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Global shell game: Nations must close loopholes on tax evasion
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America isn't the only nation that huge multinational corporations shortchange when it's time to pay the tax man. It's all perfectly legal but ethically dubious.
The United States, as everyone knows, is facing a fiscal cliff at the end of the year. Unless something is done, the Bush-era tax cuts will expire and automatic spending cuts will take effect, bringing on a recession.
Europe also is in the midst of a fiscal crisis, caused in part by countries that spend more than they collect in taxes. Yet multibillion-dollar businesses are allowed to use legal stratagems to avoid millions of dollars in taxes.
In April, The New York Times reported that Apple Inc. paid $3.3 billion in taxes in 2011. That's a lot of money, until you compare it with the company's $34.2 billion in profits. That makes Apple's effective tax rate only 9.8 percent, instead of the U.S. corporate rate of 35 percent.
According to The Associated Press, the tech giant paid $713 million in taxes on foreign earnings of $36.8 billion in the fiscal year that ended in September. That amounts to only 1.9 percent of the company's overseas profits. By comparison the corporate tax rate in Great Britain is 24 percent.
Apple accomplishes this by funneling profits through subsidiaries in Ireland and the Netherlands before the money lands in the Caribbean. The strategy is called "Double Irish with a Dutch sandwich." In all the company has $82.6 billion stashed overseas on which it doesn't have to pay U.S. taxes.
Apple takes its tax avoidance strategy a step further than most multinationals. It sets aside some foreign profits, which it says will be used to pay U.S. taxes sometime in the future. That money is then subtracted from profits, which reduces Apple's tax bill even more, even though it could be years before it finds its way to the Treasury.
It's all legal, and other companies do it. Starbucks has paid less than $14 million in taxes in Great Britain in the past 14 years. For the last three years, the coffee giant has managed to reduce its tax bill in Britain to zero. Other companies, including Facebook, Amazon and eBay, also wriggle out of millions of dollars in overseas taxes.
Multinational companies have a responsibility to their investors to maximize profits. But it's up to the nations in which they do business, including the United States, to close the loopholes that let them turn their tax liability into an international shell game.
First Published November 19, 2012 12:00 am
