Telecom Lead America: Apple CEO Tim Cook is confident to solve the current tax troubles in the U.S. because several big companies are following similar tax structures. Plus, U.S. authorities are not saying that Apple is following an illegal route.
On Tuesday, Apple CEO tried to defend Apple from charges the company avoids tens of billions of dollars in U.S. taxes by shifting income to foreign affiliates.
The mobile devices industry is liking Apple’s spectacular tax-dodging techniques. They will not complain because several competitors may be following the formula.
There are two valid points. First, no one is suggesting that any of these techniques are illegal. Second, no one is suggesting that Apple is doing anything that any number of other massive multi-national companies aren’t doing.
Third, no one is suggesting that companies should voluntarily pay more taxes than they absolutely have to pay.
According to U.S.-based tax expert David Cay Johnston, the Supreme Court says a company or an individual has an absolute right to pay the minimum in tax the law requires.
Apple has released its own testimony on the tax issue, in which it points out that it is one of the largest U.S. taxpayers and explains that it does not resort to some of the gimmicks that other companies use to avoid U.S. taxes.
These positions, importantly, are not mutually exclusive. And the respective arguments will give you a sense of how complex this issue is.
Here’s what Congress says Apple has been doing to dodge taxes:
Using a so-called cost sharing agreement to transfer valuable intellectual property assets offshore and shift the resulting profits to a tax haven jurisdiction.
Taking advantage of weaknesses and loopholes in tax law and regulations to disregard offshore subsidiaries for tax purposes, shielding billions of dollars in income that could otherwise be taxable in the U.S.
Negotiating a tax rate of less than 2 percent with the government of Ireland – significantly lower than that nation’s 12 percent statutory rate – and using Ireland as the base for its extensive network of offshore subsidiaries.
According to a report in Forbes, the report alleges Apple reduced its U.S. corporate income tax by an average of $10 billion-a-year for the past four years. Since the corporate levy generated only about $240 billion in 2012, $10 billion foregone from one company is a very big number indeed.
But while it added a few interesting twists, Apple cut its taxes with the same tools multinationals have been using for years to minimize their worldwide tax liability. Apple’s tax avoidance shop, it seems, is a lot less innovative than its phone designers.
Meanwhile, Reuters reports that Ireland said it was not to blame for Apple Inc’s low global tax payments and had no special rate deal with the company after the U.S. Senate said it paid little or no tax on tens of billions of dollars in profits stashed in Irish subsidiaries.
The Irish government, which has seen the luring of U.S. multinationals with low taxes as a key part of its economic policy since the 1960s, said its system was transparent and other countries were responsible if the tax rate paid by Apple was too low.
According to a report in guardian.co.uk, congressional investigators released findings on Monday showing that Apple uses a highly questionable tax minimization strategy of impressive complexity. Several subsidiaries set up by the company, according to investigators, have few or no employees. Located in Ireland, these subsidiaries allowed the company to exist effectively nowhere in certain cases.