Despite bellyaching, no surprise Apple pays the bulk of tax to the US
The taxation of multinational companies continues to generate headlines.
For various reasons the focus is on US technology companies and, within that group, the primary focus is on companies that have consumer brands.
People interact with Apple, Facebook, and Google on a daily basis and it seems much easier to generate a media headline with various claims about their tax structures.
However, there are many more companies whose name doesn’t match a well-known consumer brand, such as those providing business-to-business services and those in the pharmaceutical sector.
They surely hope the current tax focus stays on the big-brand companies.
A look at the list of companies which have been put under the spotlight by the European Commission illustrates this: Amazon, Apple, Engie, Fiat, IKEA, McDonald’s, Starbucks.
It now seems that Facebook will be added to the list. Bar the French energy company, Engie, the pattern is clear.
That’s not to say there aren’t legitimate reasons to look at the tax affairs of these companies, but it does look like a skewed list.
And even with all the attention put on them, it is not clear that a full picture of their tax affairs is put on display.
For example, in the seven years since 2012 Apple has paid $75bn (€65.7bn) in corporate income taxes. That is around 17% of the company’s pre-tax profits over the period.
In its most recent annual financial statement published earlier this month, the company set out the additional $37bn of tax it will pay on profits earned up to 2017 as a result of the Tax Cuts and Jobs Act passed by the US Congress late last year.
This will bring the effective cash tax rate on Apple’s profits to almost 25%.
This is not to say that this is the ‘right’ amount of tax but it is a long, long way from the 0.05% rate that the European Commission claims the company is paying.
In fact, if the commission’s €13bn finding is upheld by the courts it might not even add 1c to the company’s tax bill; it could merely transfer the payments from the US to Ireland.
The evidence of the $100bn of tax payments that the company sets out in its accounts rarely makes it into the public discourse.
And part of this gets to the heart of much of the political bellyaching about the taxation of these companies: European politicians don’t necessarily want these companies to pay more tax.
They just want more of the tax paid in their countries.
By far the lion’s share of the $100bn of tax set out in the above is for Apple, and the further $12bn to $15bn that the company will pay each year if it maintains its current level of profits, is paid to the US.
That Apple pays the bulk of its tax in the US should not really be a surprise.
It is a US company and most of the activities that generate its profits are located in the US.
Selling phones is not a high-profit activity.
Designing, producing and branding a phone that people want to buy, is.
The current system attributes the taxing right to the country where the profit-making activities are located.
Several European countries are arguing that more tax should be paid to the country where the customers are located.
An EU-wide digital sales tax is one initiative in this direction being pushed by countries such as France.
For these countries, it is attractive as their existing tax base isn’t reduced, even from local companies with lots of foreign sales, but they get a new revenue stream from companies whose main operations, and tax payments, are located elsewhere.
There is no doubt that the approach to taxing cross-border profits set up in the 1920s has not kept pace with economic developments and the rulebook needs to be updated for the digital age.
However, the outcome will hopefully be a bit more nuanced than a revenue grab from some of the bigger countries.n UCC economist Seamus Coffey is also the chair of the Irish Fiscal Advisory Council.
