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Standing up to Apple

By       Message Robert B. Reich       (Page 1 of 2 pages)     Permalink

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Reprinted from Robert Reich Blog

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For years, Washington lawmakers on both sides of the aisle have attacked big corporations for avoiding taxes by parking their profits overseas. Last week the European Union did something about it.

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The European Union's executive commission ordered Ireland to collect $14.5 billion in back taxes from Apple.

But rather than congratulate Europe for standing up to Apple, official Washington is outraged.

Republican House Speaker Paul Ryan calls it an "awful" decision. Democratic Senator Charles Schumer, who's likely to become Senate Majority Leader next year, says it's "a cheap money grab by the European Commission." Republican Orrin Hatch, chairman of the Senate Finance Committee, accuses Europe of "targeting" American businesses. Democratic Senator Ron Wyden says it "undermines our tax treaties and paints a target on American firms in the eyes of foreign governments."

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P-l-e-a-s-e.

These are taxes America should have required Apple to pay to the U.S. Treasury. But we didn't -- because Ryan, Schumer, Hatch, Wyden, and other inhabitants of Capitol Hill haven't been able to agree on how to close the loophole that has allowed Apple, and many other global American corporations, to avoid paying the corporate income taxes they owe.

Let's be clear. The products Apple sells abroad are designed and developed in the United States. So the foreign royalties Apple collects on them logically should be treated as corporate income to Apple here in America.

But Apple and other Big Tech corporations like Google and Amazon -- along with much of Big Pharma, and even Starbucks -- have avoided paying hundreds of billions of dollars in taxes on their worldwide earnings because they don't really sell things like cars or refrigerators or television sets that they make here and ship abroad.

Their major assets are designs, software, and patented ideas.

Although most of this intellectual capital originates here, it can be transferred instantly around the world -- finding its way into a vast array of products and services abroad.

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Intellectual capital is hard to see, measure, value, and track. So it's a perfect vehicle for tax avoidance.

Apple transfers its intellectual capital to an Apple subsidiary in Ireland, which then "sells" Apple products all over Europe. And it keeps most of the money there. Ireland has been more than happy to oblige by imposing on Apple a tax rate that's laughably low -- 0.005 percent in 2014, for example.

Apple is America's most profitable high-tech company and also one of America's biggest tax cheats. It maintains a worldwide network of tax havens to park its global profits, some of which don't even have any employees.

Sitting atop this network is "Apple Operations International," incorporated in Ireland. Never mind that Apple Operations International keeps its bank accounts and records in the United States and holds board meetings in California. It's still considered Irish. And its main job is allocating Apple's earnings among its international subsidiaries in order to keep taxes as low as possible.

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Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.

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