Apple Goes on Offense to Defend Against Jersey Island Tax Accusations


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Page 2 – Apple’s Defense and the Double Irish

Apple’s Defense

Apple published a press release called “The facts about Apple’s tax payments,” a 1,240 word document that puts up a vigorous defense of its practices, ethics, and reputation. It’s an unprecedented move for Apple, and highlights the seriousness of this story for the company. From the document:

  • The changes Apple made to its corporate structure in 2015 were specially designed to preserve its tax payments to the United States, not to reduce its taxes anywhere else. No operations or investments were moved from Ireland.
  • Far from being “untouched by the United States,” Apple pays billions of dollars in taxes to the US at the statutory 35 percent rate on investment income from its overseas cash.
  • Apple’s effective tax rate on foreign earnings is 21 percent — a figure easily calculated from public filings. This rate has been consistent for many years.

Another theme of the document is that Apple scrupulously follows the law. This is something CEO Tim Cook has said on multiple occasions with an argument that goes something like this (my paraphrase): “We play by the rules you (lawmakers) make. If you don’t like the way we play, change the rules to your liking and we’ll follow those rules, instead.”

Apple further argued that it’s the largest tax payer on the planet, having paid some $35 billion in taxes in just the last three years. Apple also said it has set aside another $36 billion for obligations to the U.S. government on the money in question.

And that’s the crux of the matter. Apple owes U.S. taxes on all those profits earned overseas. The problem is that it doesn’t have to actually hand over those taxes until—or if—it brings those profits inside the U.S. And there’s no law requiring Apple to ever bring that money home. So, as long as Apple leaves the money sitting outside the U.S., it doesn’t have to pay taxes on it.

The Double Irish with a Dutch Sandwich

That’s all pretty cut and dry. Anyone saying that Apple is dodging taxes is wrong. Anyone saying Apple is offshoring profits to avoid taxes is wrong. And, anyone saying Apple is doing something illegal is probably wrong.

That includes this story about Jersey. Shopping around for a country that doesn’t charge a corporate income tax isn’t illegal. The Apple-related documents in the Paradise Papers show good corporate governance—by American standards—not shifty-eyed shenanigans.

But things do get tricky when it comes to Apple’s international corporate structure. For decades Apple has used a combination of subsidiaries and rights-licensing to control where profits are accrued. By doing so, Apple legally minimizes its tax obligations in most countries where it operates. At the same time, income tax is still owed to the U.S. for those same profits.

Every major multinational plays these sorts of games because they can. The end-game is to wait for more favorable conditions in the U.S. that would allow Apple (and the other companies) to bring home some of these vast offshore cash hoards at a lower tax rate than what they face now, which is nominally 35%, minus whatever taxes they did manage to pay elsewhere.

Apple’s Defense Redux

Like I said above, Apple is seriously on the offensive with this issue. The company’s fact sheet says it’s following the law; employees 6,000 people in Ireland; didn’t change its tax obligations to Ireland by moving a company to Jersey; is the biggest tax payer on the planet; and oh yeah, Steve Jobs himself was the Apple exec who opened up its Irish operations to begin with.

Apple Publicity Photo of Steve Jobs in Ireland in 1980

Apple Publicity Photo of Steve Jobs in Ireland in 1980

Apple is a soft target here because the company is fabulously successful. Few publications covering Apple’s tax arrangements mention the billions Apple pays every year in taxes. And many have erroneously suggested Apple is offshoring profits to hide from U.S. taxes. The reality is that Apple works overtime to make sure it owes most of its taxes to the U.S. because of the stupid offshore-profits regulations described above.

At the end of the day, companies like Apple, Google, Starbucks, Amazon or any other U.S. multinational aren’t the right targets. Changing U.S. and international tax systems is the only thing that can make these companies change their practices. Most of these companies are following the law. If U.S. or international regulators want Apple to behave differently, they need to change the laws that govern their existence.

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John Kheit
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John Kheit

Jamie, please list 3 people you know that pay more taxes than the minimum allowable? I hope you shame all your friends that avoid paying more than the absolute minimum they can figure out to pay. You know, because it’s morally wrong to legally minimize your taxes. 🙄

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Rick Allen

As you correctly point out; this is really a non-story. It would be fiscally irresponsible for Apple not to take every measure to improve shareholder value. If there is a legal way to defer or pay less taxes, the officers of the company are compelled to use it. Anything else is mismanagement.

Jamie
Member
Jamie

They are the world’s largest company, naturally they pay the most taxes. It doesn’t change the unethical nature of what they did and continue to do. I know they are far from alone in this, but so what? Sounds like a thousand pages of chutzpah to me. I don’t respect them as a company at this point. Between stuff like this and wrapping every innovation or problem in rhetoric or hyperbole (maybe there is a dearth of competant coders, but how does rhetoric address that? No, I am not going to live full-time in an AR paradise. AI algorithms could… Read more »

Lee Dronick
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Lee Dronick

I would be open to tax amensty for US companies bringing the money home, with some restructions. It stays in US banks, goes into domestic business exapansion, and such. Those are just some quick thoughts and the details need to be thought out by professionals.

John Kheit
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John Kheit

Gosh darn son. So very well put. Bunch of bs clickbait sites trying to blow smoke and using the Apple name as a draw.