Apple: No tax gimmick left behind

Contrary to CEO Tim Cook's Senate testimony this week, Apple is a pioneer of tax avoidance schemes, which are legal but hardly fair or ethical

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When role models pioneer bad behavior it serves to legitimize it, as seen by the PC World article this week that examines how small businesses can get in on the excitement of overseas tax shelters.

A tax code that allows this kind of avoidance of corporate responsibility screams for reform -- a cause that Cook embraced at this week's hearings. As the New York Times writes:

Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today's digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers.

But the reform that Apple, Google, Microsoft, and other U.S. multinationals are lobbying hardest for is a tax holiday that would enable them to repatriate at a reduced tax rate some of the estimated $1.9 trillion in profits ($74 billion of which belongs to Apple) currently parked in overseas subsidies and shell corporations. What's unclear is how such a move would benefit the domestic economy. A study by the National Bureau of Economic Research on the effects of a similar tax holiday in 2004, found that 92 percent of the repatriated cash was used to pay for dividends, share buybacks, or executive bonuses -- not for research and development or investment in training or hiring. A corporate tax holiday is not reform -- it's merely another tax avoidance scheme.

The H-1B connection

It's no accident that the same tech companies employing a phalanx of lawyers and accountants to avoid paying taxes are also aggressively lobbying Congress for immigration reform, which came to a vote in the Senate Judiciary Committee this week. Google, Microsoft, and others argue that a skills shortage in the United States necessitates higher caps for H-1B skilled worker visas. InfoWorld's Bill Snyder has long battled that particular reality distortion, most recently with numbers released this week by that show in 2011 the numbers of IT-related bachelor and associate's degrees awarded jumped 9 percent and 16 percent respectively over the previous year. The argument for bringing over more workers on H-1B visas, has as much to do with an actual skills shortage as the argument for a tax holiday on repatriated corporate profits has to do with tax reform.

Whether Congress can reach a consensus on fair tax code reform is questionable, given that 30 large U.S. corporations paid more money to Congressional lobbyists than they paid in taxes. It's a safe bet they weren't lobbying for ways to pay a more fair or ethical share of taxes. As Jon Stewart said this week, "corporations are the only reason our tax code is so complicated in the first place. Those off-shore loopholes didn't get carved out by poor people."

This article, "Apple: No tax gimmick left behind," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest business technology news, follow on Twitter.

Copyright © 2013 IDG Communications, Inc.

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