Thursday, May 23, 2013

Apple's CEO Answers Questions About Tax Avoidance At Senate Hearing

Apple's new CEO displayed the chutzpa that was characteristic of Steve Jobs at the Senate hearing.  Like most corporate CEO's who are taking advantage of tax havens he said that Apple was doing nothing illegal.  That is correct.  There are loopholes in the tax code that enable multinationals to avoid taxes.  He went further, however, and he denied that Apple was using Ireland as a tax haven.  That is a lie.  Apple has transferred its intellectual property to an entity in Ireland.  The subsidiary collects royalties on the sale of Apple products sold in the US and elsewhere.  The royalty payments reduce profits in localities where its products are sold and Apple pays a 2% tax on its profits in the Irish subsidiary which has no employees.

The Senate hearings are not very meaningful.  They bring attention to the problem of tax avoidance by multinational corporations but there aren't many politicians who really want to change the corporate tax system.  And even fewer politicians want to be critical of the American genius represented by our high tech firms.  Microsoft, for example, employs a similar strategy to avoid taxes. It has transferred its intellectual property to another tax haven and takes much of its profits in the tax haven.  Corporate tax avoidance is a booming industry that attracts some of our best lawyers and accountants to the industry.  Many Americans may applaud their genius, but it may dawn on some that the taxes avoided by multinational corporations are shifted to them, or that cuts in popular government programs like education are partially due to corporate tax avoidance.  Some may even be clever enough to ask why their governments spend resources defending corporate intellectual property rights when they used to avoid domestic taxes.  That of course, would surprise our politicians who need corporate campaign contributions to run their election campaigns which depend upon a misinformed public.

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