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.

Photo: Getty
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Zac Goldsmith has bitten off more than he can chew

In standing as an independent, Goldsmith may face the worst of both worlds. 

After just 48 years, we can announce the very late arrival of the third runway at Heathrow. Assuming, that is, that it makes its way past the legal challenge from five local councils and Greenpeace, the consultation with local residents, and the financial worries of the big airlines. And that's not counting the political struggles...

While the Times leads with the logistical headaches - "Heathrow runway may be built over motorway" is their splash, the political hurdles dominate most of this morning’s papers

"Tory rebels let fly on Heathrow" says the i's frontpage, while the FT goes for "Prominent Tories lead challenge to May on Heathrow expansion". Although Justine Greening, a May loyalist to her fingertips, has limited herself to a critical blogpost, Boris Johnson has said the project is "undeliverable" and will lead to London becoming "a city of planes". 

But May’s real headache is Zac Goldsmith, who has quit, triggering a by-election in his seat of Richmond Park, in which he will stand as an anti-Heathrow candidate.  "Heathrow forces May into Brexit by-election" is the Telegraph's splash. 

CCHQ has decided to duck out of the contest entirely, leaving Goldsmith running as the Conservative candidate in all but name, against the Liberal Democrat Sarah Olney. 

What are Goldsmith's chances? To win the seat, the Liberal Democrats would need a 19.3 per cent swing from the Conservatives - and in Witney, they got exactly that.

They will also find it easier to squeeze the third-placed Labour vote than they did in Witney, where they started the race in fourth place. They will find that task all the easier if the calls for Labour to stand aside are heeded by the party leadership. In any case, that Clive Lewis, Lisa Nandy and Jonathan Reynolds have all declared that they should will be a boost for Olney even if she does face a Labour candidate.  

The Liberal Democrats are fond of leaflets warning that their rivals “cannot win here” and thanks to Witney they have one ready made.  

Goldsmith risks having the worst of all worlds. I'm waiting to hear whether or not the Conservatives will make their resources freely available to Goldsmith, but it is hard to see how, without taking an axe to data protection laws, he can make use of Conservative VoterID or information gathered in his doomed mayoral campaign. 

But in any case, the Liberal Democrats will still be able to paint him as the Brexit candidate and the preferred choice of the pro-Heathrow Prime Minister, as he is. I think Goldsmith will find he has bitten more than he can chew this time.

This article originally appeared in today's Morning Call, your essential email covering everything you need to know about British politics and today's news. You can subscribe for free here.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.