A quick note about Apple and profits and tax

There\’s a certain number of people over in the US who think that Apple has shifted a large part of its profits out of the US. This simply isn\’t true.

What is true is that Apple is making a significant amount (some 70% or so) of its profits outside the US and keeping them there.

There is a significant difference between the two statements.

The accusation of profit shifting is that Apple has been making lots of profits in the US. Then, by some forms of chicanery, possibly legal, possibly, not, but almost certainly \”immoral\”, Apple has been shifting stuff around so that these profits now look as if they are being made outside the US.

The advantage of this is that profits made inside the US must pay the 35% US corporate income tax and those made outside don\’t, not until they are brought back into the US.

That\’s what profit shifting means. And it\’s not something that Apple is doing. Or at least, there\’s absolutely no evidence at all that it is, not even a hint of it anywhere in their accounts. And it\’s also something very difficult for a US company to do. The IRS knows this game and doesn\’t allow much of it to happen.

However, it is true that Apple is now making 70% of its profits outside the US. But this is because their international business has grown enormously. Their second largest market is China these days (I think? Or is it about to become so?). So, Foxconn makes the iPhones in China, Apple sells them in China and vast profits are made. These are new profits being made outside the US: these are not US profits being shifted outside the US.

Apple has what is it, 30% of the world\’s smartphone market? 25%? That\’s where that 70% of profits that are made outside the US are coming from. And Apple keeps those profits outside the US to miss having to pay the 35% US corporate income tax.

This is very definitely legal. And you have to apply your own system of morality to decide whether it is immoral or not.

But this is very different indeed from *shifting* profits out of the US. Shifting means moving US profits outside the US. Apple isn\’t doing that: they\’re just making lots of profits outside the US as well as making lots of profit inside the US.

To regular readers: this is really an answer to someone on Twitter……

7 thoughts on “A quick note about Apple and profits and tax”

  1. Surreptitious Evil

    What sort of Twitter user are you if you think the provision of facts will advance your argument? It’s all about feeling and conspicuous caring. Reality doesn’t get a look in!

  2. SE, you must read different twitterings to me. I find little conspicuous caring and plenty of healthy abuse, with a bit of smart aleckry.

    “Tax dodging wankers” or “ignorant lefitie pillock”, to take two typical examples, may not be highest form of Socratic dialogue, but neither is conspicuous caring.

  3. (pendant)
    Why are you “quick notes” longer than most of your other posts?

    Tim adds: Because as Mark Twain said ” I’m sorry this letter is so long. I didn’t have the time to make it shorter.”

    Writing long is faster than writing short. It’s taking wastes of space out that takes the time, not scribbling it all down in the first place.

  4. I thought the “not having time to make it shorter” quip was originally Blaise Pascal. Letters to the Jesuits. Some 200 years before Twain.

  5. Ah, but where are profits earned? We’ve said (re Amazon etc) that it isn’t necessarily where the customers are based.

  6. For the purposes of the US tax system it only matters that the money was earnt overseas and not brought into the US.

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