With Your Government's Permission

Apple’s tax trickery has sparked outrage in the United States and beyond. But Apple CEO Tim Cook did nothing different than many taxpayers, large and small, routinely do every day. Citizens should be angry with the lawmakers in their own governments.

Apple, once praised as one of the companies par excellence of the Internet era, has some ugly problems: wretched working conditions for employees of Apple’s Chinese suppliers, falling stock market values, rebellious shareholders who want to decrease Apple’s cash reserves. Added to that, doubts about Apple’s ability to come up with new and innovative products — the products that have made the California company rich and famous — are now beginning to creep in.

And now this: taxes. A Senate subcommittee says that Apple, thanks to its many subsidiaries around the world, paid little or no taxes on profits it realized from its offshore operations. The outrage in the United States and around the world is enormous. One of the most successful corporations of modern times, a company whose products have changed the lives of people worldwide, is a tax shyster? And that precisely at a time when Americans are feeling the pinch of falling revenues in their daily lives — services being cut as they find they’re paying higher taxes and more into Social Security. Making $74 billion a year tax-free is a big deal.

Byzantine Tax Laws

The critical point: Nobody is accusing Apple of any criminal wrongdoing. It’s all about legal tax avoidance in general. Apple CEO Tim Cook did absolutely nothing other than that which taxpayers — big and small alike — do all over the world: He asked his tax lawyers how he could pay as low of a tax rate as possible without going to jail. And Apple’s legal staff came up with exactly that road map — a global road map and in the largest scale possible. Result: In the United States, Apple paid $7 billion in corporate taxes last year; on their foreign profits, they paid essentially nothing.

As understandable as the anger directed at Apple may be, the real anger should be directed at the legislators in the various national governments. Tax law in the United States is no less byzantine than it is in Germany. The complications are often intentional; behind every deduction there’s a narrowly defined special economic interest. The more deductions there are in the code, the more the opportunity for shenanigans — and therefore, the more interest firms like Apple will have in influencing tax legislation.

The right thing to do would be to finally implement the decades-old plans to simplify the tax code. That’s especially pertinent now in the digital age, where global enterprises are the rule rather than the exception. There’s no longer a need to harmonize tax codes so that records can be globally balanced. The Irish rightly fought back when the European Union tried to raise their future taxes. But cases like the notorious subsidiary Apple Operations International should be stopped by international law. The Apple subsidiary is physically located in Ireland, but in reality has no “tax home” and therefore operates essentially tax-free.

The U.S. democracy has its own way of addressing such problems: congressional grilling. Public hearings conducted by Senate committees, such as the one Apple CEO Tim Cook was invited to address, exert extreme pressure on the witnesses and their agencies.

Being paraded in front of the senators and the media world as a suspect can endanger the company itself. Many a CEO therefore changes their tune “voluntarily,” at least publicly. It’s highly likely that Apple and its managers will do likewise.