May 24, 2013 by Tamara Piety
There was this nice piece today by Christine Hurt over at The Conglomerate about Apple and its tax avoidance strategy. “The late Larry Ribstein coined the phrase “the Apple Rule” when Apple seemed to be the only corporation engaged in options back-dating that got a pass from regulators and prosecutors. Now, it seems that the Apple Rule applies to corporate income taxes as well.”
The upshot is that (a) multinationals are often in the position of being able to choose whether and how much to pay in taxes, (b) that what Apple did was take advantage of provisions in Irish and US law that would essentially allow the company to be “stateless” for purposes of some taxation, and (c) that Congress has tended to treat Apple to a different standard than it has other companies, one that is puzzlingly deferential, as another piece by Victor Fleischer reflects (The there is a link to it in The Conglomerate post). Fleischer has a very funny piece in the TaxProf Blog satirizing the Apple case and the tenor of CEO Tim Cook’s testimony before the Senate.
It is a fictional “Dear Apple” letter from the United States Senate apologizing to Apple for investigating it and encouraging Apple to give the Senate more direction about its legislative desires in the future. “If we have to mention taxes again, I’ll be sure to just add it to the agenda when your lobbyists drop by for a closed-door meeting. And I don’t mean to badger you, but Google and Microsoft spend a lot more money on lobbying, and we do offer special treatment for regular donors.” Fleischer writes, “Finally, I want to emphasize just how much we appreciate your willingness to comply with your legal obligation to pay taxes. If you think about it, taxes are really just a form of charitable giving.”
It is a very funny satire but a serious issue. Unrestrained lobbying does indeed seem to result in “special treatment,” a phenomenon which Citizens United did not engender but which it certainly accelerated, as corporations can make their interests felt through political advertising as well as through direct lobbying.
As John McCain and Carl Levin emphasized, domestic businesses and wage earners do not have the opportunity to avoid taxes this way since they cannot report their income as generated off-shore though the magic of accounting. Some argue that corporate tax avoidance means ordinary tax payers must pay more. I am not sure that is correct since it seems to suggest that ordinary tax payers will tax a larger share of the burden. I am not sure that has been happening. What it seems like has happened is that the burden of paying is deferred through deficit spending. And, for all those deficit hawks out there, one way of reducing the deficit would be to collect more revenue and one ready source of revenue would seem to be simply collecting that which is, in theory, owed but which is subject to various loopholes. Closing those loopholes might raise a fair amount of money.
In contrast, CEO Time Cook and others representing corporate America and global companies would like to see the corporate tax rates reduced and to “incent” (is this a verb?) companies to bring profits back to the U.S. Given the “Apple Rule” I suspect we might see something like this emerge rather than any closing of tax loopholes. It would be possible (although not without significant reform) to close some loopholes through changes to the US tax code.
As a article in today’s New York Times observed, the shameful thing isn’t that Apple avoided paying taxes, ” [it] is that we have a tax system that seems to allow multinational companies to choose what they want to pay.”
“It would be nice if the leading developed countries could agree to cooperate in the taxing of multinationals, and the Organization for Economic Cooperation and Development is working on a report with ideas for how that could be accomplished. Don’t hold your breath.”
I am not.