Last week a New York Times article reporting that Apple’s tax rate was effectively 9.8% sparked a deluge of debate and discussion. The basic gist was that since Apple’s profits were $34.2 billion last year – and its tax payments only $3.3 bn – then the overall rate of tax paid by the tech giant amounted to a paltry 9.8%.
However, things were not so simple and various commentators quickly discovered major issues with the research that the article was based on – namely the fact that, according to US corporate tax regulations, the tax bill paid last year actually corresponded to a lowball estimate of the appropriate level due on 2010 profits – not 2011 profits (which were used to arrive at the 9.8% figure).
In a sense though, what was more striking to me was how quickly the story (and the dissection of its foundations) turned into a very partisan mud-slinging match between proponents of a neo-liberal low tax approach to corporate profits – and those more in favour of the redistributive welfare state approach.
Now, I’m no expert on the intricacies of US corporate law and won’t now start pretending to be. In other words, I’m not really interested in the accuracy of the 9.8% calculation and commenting on the methods used to derive it. What I am interested in is the (often vociferous) attendant discussions and debates that the figure has sparked off.
From reading through the various opinion pieces on the issue – and the many comments they’ve attracted from readers – it seems that the two most commonly held positions can be summarised as follows:
The first is roughly summarised as ‘left-wing supporters of redistributive welfare-state systems don’t know anything about economics and the nitty gritty of tax calculations’.
This position takes issue with the derivation of the 9.8% figure (which was methodologically flawed) and essentially uses it as proof of the left’s (as represented by the NYT) incompetence in economic matters. In other words, the story of the story (i.e. the fallout from the errors in calculation which found their way to the NYT article) is being appropriated into a more general political discourse about taxation and the merits of ‘small government’ (allegedly the choice of those who can do accounting) versus the welfare state (allegedly the choice of those who can’t do accounting).
This has very significant consequences for the reason that the initial issue at stake – the ethics and justifications around the off-shoring methods favoured by almost all major multi-national corporations – gets forgotten in the quibbling over a mathematical calculation and subsequent utilisation of it for anti-welfare state propaganda. So, just to be clear – yes it seems likely that the figure of 9.8% as Apple’s effective tax rate is inaccurate. But in arguing about this we seem to be forgetting that there is almost no disagreement that Apple, along with many other companies, routinely makes use of various off-shore mechanisms in order to avoid paying corporate tax on its profits.
Which brings me to the second general position which one finds as a response to the episode, summarised as ‘Apple is greedy and should (in an ethical sense) pay more taxes than it does’.
The problem with this position is that it rests on first making a moral judgement (who is good and who is bad) – which is always unhelpful as a starting point when we seek to change some aspect of our collective life (these things are a lot easier when we broadly agree something is beneficial – rather than guilt-tripping people into it). Then it relies on attributing moral high ground to Apple if it would pay more tax – something I’m sceptical is really going to play on the minds of Apple shareholders enough to bring about some sort of change in behaviour.
Like the previous distraction of accounting methodology concerns, these moral debates are not worthless or irrelevant. They do however distract us somewhat from the main issues initially raised by the statistic of Apple’s tax rate – whatever it numerically happens to be. Instead of saying only either:
a). ‘The number is wrong because those lefties who derived it don’t understand tax’, or
b). ‘The number should be higher because Apple is rich’
we could maybe re-focus on some more fundamental questions. If we are to really discuss the core issue at stake, appropriate questions could be:
A). Should a corporation pay tax?
B). Who should a corporation pay tax to?
Most countries around the world have come to the conclusion that corporations should pay tax – not because it would be nice of them – but simply because in order to ensure the continued nurturing of successful corporations, various conditions must be met, most of which cost a fair bit of money.
So consider infrastructure (communications, transport etc), or education (workers with skills and ideas), or political stability (law and order and other enforcements of the principle of private property) or the existence of markets (i.e. people with a few quid to spend – hence who earn a decent wage themselves and crucially feel secure enough to spend rather than save). In all cases it is clear that, since in most countries of the world the state is directly involved in funding these various areas of our collective lives, the state should therefore be in part funded by the corporations who profit from the provision of these resources – and often also exhaust or deplete them.
This rationale for paying corporation tax is important when we move to the second question of who should collect this tax. The logic is pretty evident that the state providing resources of whatever kind should also be the one who collects the tax in order to continue being able to provide the resources (and avoid the situation whereby tax-paying citizens effectively unofficially subsidise private enterprise). Now, it is pretty clear that in the globalised world, these calculations can get messy – and we all know that messy is not very helpful from the perspective of enforcement of regulation.
So, if a company based in France attracts foreign workers from Spain or Brazil – should Spain or Brazil get a share of the company profits in return for providing expensively-trained and educated people to the French company? Obviously this would be a little too messy, so we have decided that what matters for tax purposes is where people work – rather than where they were trained. This sadly contributes to the injustices of global ‘brain-drain’ dynamics – but at present the only solution would be to restrict people’s movement, which is both hard to do and arguably morally unjustifiable.
However an alternative hypothetical example – and one much closer to the issue at stake with Apple – would be this: if a company designs all its products in offices and studios in the US, then outsources their construction to another company in China, should their profits be taxed in Ireland? Or Luxembourg? Or Jersey, Guernsey or Switzerland for that matter? Did any of these countries provide the conditions which justify collection of corporate tax? Of course not.
All they did is provide an attractive off-shoring avoidance option for companies who are legally obliged to minimise their tax liability out of commitments to shareholders. These few havens exploit the fact of those aforementioned regulations around maximising shareholder profits as well as the fact that they themselves provide nothing of substance in terms of the resources required to establish companies.
If all the employees of Apple now suddenly moved to Luxembourg things would get interesting when the time came to pay for upkeep of roads, installation of infrastructure that provided these people with quality of life, healthcare provision and education of their children. But this will never happen – which is precisely why these tax havens continue to be viable without going bankrupt.
The simple question therefore should be – is there any argument, based upon the principles of taxation, that suggests Apple’s profits (whatever they might be) should be taxed in Ireland or Luxembourg? Even the most neo-liberal of conservatives would struggle to find a satisfactory argument to the affirmative. This is the fundamental problem we are discussing when we debate Apple’s tax rate – and, even though they are important secondary considerations – not whether the maths involved was correctly carried out, or whether the value should be higher in an ethical sense.
