An eye-opening report over the weekend in The New York Times described the variety of sophisticated strategies employed by Apple to avoid paying billions of dollars in taxes.
Those include shifting the Cupertino, Calif.-based tech giant’s profits to low-tax countries like Ireland, Luxembourg, the British Virgin Islands and the Netherlands, and within the U.S., to relatively low-tax states like Nevada. While Google is probably best known for using the tax strategies known as the “Double Irish” and the “Dutch Sandwich” for shifting profits to Ireland and the Netherlands, they were reportedly pioneered by Apple, according to the Times. Former Treasury Department economist Martin Sullivan estimates that without the use of such techniques, Apple’s federal tax bill in the U.S. would have been $2.4 billion bigger last year. Across the world, Apple reportedly paid $3.3 billion in taxes on profits of $34.2 billion, in other words, less than 10 percent.
The article notes that Apple’s home state of California is shutting down services and raising tuition at state colleges and universities to try to balance its budget, while the nearby community college where Apple employees use the swimming pool is starved for revenue.
Apple has issued a statement to the Times defending itself, pointing to its job creation record and saying it has more than 47,000 full-time employees in the U.S. By creating new products and industries, the company claims it has provided more than 500,000 jobs in the U.S., including to workers who create components for its products and deliver them to customers. Apple added that it does pay taxes too.
“Apple also pays an enormous amount of taxes which help our local, state and federal governments. In the first half of fiscal year 2012 our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax,” said the company.
That may well be, and of course any taxes paid by the company and its employees and executives help the state and local governments. In addition, Apple remains the largest employer in Cupertino, and local leaders certainly don’t want the company to move out of town. But the Times report does highlight how difficult it is for the federal, state and local governments to collect all of the taxes that a company, particularly a large, sophisticated technology company with global operations and sales, would be expected to pay on its earnings.
When money can be shifted easily around the world to a post office box or a small office abroad by a technology giant, perfectly legally because of the distorted tax laws, then local resources like community colleges and state budgets may find themselves on the losing side of the tax revenue equation.