Friday 19 December 2014

Austerity, Apple and America: what we all learned this week

Published 22/05/2013 | 05:00

BESTPIX Apple Introduces iPhone 5...*** BESTPIX *** SAN FRANCISCO, CA - SEPTEMBER 12:  Apple CEO Tim Cook speaks during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone.  (Photo by Justin Sullivan/Getty Images)...A
Apple chief executive Tim Cook: the US Senate’s report on firm’s tax activities says an Irish-based subsidiary reported a net income of $30bn (€23.33bn) from 2009 to 2012 and paid no tax on any of that money

APPLE is the sexiest company on planet Earth. Its tax affairs are in the spotlight both because of Apple's sheer size, and also because political posturing against semiconductor companies would fall flat in the media.

Apple, like almost all multinational companies, uses the different taxation systems of the world to make the most money for its shareholders.

No one is suggesting Apple did anything illegal in trying to pay as little tax as possible. For example, recently Apple sold bonds worth $17bn (€13.2bn) in the world's largest corporate debt sale to cash return for shareholders.

Prior to this, Apple had no debt at all, in fact it has roughly $145bn (€113bn) in cash. So why borrow money? The answer lies in location of the the cash: $45bn (€35bn) is held in the US.

So Apple would need to move $55bn (€43bn) to the US, and that would cost a lot more in tax than simply paying the interest on $17bn.

That's just good business, right? Well, yes if you're an Apple shareholder, and no if you're part of a cash-strapped government that needs to increase income taxes, rather than corporation taxes, to fund a budget deficit or keep government services like health and education running at the same levels as last year.

Apple has been in Ireland for nearly 30 years. Ireland's legal structures allow Apple to save billions of dollars in tax, not because of something we do – we're not a tax haven in the sense that Bermuda or the Cayman Islands are – but we have tax-haven like features, where we turn a blind eye to the existence of subsidiary companies which have no tax jurisdiction at all – and thus pay no tax here, or anywhere else.

The money, so to speak, doesn't rest in our accounts.

In one example, the US Senate's report on Apple's tax activities states that Apple's Irish-based subsidiary, Apple Operations International, reported a net income of $30bn (€23.33bn) from 2009 to 2012 and paid no tax on any of that money.

To get a sense of scale, $30bn is 1.5 Irish health services, two education systems, or about 20pc of Ireland's national output.

That's how big Apple is, and that's why the authorities are coming after them.

Four things matter in this debate. First, we must recognise that Ireland helps large companies like Apple save lots of money in tax.

Our Government paints this as an issue for other jurisdictions. It's not.

I've argued in this column several times that Ireland faces a huge risk to its welfare if US tax loopholes get changed. Our 12.5pc corporation tax rate is a good thing, it is one of the pillars on which our export-led growth strategy rests.

But the other pillar is a lax taxation structure that can simultaneously allow a subsidiary of a multinational company to exist, and not exist, at the same time.

We are tax compliant, according to the OECD, but yet a subsidiary of Apple can exist and not exist at the same time?

This isn't quantum mechanics, there's no Schrodinger's cat, both alive and dead in the box at the same time. The company has to pay its tax somewhere, to some nation.

Second, we have to recognise this story is not just about Apple. All multinationals try to stop paying their taxes in some form in order to realise the largest gain for their shareholders.

Last week British MPs excoriated Google's use of what they called 'smoke and mirrors' using their Irish subsidiary to avoid paying tax in the UK, and there have been many instances of companies like Starbucks and others using national and international tax structures in ways that are not ethical.

Third, we must recognise that these actions to maximise shareholder value have real world consequences.

When these companies don't pay tax either services don't get funded, or household income taxes have to go up to fund the difference.

Finally, at a deeper level, we must recognise the battle going on between the multinational corporation and the nation state.

Corporations cannot be allowed to continue to pay pc tax while austerity policies are implemented on the majority of Ireland's citizens.

Dr Stephen Kinsella lectures in economics at the University of LImerick

Irish Independent

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