Ap­ple goes to Congress and the s c al e of t ax min­imi­sa­tion schemes amongst big tech com­pa­nies:

Finweek English Edition - - BUSINESS -

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…

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