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.

Getty Images.
Show Hide image

Who really controls the Labour Party now?

Jeremy Corbyn's allies will struggle to achieve their ambition to remove general secretary Iain McNicol.

Jeremy Corbyn's advance at the general election confirmed his place as Labour leader. Past opponents recognise not only that Corbyn could not be defeated but that he should not be.

They set him the test of winning more seats – and he passed. From a position of strength, Corbyn was able to reward loyalists, rather than critics, in his shadow cabinet reshuffle. 

But what of his wider control over the party? Corbyn allies have restated their long-held ambition to remove Labour general secretary Iain McNicol, and to undermine Tom Watson by creating a new post of female deputy leader (Watson lost the honorific title of "party chair" in the reshuffle, which was awarded to Corbyn ally Ian Lavery).

The departure of McNicol, who was accused of seeking to keep Corbyn off the ballot during the 2016 leadership challenge, would pave the way for the removal of other senior staff at Labour HQ (which has long had an acrimonious relationship with the leader's office). 

These ambitions are likely to remain just that. But Labour figures emphasise that McNicol will remain general secretary as long he retains the support of the GMB union (of which he is a former political officer) and that no staff members can be removed without his approval.

On the party's ruling National Executive Committee, non-Corbynites retain a majority of two, which will grow to three when Unite loses a seat to Unison (now Labour's biggest affiliate). As before, this will continue to act as a barrier to potential rule changes.

The so-called "McDonnell amendment", which would reduce the threshold for Labour leadership nominations from 15 per cent of MPs to 5 per cent, is still due to be tabled at this year's party conference, but is not expected to pass. After the election result, however, Corbyn allies are confident that a left successor would be able to make the ballot under the existing rules. 

But Labour's gains (which surprised even those close to the leader) have reduced the urgency to identify an heir. The instability of Theresa May's government means that the party is on a permanent campaign footing (Corbyn himself expects another election this year). For now, Tory disunity will act as a force for Labour unity. 

George Eaton is political editor of the New Statesman.

0800 7318496