The country\’s leading tax expert comments upon Apple\’s tax dodging

Ritchie picks up on a piece in the New York Times:

Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan. As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent.

It\’s amusing that the country\’s leading tax expert doesn\’t pick up on the important point about that statement. Apple\’s 9.8% tax rate is entirely mind gargling nonsense.

US Corporation tax is paid a year in arrears. Thus the $3.3 billion cash taxes paid this year refers to the profits from the previous year.

And what do we know about Apple\’s profits recently? Yup, they\’ve been rising very strongly, haven\’t they?

And what that 9.8% tax rate, cash taxes paid on last year\’s profits when compared to this year\’s profits is that profits at Apple are growing very fast.

It\’s an interesting thing for the country\’s leading tax expert to miss, isn\’t it? Almost as if he doesn\’t know the subject upon which he is pontificating.

11 comments on “The country\’s leading tax expert comments upon Apple\’s tax dodging

  1. Where does the $34.2bn come from?

    If I have understood the links on this page for Fiscal Year 2011 Apple’s combined profits for the four quarters were a meagre $25.92bn. For FY 2010 they were a positively poverty stricken $14.01bn.

    The figures reported on those pages are net profits. Is the $34.2bn gross profits? Or is there a difference between fiscal years and tax years? Q2, 3 & 4 of 2011 and Q1 of 2012 add up to $33bn or thereabouts.

  2. The US does have a payment-on-account system for corporation tax, but (like UK income tax under self-assessment) the in-year payments are equal to the previous year’s tax bill.

    There’s then a further payment after the year-end, so when profits are rising rapidly they won’t pay anything like the full amount during the year.

  3. Gareth (#3), the US has an odd fiscal year-end (30th September), but it’s not relevant because companies pay tax according to their accounting year, which is generally (I think perhaps always?) 31st December.

  4. Gareth (#3), I would guess that your $25bn figure is net profits and the $34bn quoted is gross.

    That would suggest an effective tax rate of around 25%.

    Somewhat lower than the federal 35%, but within the sort of range one might expect after allowing for what Mr Murphy calls “tax compliance”.

  5. What about the fact they call Apple, “the world’s most valuable company with a stock valuation that passed $50 billion in March 2012″.

    $500 billion, not $50 billion! $50 billion wouldn’t even get them into the top 10 in the UK.

  6. Two reasons why the $3.3bn actual tax paid worldwide was so low:

    1) as we said above, tax is mostly paid in arrears, so that’s mostly tax on 2010 profits.

    2) $24bn of their profits are earned outside the US (page 62, note 5) ($13bn for 2010). Those profits will not be taxed unless & until they are brought into the US.

  7. My God, there’s no excuse for the NYT’s crap reporting. Page 63, it’s all set out for them:

    Tax at the full US federal rate of 35% on profits of $34.2b would be £11.97bn.

    The difference between that and the $8.2bn figure provided for is almost entirely money earned outside the US that is permanently invested outside the US, so will never be repatriated and so never be subject to US tax.

    There’s then a tiny bit of tax relief for R&D, and something else that is probably a US equivalent of capital allowances, but not much.

    They’re pretty much paying full US tax on what they bring into the US. Which is paying tax where the profits are earned.

  8. The number being used are shit, guys.

    You’re looking at GAAP basis Net Income and Tax Expense calculated on GAAP basis Net Income. Those figures have nothing to do with tax basis Net Income or Tax Expense based on tax basis Net Income.

    The Tax Expense numbers in a financial statement are THEORETICAL. The only way you’re going to get tax basis Net Income, Tax Expense or Apple’s actual tax rate is to look at Apple’s Form 1120.

    WGCE Richard Murphy should, in theory, know that. It’s taught in Tax 101 (and Financial Accounting 101 as well).

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