America isn’t the only nation that huge multinational corporations shortchange when it’s time to pay the tax man. It’s all perfectly legal, but ethically dubious.
The United States, according to some experts, is facing a fiscal cliff at the end of the year. Unless something is done, George W. Bush-era tax cuts will expire and automatic spending cuts will go into effect, driving the country into a recession.
Europe also is in the midst of a fiscal crisis, caused in part by countries that spend more than they collect in taxes. Yet multibillion-dollar businesses are allowed to use legal stratagems to avoid millions of dollars in taxes.
In April, the New York Times reported that Apple Inc. paid $3.3 billion in taxes in 2011. That’s a lot of money, until you compare it with the company’s $34.2 billion in profits. That makes Apple’s effective tax rate 9.8 percent, instead of the U.S. corporate rate of 35 percent.
According to the Associated Press, the tech giant paid $713 million in taxes on foreign earnings of $36.8 billion in the fiscal year that ended Sept. 29. That amounts to only 1.9 percent of the company’s overseas profits. By comparison, the corporate tax rate in Great Britain is 24 percent.
Apple accomplishes this by funneling profits through subsidiaries in Ireland and the Netherlands before the money lands in the Caribbean. The strategy is called “Double Irish with a Dutch sandwich.” In all, the company has $82.6 billion stashed overseas that it doesn’t have to pay U.S. taxes on.
Apple takes its tax avoidance strategy a step further than most multinationals. It sets aside some foreign profits, which it says will be used to pay U.S. taxes sometime in the future. That money is then subtracted from profits, which reduces Apple’s tax bill even more, even though it could be years before it finds its way to the U.S. Treasury.
It’s all legal, and other companies do it as well. Starbucks has paid less than $14 million in taxes in Great Britain in the past 14 years. For the last three years, the coffee giant has managed to reduce its tax bill in Britain to zero. Other companies, including Facebook, Amazon, and eBay, also wriggle out of millions of dollars in overseas taxes.
Multinational companies have a responsibility to their investors to maximize their profits, so it may ask too much that they not use every sleight of hand to avoid paying taxes. It is up to the nations in which they do business, including the United States. They should eliminate the loopholes that allow companies to turn their tax liability into an international shell game.
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