Global companies, like Apple, have a plethora of possibilities to avoid paying taxes. Mostly, they use loopholes created by lawmakers. Now, these tax dodging schemes are coming under scrutiny.
The Senate governmental affairs subcommittee in Washington unveiled a 40-page report on Wednesday (22.05.2013) analyzing the web of Apple's corporate tax tricks. The information technology giant, by its own figures, earned profits totaling 57 billion euros ($73 billion) abroad over a span of three years.
On that revenue the company paid a paltry two percent in corporate taxes. The amount is absurdly low, even for your average tax haven. The pivotal role played in this tax dodge was Ireland, where Apple bundled a large part of its business outside the United States in a variety of sales and distribution centers.
Other firms appear to have been set up expressly to avoid taxes. One subsidiary, for example, did not pay a single cent in corporate taxes in the last five years.
Testifying before the Senate subcommittee, Apple CEO, Tim Cook, vehemently denied that his company used tax tricks.
"We pay all the taxes we owe - every single dollar. We not only comply with the laws, but we comply with the spirit of the laws. We don't depend on tax gimmicks. We don't move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don't stash money on some Caribbean island," Cook stated.
Last year, Apple, in fact, did pay the equivalent of roughly 4.7 billion euros in taxes in the United States. But, even so, with the help of its Irish subsidiaries, Apple saved billions. This was possible because of a loophole in the tax law.
The US treasury comes away essentially empty-handed when US firms set up subsidiaries abroad. Some of the Apple offshoots are not even subject to taxation in either Ireland or the US. They are registered in Ireland, but their boards meet in the US.
Experts point out that, by doing so, the company has no fiscal domicile for tax purposes. Republican Senator, John McCain, called this "outrageous," but CEO Cook was quick to dispute that, saying Apple was "proud to be an American company and equally proud of [its] contributions to the US economy." The boss of the iPod, iPad and iPhone maker underscored that his company, after all, employed 600,000 people.
Witnesses called to testify at Senate committee hearings are often said to be in for a "grilling", but Cook's cross-examination was anything but uncomfortable. During a break in the action, the committee members were practically fawning over him. Some, like chairman Levin, was gesticulating with his Apple smartphone around, while a secretary taking notes was writing on a PC with the Apple logo and Senator McCaskill said openly that she loved Apple. John McCain wanted to know from Cook why he constantly had to update the apps on his iPhone. Neutrality and disassociation are different.
It's all legal
Even if the chorus of indignation is loud, at least one argument supports Apple's course of action. When tax laws allow companies to legally cut their tax bills, then why shouldn't they use every avenue open to them, argues German tax expert Michael Bormann. "If a company were to pay too much because if felt morally obliged to pay more, then it would probably find itself facing lawsuits from its own shareholders or owners," Bormann said in a DW interview.
The US Internal Revenue Service (IRS) has complained that 83 of the 100 largest US corporations park profits earned overseas in tax havens. In Europe, there are still many countries that offer low tax rates. Bormann says it's up to political leaders to take action. Countries need to "create simple and transparent tax laws; that would be the biggest step." The example of Switzerland, he said, illustrates that international pressure can lead to a change in the law.
In the coming months, the Organization for Economic Cooperation and Development (OECD) plans to present a catalog of measures to end the tax tricks of large international companies. Discussions are slated for the next G20 summit in early September in St. Petersburg.