#CIVICS: Apple’s Billions In Tax Dodges Come Under Scrutiny

Apple's corporate headquarters at 1 Infinity Loop

The corporation is in California, but not its tax liability

Apple Inc. is making it difficult to feel sympathy for Apple Inc. When the blogosphere challenged Apple the business and Steve Jobs the CEO to act like a good corporate citizen by offering some philanthropic goodwill, we took a fairly conciliatory position that Apple’s job is innovative technology and Apple’s innovative technology has been a real boon to the nonprofit world. When the terrible conditions at Foxconn China broke, we followed the story arc with you and stressed Apple’s willingness to engage its supplier − albeit belatedly. Then the story dissolved amid retractions and mea culpas that threatened many careers outside Apple or Foxconn.

But now The New York Times has reported that Apple Inc. has been pipelining profits to subsidiaries and ghost offices both in the US and abroad that has lowered its tax liabilities by over $2 billion in the last year.

Charles Duhigg and David Kocieniewski reported their findings in The NY Times on the 28th of April that Apple moves its money through a small office in Reno, Nevada − a state that otherwise has no Apple corporate presence at all − simply to claim the o% state tax on corporations and avoid the 8.84% that California demands. And that is but one of the myriad of frustratingly legal loopholes that Apple (and many other companies, they noted and so should we) has threaded:

Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean.

Nothing that Apple does is technically illegal (like route all European and West Asian iTunes purchases through a Luxembourg office with about 30 employees to avoid paying EU taxes). So the debate is really about whether what tech companies are doing should be curtailed, even stopped, and if so, why?

The President of De Anza Community College, the alma mater of Steve Wozniak, is quoted in the Duhigg and Kocieniewski article presenting the case of why the tech corporation might be crumbling its own foundations:

A mile and a half from Apple’s Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake. But then they do everything they can to pay as few taxes as possible.”

Are we willing to raise the money for public-use rebuilding?The Times’s website draws smart readers, of course, and the comments to the article are also well worth perusing. My unscientific survey suggests that those who say Apple are well within their rights and are successful precisely because of their strategies make up about half the comments. But even a few of those admit that problems could be brewing. JKvam of Minneapolis, MN offered a particularly articulate expression of the quandary corporations are putting us all in:

I admire Apple a great deal and I’ve been a happy customer but you don’t have to look far in any community to see the consequences of tax revenues not being equal to need. This path of titanic corporate profit (made possible by this type of gaming of the system) relative to crumbling/inadequate infrastructure is unsustainable. I’m happy for stockholders but until people showered with dividends become significant and reliable benefactors to the public good (public education, police and fire protection, clean reliable water supplies, roads/bridges, telecommunication networks, etc. etc.) it’s pretty clear America is getting a raw deal relative to the opportunity it is giving these companies to be as successful as they are. Where will these companies get their workers and customers 50 years down the line with this kind of mentality?

The striking issue to us is not so much that the loopholes exist (and lobbyists on corporate payrolls ensure they survive), but that their existence create a stunningly regressive tax system that (if you’ll pardon the broad historical parallels) once brought down imperial Rome and eighteenth-century France. As a blogger, I pay tax for the Apple laptop I purchased, the software I use, the internet I connect with… My money is not in real dollars anywhere near the real dollars Apple pays, but my ‘effective tax rate’ is quite a bit higher than Apple corporation’s rate. And I’m not even taking advantage of the De Anza pool.

Rewriting the tax code will not be a quick or easy fix, but it will be a necessary one in this electronic- and international-trade economy − if corporations expect to find a fairly educated population who at least can afford the electricity and cellular rates that Apple et al. want us to use to buy their products and keep their profits so high. Funny how the ‘New Normal‘ is an economic condition every individual except the ‘corporate individual‘ is expected to live with.


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