Update: I've managed to get this completely wrong, as it helpfully pointed out in the comments, for I've failed to read one important line.
The tax paid number is for the past 12 months, not just the quarter just past.
I'll leave the mistake up here to teach me to be more careful before climbing upon one of my hobby horses again.
Do you recall a few months back when everyone from the New York Times to the Huffington Post was thundering that Apple paid only 9.8% of profits as corporate income tax? Sure you do and regular readers will recall that I huffed and puffed about how that was an entirely absurd method of calculating a tax bill. But just for fun let us calculate this quarter's corporate income tax bill for the company using the same method that was used to get to that 9.8%. For if that was indeed the correct way of calculating it then it must also be the correct way of calculating it now, yes?
The answer is that Apple's paying a corporate income tax rate of 70% this quarter just reported.
Yes, it is indeed a ridiculous number and no, it's not at all the rate that the company either has or will pay. But it is the rate when we calculate it exactly the same way that that 9.8% rate was calculated. And I, for one, am greatly looking forward to news outlets from the New York Times to the Huffington Post headlining this unconscionable amount that one of America's leading companies is being forced to pay. For of course they will, won't they?
In order to do our calculation we have to go back to the original method that was used to get to the 9.8% tax rate. Which was this, from the Greenlining Institute:
The third method, which this report uses, is what a company reports on its 10-K as “cash taxes paid.” This is how much a company actually paid in taxes in a given year. But that figure includes the company’s taxes paid everywhere, including taxes paid to states, the U.S. federal government, and to other countries. Some of that money could be paid for back taxes and some could eventually be refunded. While imperfect, this is the best estimate of how much a company actually pays in taxes in a given year. Until the government or the Financial Accounting Standards Board requires companies to report more, this is the best figure available.
Cash taxes paid in a period are the best method, while an imperfect method, of estimating how much a company actually pays in taxes in a given period. As I've said both before and above I don't agree but here we are using exactly the methods that led to the previous headlines. And this is indeed the method that the New York Times used in its own article on the subject.
As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent.
Cash taxes paid in a period should be compared to profits in that period to give us the tax rate.
So, in our just reported quarter what do we find that Apple has paid, how much has it made in profits? The (unaudited) results are here. Where we can see that income before provision for income taxes is $10,893 million. And if we go down to the very last line of the release we can see an interesting piece of supplementary information. Cash paid for income taxes, net, was $7,682 million.
We then do our Greenlining Institute/New York Times calculation and we find that $7.6 of $10.9 is 70%. Apple has thus paid a corporate income tax rate of 70% in this most recent reported quarter.
Does Apple play interesting games with their corporate taxation? Most assuredly they do, yes. They even reveal a goodly chunk of what they do in their full accounts. Like leaving profits made in foreign countries in those foreign countries so that they are not taxable by Uncle Sam. All of which is entirely irrelevant to the point I want to make here.
We had the New York Times announcing to the world that Apple only paid 9.8%. The Washington Post picked it up (fortunately mentioning my correction). Fortune ran with the 9.8% number (without correction). Accountancy Age used the 9.8%. Huffington Post told its outraged readers about the 9.8%.
The point I want to make being that of course all of these outlets are going to run stories of similar magnitude and importance on this quarter's 70% rate, aren't they? Given that the statutory headline corporate income tax rate in the US is 35% it is just as newsworthy that a company is paying 70% as it is that it is paying 9.8% isn't it? For they all were indeed running news pieces, weren't they?
Back in the real world of course we're not going to see such pieces being run. For the clear and obvious reason that Apple hasn't paid a 70% corporate income tax rate for this quarter. Just as it didn't pay 9.8% last year. For the method that Greenlining and the NYT used is simply nonsensical, hopelessly inaccurate. But that didn't stop them publishing last time around, did it?
