28 Jan 2015

Will Apple’s extraordinary profits hasten tax reforms?

Campaigners call for more action to clamp down on the tax avoidance of multi-national companies as tech giant Apple records the biggest quarterly profit in corporate history.

Murray Worthy, tax campaign manager for the charity ActionAid, told Channel 4 News: “The announcement by Apple today of the biggest profits in history is only part of the story. Despite this news, corporate secrecy means we still don’t know whether they’re paying a fair share of tax.”

It is no secret that Apple has used loopholes to avoid tax for many years.

In May 2013, Senator John McCain told the permanent subcommittee on investigations (PSI) that “Apple’s corporate tax strategy reflects a flawed corporate tax system that allows large multinational corporations to shift profits offshore to low-tax jurisdictions.”

By basing its European operations in Ireland, Apple made pioneering use of the “double Irish” system of tax accounting, which allowed payments between different parts of a corporate structure to shift income from a higher-tax country to a lower-tax country.

We pay all the taxes we owe Tim Cook, Apple chief executive

According to a 2013 Forbes magazine article, Apple Inc, the parent company of the whole group, paid US tax on its investment earning but otherwise the holding company “pays no tax to any government and has not paid tax for five years. It claims tax residence nowhere.”

Back in 2013 Senator McCain said that Apple had over $100bn – more than two-thirds of its total profits – “stashed away in an offshore account”. The PSI committee reckoned that Apple had avoided a tax payment of $9bn in 2012 alone.

Apple logo and an iPhone (Reuters)

Accountant Richard Murphy, who advises charities and civil society groups on tax issues, told Channel 4 News that Apple is “a serial tax haven user which has worked very hard to avoid tax liabilities outside the USA.”

However, Apple Chief Executive Tim Cook told the PSI committee in 2013 “We pay all the taxes we owe, every single dollar”, adding: “We not only comply with the laws, but we comply with the spirit of the laws. We don’t depend on tax gimmicks.. We don’t stash money on some Caribbean island.”

But the political climate is changing.

In September 2014 the European Commission formally opened an investigation into a deal between Apple and the Irish government that ran from 1991-2007, and which may have constituted “illegal state aid”.

US Senator Carl Levin has described Apple’s denials over the deal as “incredible”. The EU probe, which is expected to take 18 months, could yet result in the company being required to repay tax linked to billions of euros of revenue.

International action

Public outrage over the tiny tax bills paid by multi nationals has encouraged a the move towards reform of tax rules. On 10 December 2014 Chancellor George Osborne announced a “diverted profits tax” to crack down on tax avoidance by “contrived arrangements”.

As a result of international pressure, the “double Irish” system closed on 1 January 2015, although companies already using it – including Apple – can go on doing so until the end of 2020.

But in a statement the Irish Finance Ministry told Channel 4 News that an end to “international tax planning” would require “co-ordinated action by many countries working together.”

In September 2013 the Organisation of Economic Co-operation and Development (OECD) was tasked by the G20 leading economies to draw up reforms to ensure that technology companies pay their taxes where they are owed.

The tech companies made their position clear through their lobby group. In a letter to the OECD, the Digital Economy Group argued that digital enterprises “operating long-standing business models, subject to established international tax rules, should not become subject to altered rules on the basis that they have adopted more efficient means of operation.”

In January 2015, the industry said the OECD reform programme had “fundamental flaws” and parts “must be rejected”.

But campaigners are keeping up the pressure.

Murray Worthy of ActionAid called on UK voters to demand the introduction of a Tax Dodging Bill to force companies to publish information on where they make their money and how much tax they pay.