Apple's taxing problem

New York Times accuses Apple of tax avoidance on a large scale

The New York Times has published an in-depth look at Apple's tax arrangements, which finds that the computing company avoided paying around $2.4bn federal income tax in the US last year. The company paid, worldwide, tax of $3.3bn on profits of $34.2bn, although it does not break down what proportion of that tax is paid in what countries, nor does it detail which years the tax is due to – as Worstall points out, American corporation tax is usually deferred, so some of that tax will actually be on last year's profits rather than this years.

Tax avoidance stories always raise the question of definition. In this case, for instance, much of Apple's tax bill will be naturally reduced by the fact that the company sells 64 per cent of its products outside of its American home, and makes almost everything in China. Since it doesn't have to pay American tax on something made in China and sold in Ireland, it perfectly acceptably reduces its liability.

Yet as with all of these stories, that sort of reduction is not all that the company is doing. Many of their accounting structures seem to be put in place with the sole purpose of abusing the tax laws of multiple nations to pay as little as possible. Take, for example, the accounting technique improbably known as "double Irish with a Dutch sandwich". If Apple sells something in the UK, the profits are accountable to an Irish subsidiary, which then passes them on to a Dutch company taking advantage of European capital mobility, then back to a second Irish company which is technically owned by a company in a country with a 0 per cent corporation tax rate.

On paper, then, the majority of Apple's profits are made outside of the US. Despite the fact that the majority of sales are also made internationally, the NYT points out that:

The majority of Apple’s executives, product designers, marketers, employees, research and development, and retail stores are in the United States. Tax experts say it is therefore reasonable to expect that most of Apple’s profits would be American as well. The nation’s tax code is based on the concept that a company “earns” income where value is created, rather than where products are sold.

Even when profits make it into the United States, Apple still moves them in ways that seem wholly to do with paying lower taxes. The company makes all of its corporate investments through a subsidiary with the pun-tastic name Braeburn Capital, which is based in Reno, Nevada – 200 miles from Cupertino, and with a 0 per cent state corporation tax rather than California's 8.84 per cent.

Apple is far from alone in behaving like this, but the company has managed to retain a remarkably spotless image while growing to become the biggest in the world. They already suffered greatly from the perception that they were callously mistreating their workers in China, and this report could create a problem almost as large.

San Francisco, California. Apple reported a 93 percent surge in second quarter earnings with a profit of $11.6 billion Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Why do the words “soup, swoop, loop de loop” come to mind every time I lift a spoon to my lips?

It’s all thanks to Barry and Anita.

A while ago I was lending a friend the keys to our house. We keep spare keys in a ceramic pot I was given years ago by someone who made it while on an art-school pottery course. “That’s er . . . quite challenging,” the friend said of the pot.

“Is it?” I replied. “I’d stopped noticing how ugly it is.”

“Then it’s a grunty,” she said.

“A what?” I asked.

“A grunty. It’s something you have in your house that’s hideous and useless but you’ve stopped noticing it completely, so it’s effectively invisible.”

I was much taken with this idea and realised that as well as “grunties” there are also “gruntyisms”: things you say or do, though the reason why you say or do them has long since been forgotten. For example, every time we drink soup my wife and I say the same thing, uttered in a strange monotone: we say, “Soup, swoop, loop de loop.” How we came to say “soup, swoop, loop de loop” came about like this.

For a married couple, the years between your mid-thirties and your late forties might be seen as the decade of the bad dinner party. You’re no longer looking for a partner, so the hormonal urge to visit crowded bars has receded, but you are still full of energy so you don’t want to stay in at night, either. Instead, you go to dinner parties attended by other couples you don’t necessarily like that much.

One such couple were called Barry and Anita. Every time we ate at their house Barry would make soup, and when serving it he would invariably say, “There we are: soup, swoop, loop de loop.” After the dinner party, as soon as we were in the minicab going home, me and Linda would start drunkenly talking about what an arse Barry was, saying to each other, in a high-pitched, mocking imitation of his voice: “Please do have some more of this delicious soup, swoop, loop de loop.” Then we’d collapse against each other laughing, convincing the Algerian or Bengali taxi driver once again of the impenetrability and corruption of Western society.

Pretty soon whenever we had soup at home, Linda and I would say to each other, “Soup, swoop, loop de loop,” at first still ridiculing Barry, but eventually we forgot why we were saying it and it became part of the private language every couple develop, employed long after we’d gratefully ceased having soupy dinners with Barry and Anita.

In the early Nineties we had an exchange student staying with us for a year, a Maori girl from the Cook Islands in the southern Pacific. When she returned home she took the expression “soup, swoop, loop de loop” with her and spread it among her extended family, until finally the phrase appeared in an anthropological dissertation: “ ‘Soup swoop, loop de loop.’ Shamanistic Incantations in Rarotongan Food Preparation Rituals” – University of Topeka, 2001. 

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt