Apple is the latest multinational to feel the heat on cross-border tax management. The news that the tech giant used Irish law to lower U.S. tax payments should not have been surprising. After all, “Do no evil” Google had no second thoughts about recording what were essentially British sales as Irish, for the sake of a lower tax rate. It’s hardly likely that Apple, which has cultivated a certain anti-establishment air, would have hesitated.
Indeed, until a few months ago, I don’t think there was a corporate treasurer anywhere who would have taken justice into account when deciding on tax strategy. At most, there might be worries about bad publicity, but the well-established corporate practice of tax dodging had generated little attention.
And who would complain? Lower taxes on profit bring benefits to most people connected with companies; the money that doesn’t go to the government goes to workers, customers and shareholders. Besides, most experts who understand the arcane rules of international taxation are paid to use them to keep payments down.
In theory, politicians could be indignant about the government’s lost revenue. But legislators approved the tax laws and almost never objected to aggressive interpretations. Although corporate lobbying certainly played a role in these political decisions, there is a reasonably strong economic case for letting companies engage in guerrilla tax-shopping.
Taxes on profit provide a relatively low portion of the total government take – 9 percent in the United States – and new or retained jobs and investment usually generate far more new tax revenue than is lost by lower taxes on profit. For small countries such as Ireland and Luxembourg, the choice is often between luring companies that can provide a little tax revenue and receiving nothing.