Apple’s become embroiled in a row about the amount of tax it’s paying in the US.
Late last week, the New York Times published a report claiming that the company was avoiding paying billions of dollars in US taxes through the use of subsidiaries in areas with more favorable tax regimes.
Through an office in Reno, for example – where there’s no corporate tax – it avoids paying taxes in California, where it’s actually headquartered.
And subsidiaries in Ireland, the Netherlands, Luxembourg and the British Virgin Islands also mean a drastically reduced tax bill.
According to a former Treasury Department economist, Martin A Sullivan, these techniques and others have allowed Apple to save a whacking $2.4 billion in the last year alone, leaving it with a combined tax bill of just $3.3 billion.
Sullivan says it does this by reporting only 30 percent of its profits as originating in the US.
“There will never be a precise answer as to where profits are created. But if the corporate tax is a tax on income, it is reasonable to place profits where value is created,” he says.
“In Apple’s case, can there be any doubt that most of its value is created inside the United States?”
However, Apple’s hit back against these criticisms with a statement printed in the New York Times. It’s one of the biggest payers of US taxes, it says, and it gives an awful lot to charity.
“Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules,” it says.
But the row is unlikely to go away, with the company also under fire for outsourcing jobs to the Far East, where not only are working conditions poor, but salaries are far lower.
Indeed, workers at Apple’s Foxconn plant last week threatened to jump off the roof in protest at unpaid wages.
Recent research from the Centre for Research on Socio-Cultural Change concluded that if Apple were willing to accept lower margins, and ifn the eight hours of assembly labour on the iPhone were onshore and paid at US rates, the company would still have a gross margin of nearly 50 percent – pretty amazing by most companies’ standards.