April is finally over, it is now may and a lot of people can now breathe because their taxes are filed and off to Revenue Canada so they can forget about it till the evening of April 29th, 2013.
Yes, I know we all hate paying taxes and it takes a lot out of our budgets but without the services that our government uses our tax dollars for, life would be a lot more expensive.
This brings me to today’s article which I shall try to simplify as simply as I can:
Apple has been on the news recently for employing elaborate corporate tactics to evade billions in dollars worth of taxes. This fiscal year alone, Apple is estimated to earn $45.8 billion US dollars which is a record for any American company. Last year Apple saved $8.3 billion US dollars in taxes out of a fiscal year and only paid $3.3 billion US dollars of taxes WORLDWIDE. This represents a corporate tax rate of 9.8%. Can you imagine how much they would save this year?
How can this be done? In a nut shell, Apple creates subsidiaries and offices worldwide in low tax countries to save on taxes. For example, Nevada has a corporate tax rate of 0% and Apple has a Braeburn Capital, a subsidery there to funnel its profits to avoid California’s tax rate of 8.84%. Braeburn capital manages profits from Apple’s sales into investments, every time someone buys something from Apple’s website; a certain percentage of that money gets routed into Braeburn Capital’s account. Similary, every sale on iTunes in Europe, the Middle East and Africa goes straight to a subsidiary in Luxemburg. Why? The answer is because Luxemburg has a lower tax rate than the rest of Europe.
This creates problems for lawmakers around the world especially the United States where most of the design and retail stores for Apple products are located. If most of the tax dollars never reaches the American and other governments around the world this can mean precious dollars are not used for social services like health care, welfare and education. The state of California has already lowered taxes to make it appealing for Technology companies to keep money in the state, instead money is still being moved out anyways. To make it worse when the California legislature lowered taxes in 2009 thanks to lobbying led by technology companies like Apple. The lowered taxes are costing California $1.5 billion dollars a year, which already has a budget deficit of $9.2 billion dollars in the upcoming fiscal year alone. This is leading to cuts in many social services in California as well as a huge hike in University tuition fees. No wonder we are seeing so many ads on YouTube trying to attract tourists and their money…
The electronic age is proving it increasingly difficult for lawmakers to create laws to capture the tax money that technology companies evade. If a song is bought on iTunes, nothing physical is actually exchanged and the file goes directly to your computer and no borders are crossed regardless of where you live. The current laws for taxation are targeted at physical goods, which is why companies like Walmart have a taxation rate of 24%.
I was never a hardcore Apple fan but all this leaves a bit of a sour taste in my mouth. Apple is also not very well known for their charity unlike Bill Gates and Microsoft. The recently deceased Steve Jobs always believed that Apple donating money to charity was an injustice to the shareholders and that if the shareholders felt that they money should go to charities then they would do so from the gains of Apple shares.
I believe that all of this is fine, except most of the people who donate to charities are not the rich and the “one percenters”. Most of the donations to charities come from middle class to lower class people; people who understand the struggles that we all go through and are probably struggling to make ends meet themselves. Apple share holders are the ones cuddling comfortably in a cashmere bathrobe, sitting luxuriously in front of their living room fire with a glass of Louis XVIII Cognac in their hands. Shares of Apple stocks closed at $583 today. Only the rich can afford to invest in these kinds of stocks.
So yes, I am saying that the recently deceased Steve Job’s (May he rest in peace) notion of relying on the shareholders to decide how to donate Apple’s earnings is severly flawed. You may get the 10% of the “one percenters” who will decide to give to charity but that amount is nowhere near the amount that would be needed to even begin repairing the effects of evading taxes that Apple has been doing.
What do you guys think? Do you think Apple is right in being so aggressive in tax evasion of do you believe there needs to be a balance in giving back?