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Apple's Tax Defense Seems Flawed

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The European Commission has ruled that member states of the EU can’t grant special tax status to select companies. The ruling negates Apple’s lucrative arrangement with Ireland, and means that Apple now owes about $14.5 billion (USD) in back taxes. Apple’s response was a statement that sounds ominously like a threat, claiming, “It will have a profound and harmful effect on investment and job creation in Europe.”

Let me preface this whole thing by stating that I am neither an economist nor a tax professional. I am tech guy who writes about tech, so the opinions I express here are the opinions of a layperson in this particular field. As an average citizen, though, I see a couple flaws in this defense from Apple.

European Commission Ruling

It seems that Apple does employ thousands of people in Ireland, and that Apple is the largest taxpayer in Ireland. However, according to Margrethe Vestager, the European Commission’s competition commissioner, Apple’s effective tax rate was only 1 percent—falling as low as .005 percent in 2014.

The European Commission implies that Apple funneled funds through Ireland specifically to avoid taxes—sort of an internal money laundering scam. The report states that the sales and profits recorded for Apple’s entities in Ireland are attributed to a “head office”, but that the office in question exists only on paper and could not have generated the profits claimed.

The European Commission report sums up the situation, “In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold.”

Taxes or Jobs: Choose

As noted above, Apple’s response to the European Commission decision was to essentially threaten that if Apple has to pay taxes then it will employ fewer people as a result. That defense does not seem to hold water.

A year ago, Apple crossed the $200 billion mark in its cash reserves. Granted, one of the main reasons Apple has been able to amass so much cash is by avoiding paying taxes on its profits—but the company is literally hoarding cash.

Job creation? With the cash it already has on hand, Apple could hire another 135,000 employees at a salary of $50,000 per year and pay all 135,000 of them for the next 30 years. That’s with the cash it already has hoarded. Like, if it never made another dime of profit.

Assuming Apple pays the back taxes determined by the European Commission, Apple might be left with only about $190 billion in cash reserves. With that figure Apple would only be able to employ about 125,000 people at $50,000 a year for the next 30 years.

It seems to me that there is plenty of cash there to both hire and pay employees and pay taxes—and still have well over a hundred billion dollars sitting idle.

Doing What’s Right

A for-profit company exists to generate profit, and a publicly traded company has a fiduciary responsibility to its shareholders to make efforts to maximize profit and return on investment. Through that lens, you can’t really fault Apple—or any other company—for doing whatever it legally and reasonably can to keep as much of its money as possible.

Fair enough.

In my opinion, though, there is also a patriotic duty to the company’s home nation—or at least a moral obligation to the world at large—to return those profits to the world in some way. It can be through mergers and acquisitions of smaller companies, research and development of new technologies that will benefit the world, hiring more people or paying existing employees more money, sharing the profits with shareholders, or through paying taxes. Simply sitting on $200 billion is just not acceptable.

While Apple dodges taxes and hoards cash, others have to pick up the slack. How much money are citizens in and around Apple facilities paying for infrastructure upgrades and maintenance through their tax dollars? How much money are Apple employees draining from other taxpayers through government programs and subsidies?

This idea that if we cut taxes on the wealthy the economy will flow, or that by cutting taxes on corporations there will be more jobs and innovation is a pipe dream. The trickle down philosophy has been pitched, tried, and failed for decades. The result has been a grotesque and widening income inequality as wealthy people and wealthy companies hoard cash rather than investing it back into the world in some way.

I am a huge fan of Apple. I love the company. I love its products. From where I sit, though, there is no reason that Apple can’t pay its fair share of taxes in the European Union, stop hiding its revenue overseas so it pays its fair share of taxes in the United States, continue to invest and innovate, continue to hire and expand, and still have tens—if not hundreds—of billions of dollars lying around.

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