Congressional hearings on the tax avoidance strategies of US multinational corporations focused yesterday on Apple. It is not unique in its use of subsidiaries in tax havens to avoid taxes but it is one of the best at that game. It is not only good at the game but its management told Congress that its subsidiaries provided valuable business operations and that they were not set up to avoid taxes. One of its subsidiaries in Ireland is managed from California and its board meetings are held in California. It pays no taxes in Ireland or in the US.
The tax avoidance strategies commonly used by multinational corporations have shifted the tax burden from corporations to individual taxpayers. The taxes paid by US corporations used to bring in about the same amount of revenue as the personal income tax. Today corporate tax revenues are a small fraction of total federal tax collections. The use of tax havens to avoid taxes is not illegal. The problem, however, illustrates the impact that globalization has on nation states. Multinational corporations are stateless. It is very difficult for nation states to regulate the behavior and policies of stateless corporations. Most of the global economy is controlled and operated by corporations which have little interest in the countries in which they are incorporated. They operate primarily to serve the interests of their shareholders and their executives who are also large shareholders. Apple recently borrowed $17 billion to pay dividends to its shareholders and to repurchase its stock, which reduces the number of outstanding shares and makes each outstanding share more valuable. It could have used some of the $100 billion of profits that it has in international subsidiaries to perform that function for its shareholders. It would have been forced to pay US taxes on the repatriated funds if it did so. It avoided taxes by borrowing the money at very low interest rates, and it can deduct the interest paid on its bonds from its US taxes.
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