Apple a Pioneer of Sidestepping Taxes

by Matt Klassen on April 30, 2012

The only two certainties in life, the old adage goes, are death and taxes, unless of course you’re Apple.

Even as Apple continues to try to bedazzle the public with new gadgets and upgrades, hoping to quiet the outcry over the working conditions along its supply lines following a damning expose in the New York Times, the tech company is once again coming under fire from the media powerhouse over its tax practices, claiming that Apple could be called a pioneer of ways to sidestep tax law in this digital age.

While admittedly every company in the world works to minimize its taxes and thus increase its overall revenues, Apple seems to be blazing its own trail of shortcuts and loopholes, serving “as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill-suited to today’s digital economy.”

Though not illegal (although I will say this does have a wafting unethical stink about it),  if nothing else this demonstrates that governments need to revamp antiquated tax law so that everyone, from our tech companies to our local grocers, pay their fair share.

As the NY Times report illustrates, Apple manufactures no phones in Nevada, has no customer care centres or distribution facilities in the state, yet years ago it established a small office in the heart of Reno designed to collect and invent the company’s profits. While on the face of it this all seems rather mundane, that little Reno office, only a few hundred miles from its head offices in Cupertino, California, is central to the company’s tax saving strategies. For you see, by running much of its business through that small office Apple is able to avoid California’s corporate tax rate (8.84 percent) and benefit from Nevada’s (zero).

To be honest, though, such delicate tax evasion manoeuvres are fairly routine, but as the NY Times reports, tech companies are becoming increasingly adept at these sorts of strategies, and many look to Apple’s model for their own corporate tax saving templates. The issue for tech companies is that when dealing with all things digital it’s much easier to muddle exactly where that digital content comes from, and thus where companies should be legally paying taxes.

More to the point, it would be particularly difficult for grocers, for instance, to muddle where they do their business, as having a physical store that sells physical products is infinitely easier to tax than a tech company who deals in patents, operating systems, digital downloads (music, video etc…), or other nebulous digital products.

The bottom line, as the NY Times reports states, is that last year Apple paid an overall tax rate in America of 9.8 percent, having been able to allocate some 70 percent of its profits overseas, while a company like Wal-Mart, which actually operates physical retail spaces, paid upwards of 24 percent.

While many (like myself) might be quick to blame Apple for practices that while not strictly illegal are certainly unfair, as the report illuminates, these sorts of practices have been adopted by almost every tech company in existence, meaning that in the land where the almighty dollar is king, rather than expect these companies to police themselves the government needs to evolve its tax law to keep these companies in check.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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