Apple tax fight needs global response

May 21, 2013

By Edward Hadas 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

In 1961, the six-year-old Steve Jobs probably didn’t notice U.S. President John Kennedy’s criticism of American companies’ use of foreign tax shelters. Corporate taxation had slid down the public agenda by the time the founder of Apple was achieving success, and it stayed that way for the rest of his life. But now it’s back, and Tim Cook, Jobs’ successor as Apple chief executive, has a public relations problem.

When Cook testifies on taxes before a U.S. Senate committee on Tuesday, his case will be reasonable. The company’s reported tax rate, which includes deferred taxes, was 25 percent in 2012. That is respectably high. Nor is the 17 percent cash rate (which was paid) shockingly low. Apple’s controversial Irish subsidiaries, which filed no returns despite receiving much of the company’s profit, were perfectly legal. The company has an obligation to its shareholders and customers to minimise tax payments.

Still, the world’s noses have become more sensitive to baroque tax plans, and Apple’s practices now fail the smell test. For example, it just doesn’t seem right that the Apple Operations International subsidiary did not even file a tax return, despite collecting 30 percent of global profit. It was able to take advantage of an ambiguous not-Irish, not-American legal status.

For strange and strained tax practices to work, companies need co-operative governments. The Senate committee’s memo on Apple paints of a picture of Ireland as all too eager to please, even reducing an already low statutory rate for the Apple subsidiaries which did file returns. The U.S. tax authorities come off as reluctant to test their powers.

Cook will call for tax simplification in the United States. That’s appropriate, but for global companies, something more ambitious is called for: an international deal on corporate taxes.

It could work. Cross-border tax shelters for individuals are already under pressure, and the Apple hearings are the latest sign that the public dislikes corporate dodges. The next step is an agreement to tax profit where it is actually, not legally, earned, and to limit tax lures for businesses. Free trade has been a global boon. Fair taxes would be also.


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A reasonable global rate for corporation taxes is a utopian dream. There will always be jurisdictions which do not need to raise as much tax revenue as others, or simply choose to attract commerce with appealingly low rates. As sovereign nations, it’s their right to set their own fiscal agendas, and who’s going to make them do otherwise? I’m an advocate of increasing tax on spending, and reducing tax on earnings, whether personal or corporate.

If every company and individual in the major developed economies paid a flat 10% on earnings, there’d be little incentive for avoidance. If sales tax were a flat 25%, that’d still be fair as we could effectively choose what we bought and therefore how much tax we paid.

It’s unnecessarily high direct taxation, not the inevitable attempts at avoidance which should be under scrutiny.

Posted by jonnycooper | Report as abusive

“The next step is an agreement to tax profit where it is actually, not legally, earned”
An American in Seattle books a hotel room in Paris on a web server in Dublin. Where is that profit actually earned?

Posted by walstir | Report as abusive

It is in the nature of governments and their politicians to compete for taxable business ventures. The result of this competitiveness among nations, states, provinces, cities, is that a company is able to create a profit in spite of the taxing tendencies of its own local government thereby causing governments to create competitive laws and codes; for example, clothing distributors can overcome the distance-costs between their customers’ markets and the manufacturers of that clothing in Bangladesh…said simply, it makes business sense to invest in Bangladesh.

If the tax-field is “leveled” across the globe, by some dictatorial mandate of the U.N. or other Utopian dreamer there is no reason to go to Bangladesh, or Ireland, or Detroit, or Monterrey, Mexico, or Johannesburg, or Kabul, or Tel Aviv…in other words the motivation to invest, develop and improve is neutralized with an ultimate result of spreading even less wealth.

If its all equal on taxes, me and my money might as well just stay home, invest in Gold, and wait for the Utopians to put the poorest countries out of business, and back into 3rd world (or worse) status (again — just like the good old days).

The tax distraction is just that, a distraction. The real story, for example, is the improvement to day-to-day plight of the man on the street which the clothing distributors have brought to Bangladesh…and yes, the safety, security, and hygiene of the workers and their families must improve, but not by killing the very reason for business to be there, i.e., the combined attractive costs of taxes, labor, and occupancy.

The unintended result of level, global taxation will be the return of bone-crushing poverty to those nations and cities who are just now achieving 2nd World economic status.

Posted by kbill | Report as abusive