Wednesday, June 1, 2011

iHate Tax Dodgers Like Apple Computer


 
I’m an Apple fan. I’m writing on my third Mac laptop in a decade. I’ve purchased over $100,000 of Apple products on behalf of a company I’ve worked for over the same period. Plus all those iTunes gift cards for my teenage daughter.

So I was disappointed to learn that Apple is a tax dodger.

Sure, Apple pays some U.S. corporate income taxes. It looks downright patriotic next to master tax dodgers like General Electric and Boeing that have paid zero U.S. taxes for years. But Apple pays far less than it should.

Here's how: Apple shifts patents and intellectual property, which are among their biggest assets, to subsidiaries in other countries that are low and no-tax havens. These include Ireland and the Netherlands, which have especially favorable tax rates on royalties from intellectual property.

When Apple sells an iPad or a MacBook, it allocates a portion of the profits to the offshore subsidiary that owns the patent. This tax dodge is sometimes referred to as the “Irish Two Step” or the “Dutch Sandwich.” But for Apple, we should call it the “Offshore Tax Haven Shuffle.”

Last year, Apple claimed that just 13.9 percent of its profits came from U.S. operations. This is a fantastic fib. Consider all those Americans walking around with iPhones, iPods, iPads, and MacBooks. Think of all those folks buying music on iTunes, sending a buck to Apple for each song. Think of customers lined up at those glitzy Apple stores, like the three-story iPlex down the street from me in Boston.

How is it possible that less than 14 percent of this company's profits come from the United States? Is it because Europeans and the expanding middle classes of India and China are snatching up Apple products by the boatload?

Nope. That low percentage is an accounting fiction that goes to the heart of the tax dodge. Apple methodically shifts its U.S. profits off shore.

Another clue that Apple is ethically rotten is that they are spearheading a national coalition to lobby Congress for a “tax holiday” for offshore profits.

Apple has teamed up with other technology companies like Google, Oracle, Cisco, Microsoft and Adobe, drug giant Pfizer, and utility leaders including Duke Energy to form “WinAmerica,” a slickly messaged campaign to press Congress for an $80 billion tax cut.

U.S. firms have stashed over $1.2 trillion in profits offshore. They want Congress to allow them to “repatriate” these profits at a 5 percent tax rate rather than the 35 percent rate that's legally due when foreign earnings are brought back stateside. If Congress approves this “tax holiday,” Apple alone will dodge an estimated $4 billion in taxes.

Given the budget cuts our communities are facing, it seems reckless for Congress to even consider another tax giveaway to companies playing offshore games. It’s unfair to individual taxpayers and small businesses that have to pick up the slack for tax shufflers like Apple.

In 2004, Congress passed a similar tax holiday — with Apple dodging $255 million at the time. These tax dodgers argue they will create jobs if they’re allowed to bring their profits home lightly taxed. But independent studies show that the 2004 tax holiday did little to create jobs. In fact, profits mostly went to boost stock prices and CEO pay, and enable companies to buy back stock.

Apple should disclose more information to its shareholders, customers and the public. At a time of huge public service cuts and fiscal austerity, why should we the taxpayers give Apple a $4 billion tax break?

Congress should reject the corporate tax holiday for the obvious reason that it encourages bad behavior. If these global companies know that every six years Congress will bail them out with a tax holiday, they’ll continue their off shore games.

Apple may be cool, but until it stops gaming the system and pays its fair share, the company is just another lowly tax dodger.

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