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The Occupy movement hasn't fizzled out – it has graduated to the halls of power in the U.S. and Europe. Witness the numerous recent attempts to clamp down on pay for bankers and other senior executives and to chase after successful multinational corporations for using low-tax jurisdictions to avoid paying their "fair" share of taxes.
Apple Inc. is the latest firm to feel the populist rage. This week the tech superstar appeared before a powerful U.S. Senate committee, fending off accusations it uses subsidiaries in Ireland to dramatically lower its tax bill. A report by the committee accused Apple of paying no tax on $74-billion (U.S.) worth of sales from 2009 to 2012, and just $10-million in taxes on $22-billion worth of profits, among other findings. Arizona Senator John McCain called Apple's tax-avoidance efforts "egregious" and "outrageous."
If so, Apple has plenty of company. Tax avoidance is a widespread practice by U.S. multinationals and is fully allowed under U.S. tax laws. Apple's 25 per cent effective tax rate over the past four quarters is well below the headline U.S. corporate tax rate of 35 per cent but is nothing unusual compared to what its peers are paying. Bloomberg data show there are more than 130 companies in the S&P 500 that had a lower effective tax rate over the same period. That includes a who's who of the tech world – including Ebay, Dell, Google, Microsoft and IBM – but also Mattel, Coca-Cola, UPS and Western Union.
Is Apple being singled out for being too successful? There's certainly a history among U.S. and European regulators and politicians of going after the biggest and most valuable tech companies in antitrust pursuits.
Apple's biggest sin may be to have introduced a spectacular run of innovative products in recent years. As a result, it is probably the single largest payer of income tax in the United States ($6-billion last year). It has also created tens of thousands of jobs and is even repatriating some overseas manufacturing to produce a line of Macs in the U.S. this year. In short, it has done everything right.
It has also lived within the tax laws as they exist. The company said it doesn't move intellectual property to offshore tax havens, use revolving loans from foreign subsidiaries to fund domestic operations, or hold money in Cayman Islands bank accounts. But it does effectively use overseas entities to avoid paying billions in taxes.
Those who object to such practices should proceed cautiously. A simple-minded grab at corporate profits would just encourage managers to move more activities to low-tax jurisdictions.
The U.S. senators who are grilling Apple might want to start by taking aim at their country's own tax system. Corporate tax rates in the U.S. are among the highest in the world, and a reduction in those rates would encourage more companies to repatriate their overseas profits.
Another praiseworthy goal would be to rein in the huge flows of money that many companies direct into shell holdings in places like the Netherlands and Luxembourg. These holdings exist mostly to deny governments billions of dollars in tax revenue. But putting an end to such practices will require international co-operation.
An ideal long-term goal for governments worldwide would be to have corporations pay taxes according to where income-generating work is actually performed. However, that will likewise take a massive multilateral effort and won't be easy to achieve, given the number of countries that would have to sign on.
A far worse outcome would be for individual governments to give in to popular sentiment and simply raise corporate taxes. Suggesting companies pay dramatically higher levies across the board as punishment for simply following the rules is no way to spread the wealth, and might just have the opposite effect.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.
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Sean Silcoff