WASHINGTON MERRY-GO-ROUND
Founded by Drew Pearson 1932
Apple and the giant U.S. tax loopholes
By Douglas Cohn and Eleanor Clift
WASHINGTON – When Apple, Inc. held a $17 billion bond offering in April, analysts wondered why the storied company would take on that amount of debt when, like many U.S. corporations, it was sitting on mega-billions of cash that it could readily tap. The Apple sale was the largest bond offering in history, and it was not immediately obvious why it made good business sense for the corporate giant.
Now we know. In testimony Tuesday before a Senate subcommittee looking into Apple’s tax practices, CEO Tim Cook was unapologetic in confirming the web of legal entities that Apple created to significantly lower the amount of taxes it would otherwise pay. Simply put, it is more effective for Apple to borrow money at record low interest rates of 1 percent than to repatriate money from its foreign holdings and have to pay the U.S. corporate tax rate of 35 percent.
Nobody begrudges Apple for taking deductions that are legal, and for pursuing all means available to lessen its tax burden. The method Apple chose, setting up several subsidiaries in Ireland to avoid U.S. taxes while administering the company out of California to avoid taxes in Ireland is stunningly simple, seems unpatriotic, and is of course perfectly legal.
It’s hard to blame Apple for doing what a lot of other corporations probably wish they had thought of, too, and Sen. Rand Paul, R-Ky., said the lawmakers should apologize to Apple. “I’m offended by the spectacle of dragging in executives from an American company that is not doing anything illegal,” Paul said.
On the other hand, most companies have not taken their tax avoidance to the extent Apple has in creating a network of offshore companies, some with no official tax residence, that allow them to pay little or nothing in the way of taxes to any government.
Cook acknowledged that the company he leads took advantage of a loophole in the tax code. He suggested that rather than close the loophole, which would be very difficult, Congress should fix the corporate tax rate to bring it more in line with rates in other industrialized countries.
Few companies actually pay the 35 percent that’s on the books; they find their own tax dodges. President Obama agrees with Republicans that the rate should come down, but both parties appear to be waiting to take action in the context of a broader tax reform package – and given partisan gridlock, that could be a long wait.
Apple is acting like a true corporation, putting first its fiduciary responsibility toward its shareholders. It’s cheaper to borrow money in the U.S. than to bring money back from overseas that would then be taxed at a high rate. For the U.S. economy, it’s a double whammy. Taxes are lost to the Treasury and capital markets drained by Apple’s borrowing could better be utilized elsewhere.
Fixing the problem is not rocket science. First, the corporate tax rate should be lowered to where it’s competitive in the global marketplace, high enough to bring in revenue but low enough to discourage the kind of gyrations demonstrated by Apple.
Second, any U.S. company with a controlling interest in a foreign subsidiary must pay taxes. If the taxes in Ireland are 2 percent, the company should pay the difference, or 33 percent under current law, to the U.S. Treasury. Lastly, if a company like Apple is domiciled in the U.S., which Apple readily admits, any foreign company in which it has a majority interest should be required to pay U.S. taxes, not gain immunity through what is obviously and transparently a tax dodge.
Apple is one of the computer era’s great iconic companies, and if corporations are people, as the Supreme Court has ruled, a show of good faith when it comes to taxes is needed for a quintessentially American company to thrive and survive in the 21st century.
© 2013 U.S. News Syndicate, Inc.
Distributed by U.S. News Syndicate, Inc.
END WASHINGTON MERRY-GO-ROUND