Is Apple the largest corporate taxpayer in the US, in keeping with its massive sales—it has the sixth largest sales of all US firms—or is it, going by what a US Senate panel says, as inventive when it comes to its tax planning as it is when it comes to its impressive array of new products. The panel’s investigation is worth a read because it tells a story of not just massive loopholes in US tax laws, but also of how investigations of parliamentary committees should be conducted and the in-depth level of investigations. It has to be said in Apple’s favour, despite all the allegations, it still ended up paying $6 billion of corporate income taxes to the US treasury—or, as it said in the testimony before the panel, $1 out of every $40 of corporate taxes collected by the US government came from Apple.
Briefly, the US Senate Permanent Sub-committee on Investigations found Apple had some Irish operations to which its overseas incomes are routed. Since the companies were incorporated in Ireland but controlled out of the US, they were not tax-resident in Ireland and therefore not taxed in that country. And since the operations were not incorporated in the US, the money couldn’t be taxed in the US either. Apple has said that (a) it welcomes an objective examination of the US tax system, (b) it hasn’t really used loopholes to avoid paying billions of dollars of taxes and is one of the largest corporate tax payers in the country, and (c) the Irish operations funded more than half of Apple’s R&D costs—had Apple repatriated the funds to the US, they would have been “reduced by a 35% US corporate tax rate”. Moreover, Apple did not claim R&D tax deductions on this expenditure. While the Apple episode will lead to a more vigorous re-looking of the role of tax havens globally—the US estimates it loses $100 billion a year in taxes due to this—it would be foolhardy to ignore the fact that the money saved from the taxman goes to finance R&D and business expansion. The jobs created from this have to count for something.