Saturday, June 8, 2013

A Bad Apple

Apple's office in Cork, Ireland

The US Senate is poring over documents and scrutinizing Apple Inc’s tax strategies – and the spotlight is on a unit with $30 billion in profit since 2009 that’s incorporated in Ireland, controlled by a board in California, USA, and doesn’t pay taxes in either place.

In fact, the Apple CEO had appeared before the US Senate permanent subcommittee on May 21, 2013, as they questioned him on why his company had avoided paying tax on $74 billion of profit between 2009 and 2011. Timothy Cook had repeatedly denied Apple uses ‘tax gimmicks’ or has an elaborate offshore profit scheme. But Carl Levin, the chairperson of the committee was unmoved, calling it Apple’s two-pronged tax avoidance strategy and accusing the tech company of single-handedly rewriting rules of intellectual property as well as knowingly shielding offshore income from US taxes.

Senators John McCain and Levin even suggested the Irish government played an assisting role in helping Apple shear its taxes in a ‘highly questionable’ offshore entity sum which never trickled back to US income taxes.

Not unexpectedly, Ireland denied it is a tax haven and on May 29, 2013, called for an international clampdown on multinationals, yet comfortably sits at the center of the widening controversy. Apple Inc. paid just 2 percent on $74 billion in overseas income, which was mostly facilitated by a loophole in Ireland’s tax code.

The ‘Irish double dip’ allows a company to file two subsidiaries in Ireland with a corporate tax rate of 12.5 percent, which is far less than the 35 percent rate in the US, for example.

To be sure, Apple is not alone. The Citizens for Tax Justice (CTJ), a Washington DC-based think tank released a report on Monday which censures 18 other companies (e.g. AMD, Eli Lilly, Western Digital, Nike, Baxter International, Microsoft, American Express) also suspected of holding profits in tax havens, declaring in the report's title, “Apple is not alone”.

In their latest annual report, Apple disclosed they would pay at least a 30 percent US tax rate on the offshore income if repatriated, which serves as an indication that there is still profit being stashed away in tax havens, such as Bermuda and the Cayman Islands, the report suggests.

According to the same report, 55 US companies minimized their tax payments by $127.5 billion by funneling profits through offshore jurisdictions, and would collectively owe the US government this sum if a tax repatriation proceeded.

235 of the Fortune 500 companies are ‘non-disclosing’, which the center calculates holds $720 billion in un-repatriated offshore income. Google, General Electric, Coca-Cola, Wal-Mart, and Cisco Systems are among the ‘non-disclosing’ bloc.

Under the current law, corporations can indefinitely defer paying US income taxes on their offshore profits. Avoiding or minimizing the payment of taxes, as opposed to evasion is not a criminal offense. But the fact remains that these wanton acts of tax evasion are immoral, unethical and debauched and it is time that governments unite to collectively put a stop to these tax abuses.

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