Apple Just Can't Help Innovating

Christopher Flavelle writes editorials on health care, energy and environment for Bloomberg View. He was a senior policy analyst for Bloomberg Government and chief speechwriter for the leader of the Liberal Party of Canada.
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Perhaps it's not surprising that the company that redefined personal technology, entertainment and communications would also redefine the meaning of a tax haven.

A new U.S. Senate report on Apple's offshore tax strategy describes more than just a byzantine structure of subsidiaries. It also shows the company claims that three of those subsidiaries are tax residents of nowhere -- not Ireland, where the subsidiaries are nominally located, nor the U.S., from which a layman could be forgiven for concluding those subsidiaries are run.

Senator Carl Levin, the Michigan Democrat who chairs the Permanent Subcommittee on Investigations, which compiled the report, summarized Apple's strategy pithily: "Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere."

Tim Cook, Apple's chief executive officer, will gamely testify before the subcommittee Tuesday morning, though it's hard to see how much good it will do him. Although the report doesn't accuse Apple of doing anything illegal, the attention it generates may obscure the distinction between shrewd tax strategy and bad behavior.

That's unfortunate because the real takeaway from this seems to be that the tax system doesn't work. Asking Apple to refrain from using tax strategies it believes to be legal makes no more sense than asking the company to make its laptops needlessly more bulky or its phones uglier. You can't expect a business to outperform in one area and then constrain itself in another.

A better response to this report, and the subcommittee reports that preceded it, is to push Congress to revisit the laws that make this possible. Levin has offered proposals on strengthening the tax rules for foreign income, as has U.S. Representative Dave Camp, the Michigan Republican who chairs the House Ways and Means Committee. Those ideas deserve attention, even if the push for comprehensive tax reform falls short.

If we can't be bothered to change the incentives facing companies like Apple, we forfeit the right to be upset when they follow those incentives. Let's help Tim Cook focus his energies on making better products rather than better tax-avoidance strategies.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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Christopher Flavelle at