Credit: Duncan Smith
Tim Cook did Steve Jobs proud at this week's Congressional hearings into Apple's tax avoidance practices. During his testimony the CEO pulled a mind trick or two out of his iPocket, rivaling even the late Apple visionary in his ability to weave reality distortion fields.
The Senate report released prior to Cook's testimony detailed Apple's "complex web" of offshore entities set up to avoid paying taxes. Yet in his testimony before a Senate subcommittee, Apple's CEO defended the company, saying Apple uses "no tax gimmicks."
Puhleeze -- long before the world was swooning over iPhones and iPads, Apple pioneered the accounting sleight of hand known as "double Irish with a Dutch sandwich." A New York Times in-depth report this week traced the ways Apple, starting in the 1980s, has acted to avoid paying taxes by routing profits through Irish subsidiaries and the Netherlands, then to the Caribbean.
The subcommittee's report revealed how one of the Irish subsidiaries set up by Apple has paid no corporate income tax to any nation for the past five years, although it reported $30 billion in net income from 2009 to 2012. Another subsidiary has paid a tax rate to Ireland of one-tenth of 1 percent or less in 2009, 2010, and 2011, far below the normal Irish corporate income tax rate of 12 percent. Congressional staffers said Apple has negotiated an income tax rate of less than 2 percent with the Irish government, but in some cases avoids paying even that rate.
Apple is hardly the only tech company employing tax avoidance techniques -- Google has been investigated by the IRS for shifting profit into offshore subsidiaries and Microsoft's strategies for reducing its tax bills have also come under scrutiny -- but as in so many other areas, Apple scores big on style points.
In the words of Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, "Apple successfully sought the holy grail of tax avoidance." Edward Kleinbard, law professor at the University of Southern California in Los Angeles and a former staff director at the Congressional Joint Committee on Taxation, was more succinct, describing Apple's economic behavior as "unbelievable chutzpah."
Where Cook was absolutely factual was in telling the subcommittee "we pay all the taxes we owe." Tax avoidance, unlike tax evasion (think Lindsay Lohan or Wesley Snipes) is perfectly legal. But that doesn't mean it's fair or even ethical.
Why Apple alone?
An article this week on Policymic.com examines how the world's biggest company also became the most unethical. Why single out Apple as being especially unethical? One reason, the article says, is scale: "As the world's most valuable company, and one of its most profitable, the impact of Apple's actions are greater and more harmful."
Where Sen. Rand Paul saw the Senate's questions as "bullying" and "badgering" a business success story, Policymic argues that "a second reason to single out Apple is because, as the nation's top company, it has a greater responsibility for ethical leadership. We rightly expect visible individual leaders and corporations to hold themselves to the highest standards because they are role models for so many others."