Power & Market

A Note on Apple’s Less Than Sinister “Tax Avoidance”

A Note on Apple’s Less Than Sinister “Tax Avoidance”

Articles about the tax exploits of global corporations generally are short on facts and long on innuendo. This recent missive from the Associated Press about Apple is a standard example of the genre: full of breathless accounts (Bermuda! Loose rules! Shelters!) that imply sinister motives behind standard business practices. Call it whatever you like, but tax avoidance is perfectly ordinary for a public company like Apple. It owes shareholders an obligation to operate in a cost-effective manner. Taxes are a cost, not some social duty owed to the world.

It’s tempting to think progressives like Apple CEO Tim Cook deserve scrutiny on grounds of hypocrisy, but we should resist this temptation. Apple has done nothing wrong, nothing illegal, and nothing immoral. Every dollar it saves in taxes goes somewhere much better than Washington DC (such as into product development or even to Apple’s hedge fund in Nevada). 

“Offshore” simply means not within US tax jurisdiction. Every other sovereign country technically is offshore by this definition, so journalists should dispense with the nefarious language. Reporters and even tax professionals use lazy jargon to insinuate unregulated activity is happening somewhere, without US oversight. Yet I’m confident the AP understands that actual business activity occurs outside the US, some of which presumably is not the business of the IRS or American regulators. This maniacal insistence on taxing every US person or business on everything they do around the globe is the unfortunate result of our “worldwide“ income tax system. Blame that system of government greed, not corporate greed, for complex tax structures and creative avoidance.

Moreover a “tax shelter” is any device that permits a taxpayer to reduce his/her/its tax bill. The garden variety mortgage interest deduction is as much a shelter as the most complex corporate tax structure (e.g. the “Double Irish with a Dutch Sandwich,” preferred by big US tech companies until a few years ago). Living in Texas creates an income tax shelter relative to living in California. Buying and holding stocks for more than a year shelters long term investors from paying higher capital gains rates than day traders. And so forth. Shelters are a good thing.

Finally, neither Apple nor any other US multinational corporation ”avoids tens of billions of dollars in taxes by using overseas havens.” At most they delay paying US taxes. They do not avoid nor postpone income foreign taxes. Those  ”havens” are real countries with real people who buy Apple devices, including nations across Europe and Asia. When Apple devices are made in foreign countries, then sold in foreign countries by foreign salespeople, when the money collected remains in that foreign country, and Apple pays income tax to that foreign country, why should Uncle Sam demand a cut? This is not tax evasion, this is what doing business on a global scale looks like. If and when Apple decides to repatriate wholly foreign earnings to its US parent company in the form of a dividend, then the IRS can have its way. But it’s outrageous to insist on taxing income that has not been paid. It’s also a form of hubris that imagines all business earnings around the world should roll up into the US government’s coffers.

Apple is not the British East India Company. It need not pay tribute to Washington, DC as a surrogate Queen.


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