NC Budget and Tax Center

Apple’s tax dodging gimmicks harm US economy, unfair to average taxpayer

Apple Inc., the computer giant and maker of the iPhone, is notorious for its tax avoidance schemes. Such gimmicks prompted a Congressional Senate subcommittee hearing on the corporation’s practices last May. A little bit of digging by Congressional staffers revealed that Apple channels tens-of-billions of dollars of profit through three entities that have no home country for tax purposes. So, despite the fact that most of Apple’s profits ought to be taxable, it is able to skirt paying its fair of taxes by setting up offshore tax havens.

As I explained earlier today, Apple is able to check out on billions in taxes by simply checking a box on the IRS tax form. The “check the box” rule allows companies to use offshore entities as a front to avoid paying their fair share of taxes. Currently, businesses can defer US tax on payments made from one dummy corporation to another, which effectively makes their passive income invisible for tax purposes. This rule has allowed Apple to avoid US taxes on $44 billion in profits over four years from 2009 to 2012.

Senator Carl Levin’s Stop Tax Haven Abuse Act bill would repeal the “check the box” rule and related rules. Combined, closing these corporate tax loopholes is estimated to save the US $78 billion over the next decade.

Such loopholes need to be eliminated to ensure equity to all taxpayers. These tax gimmicks likely don’t sit very well with taxpayers in our state and the nation because we all know that businesses benefit from public investments—like an educated workforce and a solid transportation system—that help make their success possible. It is in the best interest of all taxpayers for corporations to pay their fair share.

7 Comments

  1. Alex

    October 3, 2013 at 2:06 pm

    There is one fallacy in your argument Tazra. This is now a global economy, and companies can easily go elsewhere if they are taxed too much here. We already have the highest corporate tax rates of any industrialized country. IBM is a good example. They are moving much of the company overseas, and now have more employees in other locations than they have in the US.

  2. Alan

    October 3, 2013 at 10:13 pm

    Alex,

    Your comment is uninformed, at best. The USA does NOT have “the highest corporate tax rates of any industrialized country”. There is NO corporation in this country that pays anywhere even close to the 35% rate, and you know that (or at least should know that). On the contrary, many large organizations here pay little to no tax, and oftentimes benefit from corporate welfare where taxpayers essentially end up funding part of their operations, with zero return.

    IBM, along with many other large corporations, have moved many of their (primarily manufacturing) operations overseas to take advantage of substantially lower wage rates in China, India etc. Add to this the tax avoidance measures by offshore operations, and we have a system where large corporations can essentially avoid any form of contribution. It has little, if anything, to do with tax rates in this country.

  3. Alan

    October 3, 2013 at 10:16 pm

    PS,

    Alex, IBM has had more employees outside of the US for many, many years. Their non-US headcount has absolutely zero to do with domestic corporate tax rates.

  4. GOP Rules

    October 4, 2013 at 4:40 pm

    Just a quick search, US highest tax rate ~39%, next highest of non bananna republic (although with the current regime in DC we could be in that category) is Japan at ~38%. So poor Alan/Chris/Allan/Jenna/Sarah/Earl/dave/Billybob is actually wrong. Who would think that could happen here?

    http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates

  5. Allan Freyer

    October 4, 2013 at 4:57 pm

    Just weighing in quickly here–tax loopholes like those described in this series end up dropping corporate tax liability significantly below the effective rate of 36%. So that list of corporate tax rates by countries has nothing to do with a company’s actual tax liability. Sorry GOP Rules.

  6. Alan

    October 5, 2013 at 4:52 pm

    GOP Rules,

    As I posted in another article, the effective US corporate tax rate isn’t anywhere near where you state it to be. Per the GAO report, the average US corporate tax rate is actually 12.6%, see my comments at link below:

    http://pulse.ncpolicywatch.org/2013/10/03/microsoft-exploits-tax-loopholes-to-boost-profits/

  7. Alan

    October 5, 2013 at 4:54 pm

    PS.

    Apparently, the only acceptable tax rate for GOP Rules and team is zero.