Apple Questioned Over Taxes

BUSINESS

Apple Questioned Over Taxes
Apple Inc.’s tax methods have been questioned by a Senate committee that has accused the company of being “among America’s largest tax avoiders.”

Watch this video to understand how billion-dollar corporations enjoy a tax haven in Ireland.

Discussion Ideas:

  • Taking advantage of Ireland’s low corporate tax rates, Apple Inc. paid just 1.9% tax on its $37 billion in overseas profits last year. (For comparison, most multinational corporations paid about 24% in overseas profits.) Can students explain what a tax is?
    • A tax is a fee charged by a government.
      • The fee can be charged on a person’s or business’ income (income tax). It can be charged for a property ownership (property tax). It can be charged for goods and services (sales tax). The taxes Apple paid are a type of income tax.
      • The government issuing the tax can be local, such as a city or county. The government issuing the tax can also be at the state or province level. Taxes issued by national governments are called federal taxes. The taxes Apple paid are federal taxes, at a rate determined by the national government of Ireland.
      • Taxes support the working of government.
  • Can students name good or services made possible through taxes?
    • Most public services are supported through taxes. To name a few:
      • schools
      • hospitals
      • law enforcement
      • street and highway maintenance
      • city, state, and national parks
      • emergency responders
      • assistance for the poor, such as food stamps or public housing
      • national defense (military) and veterans benefits
  • Apple Inc. CEO Tim Cook says the company “does not use tax gimmicks,” and points out that Apple paid about $6 billion in U.S. taxes last year. However, most corporations (and individuals) work to pay as little in tax as possible. In some cases, this means relocating some parts of their businesses in nations with low corporate tax rates, such as Ireland. Why do corporations seek out low taxes?
    • Taxes reduce corporate profit. Apple Inc.’s overseas profit was only taxed at 1.9%, and it still had to pay $703 million. That money could have gone to Apple’s shareholders. (Shareholders, also called stockholders, are people who buy a small share (or stock) of a “public” company such as Apple. Apple has thousands of individual and corporate shareholders. Microsoft, for instance, owns millions of dollars in Apple stock.) Apple’s overseas tax fee also could have gone toward developing new or improved products and marketing them all over the world.
  • According to our encyclopedic entry on globalization, “economic markets are global.” However, most investors and business owners also realize that the success of a new business depends on three things: location, location, location. Read our activity “Young Entrepreneurs: Determining Business Location,” in which students use GIS to develop a business plan and pitch it to investors by identifying an ideal location. Apple’s corporate headquarters are in Cupertino, the heart of California’s Silicon Valley. Its international headquarters are in Cork, Ireland. What factors do students think Apple Inc. considered when determining where to locate its international business headquarters? (Please remind students that these questions do not apply to Apple’s decisions about its manufacturing locations. That’s a whole other discussion.)
    • Apple Inc. probably considered many, many factors. Here are just a few:
      • Apple Inc. is a IT (information technology) company. It probably needed to locate somewhere with a strong, reliable infrastructure: an electrical grid, stable government, educated workforce, and transportation network to facilitate travel to and from California.
      • Apple Inc. is a large public company with thousands of shareholders and business interests all over the world. It wants to maximize profits. It probably considered the tax rates of different countries.
  • Not all businesses are satisfied with Irish tax laws. U2, rock stars who may be the most famous Irish people on the planet, relocated most of their business to the Netherlands. Why do students think U2, who proudly identify as Irish, would take their billion-dollar business out of Ireland?
    • The Netherlands has lower tax rates for artists. Just like Apple Inc. and other corporations, U2 wants to maximize profits.

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