Apple's Tax Dodge

[Ed Hardy]

The federal income tax rate for companies is 35%. Because of various loopholes, Apple says its own tax rate is "approximately 24.2%, 24.4% and 31.8% for 2011, 2010 and 2009, respectively."

Reports in the media over the weekend say that the company's tax rate for last year was actually about 18%.

Apple accomplishes this feat with a two-pronged tax strategy. For domestic sales, the company pays profits as a royalty on a subsidy it owns in Ireland, which are then routed to a tax haven. For overseas sales, the company uses a second Irish subsidy, routes the profits through The Netherlands to avoid European taxes, and then sends its profits to its tax haven via the first Irish subsidy. (This strategy is called the “Double Irish with a Dutch Sandwich.

To be clear, what Apple is doing is legal.But that doesn't make it ethical.
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[rkevwill]

Not something that they alone do. Many many corporations do similar strategies. As you said, its perfectly legal, and IMHO, ethical, as they are taking advantage of tax deductions and exemptions, that were put in place by our (admittedly idiotic) elected officials. Finally there is something on this site I can speak expertly on That is, the tax strategies, not the elected officials, no one understands them.

[Mi An]

It's newsworthy because the system (including the tax scheme and the regulatory scheme) has become a form of protectionism for large corporations. G.E. was one of the pioneers of turning their tax department into a profit center, and now everyone wants in on the game. And the idea that they're just passively taking advantage of system is untrue -- these companies are the reason the codes get so spaghetti-esque.

It helps entrench their positions against newcomers and small and mid sized competitors. What newcomers could possibly compete with the behemoth, Apple? one might scoff. Apple was a newcomer about 3 blinks ago.

Personally, I'd just as soon see the corporate tax disappear altogether -- evening the playing field for smaller companies who can't spend millions lobbying for their own private exemptions. Ultimately the taxes are taxes on consumers, investors and employees anyway, they're just being hidden and then shifted to consumers, investors and employees whose companies are too busy producing goods to game the system. That's not an effective way to grow a modern, small business reliant economy.

[Mitlov]

Like the Chinese labor issue, I suspect Apple is being singled out for something that every single company in the business does. And I'm saying this as someone who doesn't even particularly like Apple (I'm primarily a Microsoft guy).

[jigwashere]

Personally, I'd just as soon see the corporate tax disappear altogether...Ultimately the taxes are taxes on consumers, investors and employees anyway....

[tongue-in-cheek]
Eliminating the corporate tax would mean we'd see a direct(immediate) reduction in prices, right? Right?
[/tongue-in-cheek]

[hal]

Like the Chinese labor issue, I suspect Apple is being singled out for something that every single company in the business does. And I'm saying this as someone who doesn't even particularly like Apple (I'm primarily a Microsoft guy).

Yeah, pretty much it's ethical and legal if it's done under tax exemptions. However, I do agree with Mi An in that the modern tax systems (not just the one in the US) have a number of preferences for big corporations, opposing the levels of exemption allowed or available to minor taxpayers.

[RickAgresta]

Like the Chinese labor issue, I suspect Apple is being singled out for something that every single company in the business does. And I'm saying this as someone who doesn't even particularly like Apple (I'm primarily a Microsoft guy).

Just one of the benefits of being at the top of the corporate pile, as Apple currently is…

[Ed Hardy]

A big part of Apple getting so much attention on these issues is that it is fantastically profitable. If a company is struggling we tend to be more tolerant if they cut some corners. If the company is making money by the billion, we expect better.
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[Mi An]

[tongue-in-cheek]
Eliminating the corporate tax would mean we'd see a direct(immediate) reduction in prices, right? Right?
[/tongue-in-cheek]

In those areas where one did not see a reduction, one would be incentivized to invest in or work for said company. There's more than one way to skin a multinational behemoth profit monger.

[Varjak]

At the risk of getting killed yet again, almost no US corp.s pay 35%. That said, the Apple situation is a bit egregious, like the 'carried interest' loophole. I remember many years ago 60 Minutes doing a story on the Rolling Stones doing the same thing (the 'Dutch'). Admittedly, as much as they make, it's a pittance compared to Apple. Still, the thing to do is close the loophole, not blame Apple.

Ed, the problem with that is that it's situational ethics. The reality is the corner restaurant cheating on their taxes (multiplied over the entire country) is probably more pernicious than what Apple is doing, even if they're struggling. But in practice, you are right.