Day 360 (cc photo by Pascal)
If there’s one thing Apple can teach us about business, it’s how to keep from paying one penny of tax on over $30 billion in reported income over a 4 year stretch. Here’s how they did it, courtesy of Neil Irwin:
Apple Operations International is registered in Cork, Ireland, but has “no physical presence at that or any other address,” according to the report. Indeed, the corporate entity has existed for 30 years and apparently never had a single employee. Of the three people on its board, all Apple employees, two live in California; 32 of its last 33 board meetings took place in Cupertino, and the Irish director participated in seven of them. Its assets are managed by a Nevada company, and held in bank accounts in New York.
It falls in a strange loophole: Because it is not managed and controlled in Ireland, that nation does not tax its earnings, even at the low Irish corporate income tax rate. And because it is not registered in the United States, it has owed no American taxes.
Not really a shocker, right? I mean, learning how to manipulate tax loopholes is pretty much the only reason business school exists in the first place.
Well, because $30 billion is not a minor sum, and because Apple is the biggest company in the world, the Senate Permanent Subcommittee on Investigations launched a hearing today on Apple’s steps to avoid paying U.S corporate income tax.
The committee hearing itself won’t really solve for anything, but it will allow a bipartisan group of Senators to assail Apple for its dubious dealings. Senator Carl Levin (D-Mich) – charmain of the commitee – had this to say to begin the day:
“The offshore tax-avoidance tactics spotlighted by the subcommittee do real harm. They disadvantage domestic U.S. companies that aren’t in a position to reduce their tax bills using offshore tax gimmicks. They offload Apple’s tax burden onto other taxpayers – in particular, onto working families and small businesses. The lost tax revenue feeds a budget deficit that has reached troubling proportions, and has helped lead to round after round of budget slashing and the ill-advised sequestration now threatening our economic recovery.”
Ranking member John McCain (R-Ariz) followed with a similar statement:
“Apple’s corporate tax strategy reflects a flawed corporate tax system that allows large multinational corporations to shift profits offshore to low-tax jurisdictions. For years, Apple has opted to forgo fully contributing to the U.S. treasury and to American society by shifting profits and circumventing U.S. taxes. In the last four years alone, Apple has avoided paying taxes on $44 billion in income.”
All well and good. At the very least it’s nice to see the Senate working together, even when the irony of lambasting a major corporation for taking advantage of a tax structure they themselves created is something quite amusing. But before we get too ahead of ourselves, let’s check out what Rand Paul (R-Ky) had to say at the hearing:
I am offended by the tone and tenor of this hearing. I am offended by a $4 trillion government bullying, berating and badgering one of America’s greatest success stories.
Tell me one of these politicians up here that doesn’t minimize their taxes. Tell me a chief financial officer that you would hire if he didn’t try to minimize your taxes legally. Tell me what Apple has done that is illegal.
I am offended by a government that uses the IRS to bully groups such as the Tea Party but I am also offended by a government that convenes a hearing to bully one of American’s success stories.
I guess not everyone was enjoying the party. It’s hard to take Paul seriously in decrying government bullying and badgering when it’s been people like him that have been so amazingly successful at keeping Congress from developing a competent corporate tax code in the first place. He attempts to play himself off as some new-age tax rationalizer, but Paul’s only concern has ever been tax slashing, and if indeed Congress were to move to rationalize the corporate tax code to make Apple pay its share, we’d be in store for another day long filibuster.
Can we really fault Apple and applaud Congress when all Apple did was take advantage of a tax structure that Congress itself set up? Public indignation is all well and good, but until these same Senators attempt to reform the corporate tax code, this is all political spectacle.