Everybody knows that corporations – especially large corporations – do everything they can to minimize certain kinds of costs. They outsource manufacturing to a place where workers earn less pay and fewer benefits, and they take advantage of every loophole in the law that they can find to keep taxes and other financial obligations down. Unfortunately – or fortunately, if you’re someone who makes money from these kinds of businesses – the rise of the digital age has made it possible for companies to find new loopholes in laws that were once extremely difficult to get around.
According to a recent report by the New York Times, Apple is particularly adept at finding ways to “sidestep” current tax laws in order to avoid paying billions of dollars in taxes. For example, an Apple subsidiary called Braeburn Capital is located in Reno, Nevada. Braeburn manages the collection and investment of Apple’s massive profits. The question, of course, is why? Why would Apple set up a subsidiary company in Reno to do something that could just as easily be done from the company’s headquarters in Cupertino, California? The answer is simple: taxes. While California has a corporate tax rate of almost 9%, Nevada’s corporate tax rate is 0%. By funneling its profits through a subsidiary in a state with no corporate tax, Apple avoids paying millions of dollars in income taxes.
Of course, every large corporation does this sort of thing. What’s more, it’s all completely legal. There is no legal reason Apple can’t set up a small office in a state with no corporate tax and funnel its profits through that office. While companies like Apple may arguably have a moral obligation to avoid such practices, legally speaking there is nothing whatsoever that prevents them. What’s more, as the NYT story points out, the rise of the digital age makes such practices far easier, especially for companies that sell entirely digital commodities – e-books, music downloads, movie downloads, software, and the like. Such commodities can be sold to anyone in the world, from anywhere in the world.
Following the NYT’s story, Apple issued a statement in which they respond to the veiled accusations of the story. Interestingly, the rather lengthy statement does not address the NYT story’s points directly. Instead, the company points to the number of jobs created in the US thanks to Apple – over 500,000, though they include people who don’t work directly for Apple, such as component manufacturers and delivery drivers. The statement also notes the amount of taxes the company has paid – about $5 billion since the beginning of the 2012 fiscal year (October 2011). They also note the amount of charitable giving the company has engaged in, a practice spearheaded primarily by new CEO Tim Cook, as Steve Jobs famously insisted that charitable giving was a private matter, rather than a corporate one. The statement ends with the closest thing to a direct response to the NYT story’s claims:
Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules. We are incredibly proud of all of Apple’s contributions.
All things considered, it probably would have been better if the final paragraph had been the entirety of Apple’s statement. By spending three paragraphs talking about things that aren’t actually relevant to the issue at hand, Apple’s statement starts to look like misdirection. The real meat of the statement is in the final (shortest) paragraph. The fact of the matter is that Apple hasn’t broken any laws, and that Apple’s practices are par for the course in the corporate world – both things that the NYT article seems to want to minimize. A short statement focused on those facts would have been far more potent and effective than the one Apple actually released.
Are the practices of companies like Apple unethical? Is Apple’s statement effective, or should it have been handled differently? Is the New York Times picking on Apple? Let us know what you think in the comments.