AMITIAE - Sunday 12 May 2013


Cassandra - Taxes, the Senate and Apple (2): The New Moral Compass


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By Graham K. Rogers


Cassandra


When I commented yesterday on the tax hearings that Apple was attending, I was working initially from notes made before the event. As I sat and watched the C-Span transmission of the hearings, I was at times alarmed, but sometimes amused. This type of hearing makes for some strange bedfellows.


As I surmised in making that earlier speculative report (supplemented by early comments on the opening statements) the decisions had already been made. Chairman Levin's first remarks were a brazen attack on Apple, yet he undermined his own position over and over again by making the point that Apple was simply using the laws as they stand. Laws that legislators like Levin had created, then allowed to be diluted. Senator John McCain too began with a similar pomposity although when he later questioned Tim Cook, he rolled over like a puppy and fawned on the Apple CEO.

I found myself in an odd position when Rand Paul made his opening comments. I had to agree with everything the man said, although I had always rejected his political philosophies and utterances in the past: he hit the nail on the head particularly after his second round of comments, following the questioning of early witnesses. Levin who had been angry after the first attack, was still infuriated but began to shift his position to appear more conciliatory towards Apple for the time being. McCain backed him up in comments aimed at Paul, but neither could bring themselves to speak the Senator's name.

Later too, Rush Limbaugh similarly attacked the sub-committee, particularly Senators Levin and McCain, for their moralising stance against Apple at this session.


The two academic experts on tax policy, Stephen E. Shay of Harvard Law School and J. Richard Harvey from the Villanova University School of Law (NYTimes) were of the opinion that Apple had been mighty clever on the ways they had used holding companies and foreign entities to minimise the 35% taxes they would need to pay in the USA, but both conceded that there had been nothing illegal in this.

This was a theme that many on the committee and giving evidence were clear about: all was legal. McCain and Levin, however, seemed more concerned about the moral aspects of avoidance. A view that has little substance in law. Even they had to admit that the system was not working and the real problem was not to vilify (as Rand Paul put it) a major US company, but to identify areas in which improvements could be made.

Some of the greatest names in business history, like Andrew Carnegie, Mellon, Ford and others would not recognise this new moral compass by which the good senators, especially former GOP presidential hopeful John McCain, seeks to steer Apple by.


The experts and Tim Cook were in some agreement about the need to lower the rate of corporate taxation. It was also noted that, despite the Irish holding company having paid no taxes to the US (nothing illegal in that) on the cash that Apple Operations International (AOI) held; and that moneys received by AOI had already been taxed in the countries in which it had been earned.

As a note, wile this was all going on, the government of Ireland, by way of its deputy Prime Minister said that it is not responsible for Apple's low international tax rate. Over to you, USA.


On the point that this part of the taxation system was broken, there was no disagreement, although the ways in which this might be done were open to some debate. Although Apple had volunteered to appear in front of the Committee to explain the ways it works, and to present its own position on what should be done to the taxation system, the committee - particularly Levin and McCain - used this as an exercise in grand-standing. Opening and closing remarks by the Chairman were couched in such a way that the blame for failure to collect taxes was placed on Apple (leaving aside other corporations that take similar steps) in moral terms.

As Rand Paul had pointed out, everyone in the room - even those attacking Apple - would seek to minimize their tax liabilities and not maximize them, by taking full advantage of loopholes and allowances.

Both Levin and McCain showed deference to Tim Cook to such an extent that they appeared to be almost fawning on occasions, weakening their staged indignation. While Cook along with CFO Peter Oppenheimer and Phillip A. Bullock. By the end, however, Levin was back on his high horse, despite the admission by him and others that nothing illegal had been done and that the fault really lies with the legislators (including Levin and McCain) for allowing such apparent injustices in the tax system to exist for so long.


If Apple did volunteer to appear before the sub-committee, and the guiding lights of the panel were aware that no laws had been broken, why were the two senior members, particularly Mr. Levin so vehement in the attacks on Apple before and after Cook, Oppenheimer and Phillip Bullock had given their evidence?

Indeed when Tim Cook was being questioned the two ringleaders were particularly unctuous, yet when he no longer had a chance to speak to the subcommittee the attack dogs were out again as if nothing that had been said by all offering their opinions that day had mattered at all.


Useful Sources:


Graham K. Rogers teaches at the Faculty of Engineering, Mahidol University in Thailand where he is also Assistant Dean. He wrote in the Bangkok Post, Database supplement on IT subjects. For the last seven years of Database he wrote a column on Apple and Macs.


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