Apple's Unpaid Billions Put Corporate Tax Policy in the Spotlight

By Michelle Maisto  |  Posted 2013-05-21 Print this article Print

Charles King, principal analyst with PundIT, said that while Apple isn't breaking the law, "It's hard to see how Apple can come away from this fracas with its usually shining reputation unsullied," he told eWEEK. "As the past week's IRS revelations suggest, people tend to be sensitive about the tax system being gamed by any party."

King continued, "Apple may have $100 billion-plus on its books, but what [it] will ever do with that cash—a subject of great, ongoing speculation—is a moot point, if it's waiting for another tax repatriation 'holiday,' like the one granted in 2005, to bring the lion's share of that money home to put to work."

Apple, Cisco and others have been pushing for a tax holiday—a tax-rate break during which they could bring home their cash piles, and keep them far more intact—for years. In 2011, Sen. Charles Schumer (D-NY), tested colleagues' interest in a proposal that would allow companies with more than $1 trillion in accounts abroad to bring it to the United States at a tax rate of 5 percent, instead of 35.

Cisco Systems announced March 25 that it's acquiring Australian company SolveDirect. CEO John Chambers has said that until the U.S. government offers a repatriation window for overseas cash, it can expect him to continue looking at opportunities abroad.

"If the majority of our money remains outside the U.S.—and this depends on tax policies—that's where you'll see us acquire going forward," Chambers said during a Feb. 13 interview with CNBC. "I'm a very loyal American citizen and company, but in terms of future growth, unless tax policy changes, you will see that occur outside the U.S."

Approximately 80 percent of Cisco's cash, or about $46 billion, is currently overseas. That it was Apple in the spotlight, and not Cisco—or Microsoft or Google or any number of other companies—is notable.

An impassioned Sen. Rand Paul (R-KY) told colleagues at the hearing that Congress, not Apple, should be on trial.

"What we really need to do is just apologize to Apple, compliment them for the job creation they're doing," insisted Paul, who has also backed a 5-percent tax rate for repatriating funds.

Is jobs creation reason enough to overlook profits that U.S. companies could be paying taxes on?

"The scale of Apple's business is highlighting how it takes advantage of the tax system in place," analyst Jack Narcotta, with Technology Business Research, told eWEEK.

"I doubt the spotlight would be as bright if the income it avoided paying typical (or any) tax on were $30 million, instead of $30 billion, as in the case of the entities located, in paper anyway, in Ireland," Narcotta added. "The point I'd argue is this: Is the company that offloads $30 million of taxable income by utilizing the system in place any less 'wrong' than Apple?"


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