A couple of stories out there that touch on one of my personal bugbears: this idea that
The first story is about Apple in Singapore:
There is nothing illegal about the accounting practices employed by the computer giant, which, like many multinational companies ranging from Google Inc and
Microsoft Corp toBHP Billiton and Huawei Technology Co, uses the city-state as a key hub for its Asia business.Singapore has so far largely stayed out of the debate raging in Europe and the United States about the ways multinationals try to lower their tax bills.
But revenue-hungry governments are looking to impose tougher rules on so-called transfer pricing that could make it harder for firms to trade goods, services or assets between their Singapore and overseas entities.
It is most certainly true that the arrangements that Apple has in both Ireland and Singapore reduce the tax bills it has to pay to various countries. And you can indeed call them tax avoidance if you like. But these arrangements make absolutely no difference at all to the tax due in the US. Actually, sorry, that's not true. They actually increase the amount that might be theoretically due in the US at some future date. Therefore it's important to distinguish between what Apple is doing to the tax income of, say, the UK, or India, and what it is doing to the tax income of the US.
Very much the same is true of this story about the tax practices of Google:
While Apple CEO Tim Cook was dragged in front of the Senate Permanent Subcommittee on Investigations earlier this week to explain it’s supposed 14% tax rate and a heavy use of Irish tax shelters to store tens of billions in profits, Google may be an even more blatant avoider of U.S. taxes.
The company was able to beat its most recent quarterly earnings forecasts because of an income tax rate that fell to the single digits, according to analysts. In the first quarter of 2013, Google reported an income tax rate of just 8%.
Google does indeed have a low tax rate: but it's not as a result of any tax avoidance in the US.
Worth just defining some terms here. The first is tax evasion: that's the illegal stuff for which people are fined and in blatant cases sent to jail. No one at all is suggesting that Apple and or Google are indulging in this. Tax avoidance, well, according to the tax campaigners like the Tax Justice Network and Richard Murphy, tax avoidance is using the law as it is written but in a manner not intended or desired by those who wrote the law. It's easy enough to construct a (deliberately extreme) example here. Say that Congress, in its wisdom, said that company provided lunches to workers were tax deductible (for all I know they are). Along the lines of the argument used about school lunches: making sure that everyone gets a good, solid, nutritionally balanced meal each working day.
Excellent: so, companies that provide a decent lunch and take the tax deduction are not tax avoiding: they're doing exactly what the law was set up to encourage them to do. We could also see that if "lunch" for each worker includes $100 worth of packed food for them to take home to feed their families with, and that a tax deduction is being taken for that $100 per worker per day, well, we'd call that taking the mickey and almost certainly call it tax avoidance.
Which brings us to the question of whether Apple and Google are practising any form of tax avoidance with respect to the US corporate tax code. Leave aside everything that they do to reduce taxes paid in other parts of the world. That's, obviously, nothing to do with the US corporate tax code. And what that US tax code does say is that if you earn profits abroad, leave the profits abroad and do not intend to bring them back into the US then no US corporate income tax is due on those profits. This is not some loophole, not some strange glaring anomaly in the tax code: it's deliberately in there to encourage US corporations to use their foreign earned profits to continue to expand their activities in foreign lands.
Now, perhaps this part of the code ought not to be there. But it is and making use of it, in exactly the manner that the code expects it to be used, is not tax avoidance. It's doing exactly what the framers of the law desired that the companies do when they put that provision into the tax code.
And as far as US taxes are concerned that really is the only thing that Apple and Google are doing (other companies like Microsoft are a little more complex here). Thus they simply are not avoiding tax in the US.
There is one final point that should be made here. All those lovely companies in Ireland, Bermuda, Singapore and so on that reduce their tax liabilities to other countries. In the end they increase the potential tax liability in the US. For the end point and aim of making a profit is to return that money to the shareholders: that is the point of being a company, to make money for them. And to do that you either need to pay a dividend or to conduct a stock buyback. Both of which require bringing the money back into the US. At which point it would have to pay the US corporate income tax. And please note, that corporate income tax is paid at the US tax rate minus foreign taxes already paid. And if some pretty cool moves are made to reduce the amount of foreign taxes paid then that will increase the amount of US corporate income tax which might or would be paid upon repatriation of those foreign profits.
There's lots of interesting things we can say about the tax structures of Apple and Google. And one of them is that, with respect to the US corporate income tax, they're simply not doing any tax avoiding. Yes, even with those very low average tax rates they're still only doing what the US tax code deliberately encourages them to do: and that just ain't tax avoidance.
