How Apple Takes a Bite Out of All of Us by Ducking Billions in U.S. Taxes
It is difficult to name a company with a better popular image than Apple.
Stockholders love the strength of the company; it annually tops lists for best-run and most profitable, customers line up days or more ahead of time for product releases and distributors, code writers and feeder industries all heap praise on the technical giant. Steve Jobs, long dead, is still revered as a Silicon Valley pioneer.
Apple stows a quarter of a trillion dollars a year offshore on the United Kingdom’s Isle of Jersey, where Apple pays no taxes.
That little factoid makes me wonder about corporate behavior, the attack on government-paid social services and those Congressional talks about tax “reform,” a phrase known to the rest of us as tax cuts for corporations and giveaways for the wealthy. It’s a program that a new analysis from the nonpartisan Tax Policy Center says will cost $7 trillion over the next 20 years, with individual taxpayers called on to provide much of the difference. The entire package is expected to cost an estimated $5.6 trillion over the next 20 years—an amount that economists say would be hard to offset through economic growth alone.
The claim from Trump, leading Republicans and the administration is that lowering the corporate tax rate on paper from 35% to 20% will boost the American economy, spur U.S. investment and jobs by zillions and, along with a one-time tax holiday, bring American profits from multinational companies back to this country.
So, let’s consider Apple, which takes pride in saying to critics of parking a quarter-trillion dollars’ worth of profit in a European isle, that it pays the taxes it must and no more.
Last year, the European Union ordered Apple to pay up to $14.5 billion to Ireland, where Apple had been putting its money, in what the courts belatedly had decided were illegal tax benefits. An investigation of the tax plan was started in 2014, we have now learned, thanks to the international consortium of investigative journalists who turned up what we call the Paradise Papers.
That year, Apple moved its offshore case to Jersey, near Normandy, an island I knew only through The Scarlet Pimpernel. There are two things to know about Jersey:
There are 100,000 residents. Jersey doesn’t usually tax companies.
Companies like Apple apparently designate particular parts of its operation to headquarters in a tax-friendly area, and then use legal accounting methods to charge many corporate costs against that selected area. In Apple’s case, there were multiple companies formed in Ireland, including Apple Sales International, which received most international profits on its $120 billion in revenues between 2009 and 2014. Then, according to TechCrunch, a second subsidiary called Apple Operations International received most of those $120 billion in dividends. The two subsidiaries then attributed the vast majority of profit to a “head office” which had no geographical location in a taxing location. This started the investigation that led to the fine, since the courts said Apple had paid an effective corporate tax rate of 1% on European profits. They even gave this approach a name–the Double Irish.
Offshore law firm Appleby helped Apple set up its tax home in Jersey, an arrangement good until 2020 and that parks $252.8 billion outside of the U.S.
Let’s just see what happens if the tax bill passes and is signed into law.
A tax holiday, even one that invites companies to return money to the U.S. for somewhere between the new 20% all the way down to 7% with various loopholes, might sound pretty good. But not compared to paying, say, no tax. Indeed, it might encourage other companies to move their headquarters to Jersey.
And if Apple did return, would it boost U.S. jobs? That seems pretty doubtful when it can get Chinese workers as employees at subcontractors like Foxconn, which already has said it will offer the same chance for Wisconsin workers. Would it create new investment opportunities for Apple in the United States? It might, but that would be because Apple might find a reason to do so that has nothing to do with U.S. tax changes.
Let’s stipulate that there is nothing here that is illegal or even less than fully patriotic or any other banner Washington might hoist. Apple is simply showing how to avoid paying more tax than it must–um, following those good, private sector business practices that Trump and Republican colleagues salute.
Meanwhile, this same group is going to end up raising my taxes and those of others around me in the Northeast who worry about things like health costs. I do wonder aloud what $252.8 billion might underwrite in healthcare access or hurricane help in Puerto Rico, Texas and Florida, or fighting opioid addiction or paying for enough teachers to lower classroom size.
I suppose it all will turn out OK–I’m writing this screed on a Macintosh laptop.