apple.”

Perhaps lobbying is a factor. Apple is relatively small, spending $2 million in 2012 and an estimated $4 million in 2013. Google is the biggest spender — $18 million in 2012. If there’s no effect, why spend the money?

Fair Share

Whether you consider Apple and other tax avoiders heroes or villains, ask yourself this: how do you feel about the taxes you pay?

Links

• Apple: no tax gimmick left behind (InfoWorld, May 24, 2013)
• Apple on pace to doubling lobbying spending on taxes, other issues (Apple Insider, May 23, 2013)
• The corrosive effect of Apple’s tax avoidance (New York Times, May 23, 2013)
• Is Apple’s tax avoidance rational? (BBC, May 21, 2013)
• How Apple avoids paying $17 million in taxes every day (Business Insider, May 21, 2013)
• Apple’s tax dodges: where’s the public outrage? (The New Yorker, May 21, 2013)
• Tax Men – Apple (Jon Stewart, May 22, 2013)
• US Senate shouldn't appease Apple’s tax avoidance (Toronto Star, May 22, 2013)
• Budget 2013 punishes innovation with life insurance
• The lure of “exclusive” financial strategies
• The risk of financial innovation

Podcast 221

(note: poor recording quality due to microphone problems)

direct download | Internet Archive page | iTunes

PS Imagine what’s going on that we don’t even know about.