Apple's tax avoidance

If Apple's widely recognized icon -- the silvery apple with a sizable bite off the right side -- were to accurately reflect the size of the taxes the company pays, the bite of the apple would be substantially smaller.

Indeed, the popular computer and software company whose whimsical public relation image is that of innovative underdog, is expected by Wall Street to lead all American businesses with record profits of up to $41.4 billion this fiscal year. Yet like other high technology companies for which it has helped pave the path of tax avoidance, its corporate tax payments to governments in the United States and other countries are expected to amount to less than 10 percent of profits, or just a third of what America's traditional manufacturing companies may pay.

These and other figures and tax avoidance strategies, outlined Sunday in an in-depth report by The New York Times, reflect both Apple's ingenious innovations in legal tax avoidance, and the extent to which governments' traditional tax-base formulas are inadequate to fairly tax digital-age companies. The latter especially benefit from lax tax policies on intellectual property and revenue streams that can be routed instantaneously through foreign shells to low-tax safe havens.

Apple, The Times noted, is hardly alone among technology companies in its exploitation of tax laws that were designed for the traditional industrial era. Microsoft, Cisco, Google and others now do much the same. Still, Apple is apparently one of the best at identifying and adapting corporate tax loopholes. By pioneering tax avoidance strategies that take advantage of lax tax treatment of intellectual property, patents and royalties, it has shifted some 70 percent of its profits overseas to lightly taxed safe havens.

One insightful example The Times cited is the "Double Irish with a Dutch Sandwich" formula used by Apple. It took advantage of an Irish tax break for technology companies and their sales to create two Irish subsidiaries in which it could assign royalties and route profits to the Netherlands, which observes a favorable tax treaty on Irish properties, and thence to a Caribbean tax haven.

Apple uses another low-tax country, Luxembourg, to serve as the corporate overseer of much of its European subsidiary operations, even though most of its European employees, under the concept of commissionaires, live and work elsewhere. It does the same in the United States: Apple shifted its official corporate location to a small office in Reno, Nevada, a state with no corporate tax, to avoid California's 8.84 percent corporate tax rate on its major U.S. campus and research facility in Cupertino, Calif., 200 miles away.

Though some of the largest manufacturing plants for iPhones, iPads and MacBooks are in low-wage countries like China, the largest shares of Apples operations as measured by employees (70 percent), number of retail stores (68 percent), long term assets (54 percent), are still in the United States. So are 39 percent of its sales. Yet in 2011, Apple's cash payments for income taxes world-wide were just $3.3 billion, on profits of $34.2 billion, or less than 10 percent.

Such large-scale tax dodges do not benefit the country or the states whose taxpayer investments in education, workers and infrastructure made such a successful business possible and prosperous. They simply shift to ordinary taxpayers the public cost of the infrastructure and environment that is needed to nurture the creation of mega-billion fortunes. Without a fairer corporate tax system, that's an unbalanced and unsustainable equation.