Not rotten to the core: Apple Inc and the Double Irish


Screen Shot 2013-05-22 at 12.13.08 PMAs the European Union (EU) discusses tax evasion today (evasion is illegal, avoidance is not), it may be worth noting that some of the best-known tax avoidance schemes in the world are named after EU member countries – the Double Irish and the Dutch Sandwich.

This is something that Apple – the world’s favourite info-tech and techno-entertainment company – knows just as much as everybody else. And it cannily took advantage of ways to pay less US tax. Fraud? Criminal?

No, not by a long shot.

Ethically dubious? Perhaps. In a world riddled with inequity (and full of idealistic young people, who are potential or current Apple customers) most ‘hip’ companies (or at least those that ‘trend’ on Twitter) would prefer to be seen as principled and socially responsible. (In general, most people – young or old – are decent sorts and hope that those who can afford it will pay their fair share.)

From that platitude to full disclosure. I own some (barely 10) shares in Apple Inc. I have an iPhone 5  and an iPod. And I am writing this on a MacBook Air. So it would be fair to say I am pretty well invested in Apple, as are millions of its loyal customers around the world.

This is why it is hard to see much logic in recent attempts to cast Apple as a perpetrator of fraud just because it’s been clever enough to avoid (not evade) paying the top US corporate rate of tax – 35 per cent – on every dollar it earns around the world.  (Tuesday’s report by the US Senate Permanent Subcommittee on Investigations said Apple had “undermine(d) the fairness of the U.S. tax code” by managing to avoid taxes on nearly a third of its $30 billion worldwide net profits from 2009 to 2012. Apple apparently did all this “undermining” by the simple expedient of booking the profits to Irish subsidiaries.)

Enter the Double Irish (as well as the Dutch sandwich, though that’s not in play in this case, ie it’s not nourishing Apple’s core profit). Either deliberately or because of inadvertent mismatches in tax rules, efforts to avoid double taxation often result in little or no taxes for those best placed (and wily enough) to take advantage.

Countries like Ireland feature in tax avoidance schemes, attracting some of the biggest and best corporations in the world, partly because they keep corporate tax rates low (12.5 per cent in this case). Apple is not the only American entity to appreciate this. So does web search leader Google, online retailer and coffee chain Starbucks. But as Google executive chairman Eric Schmidt said today at a ‘Big Tent’ event in London, “this is how international tax regimes work”. He added that no computer scientist would design so poor a tax system as exists and tax determination is not for companies to make, but for countries and their governments. In other words, it’s up to the US to fix its own laws and work with other countries to ensure a fair and viable system.

Hear, hear. The US has only itself to blame if its biggest companies find it too expensive to be registered there. As The Washington Post editorialized, “The Apple case illustrates, seemingly for the millionth time, the need for corporate tax reform…There is also broad consensus that reform should consist of closing loopholes in return for lower rates.”

It is pretty pointless to blame little Ireland for being attractive to multi-national corporations. Hard to disagree with Irish prime minister Enda Kenny’s judicious, if rather defensive, comment: Companies don’t come to Ireland only because of the corporate tax rate but “because of our technology, because of our record and because of our talent pool.”

The facts support Mr Kenny’s case. Albania, Andorra, Montenegro and Paraguay are just three of a host of other countries with corporate tax rates set at 10 per cent or less (and Nepal has just five per cent) but it’s not as if Apple, Google and the others are rushing to become incorporated entities there.

Go figure.