Apple goes to Congress and the s c al e of t ax minimisation schemes amongst big tech companies:
A few weeks back I described Apple’s use of an innovative corporate structure that allows it to pay very little tax on offshore earnings, as long as the profits aren’t repatriated to the USA. The structure they use to achieve this is a called a ‘Double Irish with a Dutch Sandwich’, which refers to the use of t wo Irish companies and a Dutch offshore company to minimise taxes on foreign and EU earnings. Calculations show that Apple are paying an effective tax rate of <2% on their offshore earnings.
What’s emerged recently is that they’re not the only ones taking advantage of these loopholes. The list of companies that have more than $5bn (i.e. R50bn) or more kept ‘offshore’ includes Apple, Microsoft, General Electric, Cisco and many others.
What’s most interesting to me is that these companies typically hold 80%-90% of their cash reserves offshore.
If you think about it, what’s really happening here is a power-law in capitalism: the big global companies can afford to invest in such structures. This means that they get to pay far less tax and retain far more earnings than those that don’t. It means they can invest more and grow much faster. With strong balance sheets they can borrow more and pay less for their debt, so they can grow even faster. It’s probably unfair, not so much because they avoid taxes, but because by doing so they have such a competitive advantage: it’s easier for them to outspend or simply crush smaller companies that may emerge.
My guess is that congress tolerates this because although these companies pay less tax, the same system has allowed these big American firms to dominate their respective global markets. Congress has probably figured out that removing these loopholes would get them a larger share of a much smaller pie…