Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Is Apple the world's largest taxpayer or a rule-bending company that pays the equivalent of $50 in taxes on $1 million in income in Europe? Or both?

It's tough to come to a conclusion about Apple's string of tax-related controversies because no one really knows what Apple pays in taxes, either in total worldwide or in each country. There’s a simple fix. Let's call on Apple (like a certain presidential candidate) to release its tax returns. Only if we see Apple's tax bill with a country-by-country breakdown can we have an informed debate about whether the company is paying its fair share -- and what “fair” means.

The Tax Man Cometh
Among companies in the S&P 500, Apple has by far the largest recorded provision for income taxes. This figure may have little relation to actual taxes paid.
Source: Bloomberg
Note: Figures are from companies' disclosed income tax liabilities in their most recent annual SEC filings. The tax provisions don't necessarily match actual taxes paid.

For years, Apple CEO Tim Cook’s go-to tax defense is that his company is the country's (or the world's) largest taxpayer. This line has the benefit of possibly being true and impossible to verify. Apple likes to point to its SEC financial disclosures, which say the company allocated more than $19 billion in estimated tax liability for its fiscal year ended in September 2015. That is the biggest provision for income taxes among S&P 500 companies, according to Bloomberg data, although those financial disclosures may have little relationship to Apple’s cash taxes paid.

Even using those SEC disclosures that Apple highlights, on income tax provision per dollar the company is merely average. Apple disclosed an effective tax rate of 26 percent -- meaning its accountants record 26 cents of estimated tax liability for each dollar of reported pre-tax income. About half of S&P 500 companies had a higher reported effective tax rate in their most recent fiscal year, Bloomberg data show.

Merely Average
Apple's disclosed effective tax rate -- which may not match its actual tax rate -- puts it in the middle of the pack among S&P 500 companies. A selection of big companies and their tax rates:
Source: Bloomberg
Note: The disclosed effective tax rate is from each company's most recent fiscal year.

Using a different SEC disclosure, of cash taxes paid, Apple hasn't been the biggest taxpayer among S&P 500 companies for any of the last six years. Its average disclosed cash taxes paid since 2010 was $7.7 billion annually. That's not far off the average over the same time period for Walmart, which has less than one-third of Apple's reported net income.

Even if Cook is right about being the biggest taxpayer, it's beside the point. Of course the company with the biggest profits should pay the largest taxes. Apple's net income in the last 12 months was more than double the figure reported by the next most-profitable company in the S&P 500, Berkshire Hathaway. 

Profit Envy
Even in a down year, Apple has by far the biggest profits among companies in the S&P 500 index
Source: Bloomberg

And paying the most taxes, or all the taxes that Apple owes, doesn’t necessarily mean that Apple pays all it should. As Bloomberg View colleague Matt Levine put it, the technique of many multinational companies is to "convince Country A that your income is earned in Country B, and convince Country B that your income is earned in Country A, because then neither of them will tax it." We can't see the whole puzzle without seeing the individual pieces of Country A and Country B.

Why would Apple voluntarily release its confidential tax returns? Such a disclosure might hurt Apple's business, and Cook is obliged to maximize the company’s value. But Cook has also said Apple has obligations in areas like human rights and the environment that go beyond dollars and cents.  An informed debate about global tax policy is worth having. And that can happen only if we have visibility into Apple's tax disclosures. 

It’s not completely kooky to urge more tax transparency. OECD members, including the U.S., negotiated an agreement that will soon require big companies to report to their home tax authority information such as the location of their subsidiaries, assets and employees, as well as taxes paid in each country.

Surprisingly, such a filing simply does not exist today. None of the global tax collectors has a complete picture of what multinationals pay and where. In the future, these reports will be shared among relevant countries but kept confidential from the public. Some tax reform advocates think that they should be made public to expose aggressive tax avoidance.  

Imagine if such an Apple filing was public today. It would put to bed the headline-generating squabble between Cook and Europe’s top competition watchdog, Margrethe Vestager, who contends Apple underpaid at least 13 billion euros of tax to Ireland over a decade. We would know what Apple paid and where.

We bet Tim Cook -- who is no fan of Donald Trump -- wouldn't like his company being compared to the Republican presidential candidate. On taxes, though, Trump and Apple each has all the clarity of a hot tub that hasn’t been cleaned in a decade.

If Apple feels it's getting unfairly tarred by misinformation about its taxes, the company has two options: Stop trumpeting the size of its tax bill, when the public can't be sure the bragging is true nor the composition of those payments. Or show us the money that you pay to the tax men around the world.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Or, as he told the U.S. Congress in 2013, "to the best of our knowledge, Apple has become the largest corporate income taxpayer in America." In a letter last week, Cook described Apple as the "largest taxpayer in Ireland, the largest taxpayer in the United States, and the largest taxpayer in the world."

  2. Robert Willens, a tax and accounting specialist, said the SEC disclosure of cash taxes also might not match a company's actual payments to tax authorities. 

  3. Here’s Cook in 2014 (angrily) answering someone who questioned Apple's spending on renewable energy and urged the CEO to commit only to moves that help the company's finances. From Mashable's account:

    We do things because they are right and just. ... When I think about human rights, I don’t think about an ROI. When I think about making our products accessible for the people that can’t see or to help a kid with autism, I don’t think about a bloody ROI. ... If you only want me to make things, make decisions that have a clear ROI, then you should get out of the stock.

  4. The do-gooders have some support: the Labour Party in the U.K. is pushing for the filings to be made public and the European Commission is weighing similar moves. 

To contact the authors of this story:
Shira Ovide in New York at sovide@bloomberg.net
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net