Stiffing the gummint

Charles Duhigg and David Kocieniewski have an article in The New York Times about Silicon Valley accounting practices:

Congressional investigators are wrapping up an inquiry into the accounting practices of Apple and other technology companies that allocate revenue and intellectual property offshore to lower the taxes they pay in the United States.
The Senate Permanent Subcommittee on Investigations inquiry now drawing to a close began more than a year ago, and involves at least a half dozen technology companies, according to people with firsthand knowledge of it, who declined to be identified.
Those people said the subcommittee had subpoenaed or otherwise asked the companies to explain methods they used to avoid domestic taxes. They said Apple had become a focus of the inquiry, and was cooperating with the subcommittee, which is expected to issue wide-ranging recommendations that are likely to play a significant role in Congressional tax code negotiations.
Apple’s domestic tax bill has drawn the interest of corporate tax experts and policy makers because although the majority of Apple’s executives, product designers, marketers, employees, research and development operations, and retail stores are in the United States, in the past Apple’s accountants have found legal ways to allocate about seventy percent of the company’s profits overseas, where tax rates are often much lower, according to corporate filings.
Apple, in a recent statement, said the company was “one of the top corporate income taxpayers in the country, if not the largest.” The statement said the company “conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules”.
It is unclear how broadly Senate investigators are looking into the technology industry, if any laws are thought to have been broken, and how many companies are involved. The subcommittee is also known to be looking at Google, Hewlett-Packard, Microsoft, and firms in such fields as biotechnology.
The subcommittee, which is overseen by Senator Carl Levin, a Democrat from Michigan, has been interested in the impact on the budget deficit of offshore tax strategies. Representatives from Microsoft and Hewlett-Packard testified at a subcommittee hearing on the subject in September. Both companies were criticized sharply by Senator Levin for using accounting rules to allocate revenue to other nations to avoid paying taxes in the United States. “This subcommittee has demonstrated in hearings and comprehensive reports how various schemes have helped shift income to offshore tax havens and avoid US taxes,” Senator Levin said at that hearing. “The resulting loss of revenue is one significant cause of the budget deficit, and adds to the tax burden that ordinary Americans bear.”Apple has long been a pioneer in developing innovative tax strategies that lessen its domestic taxes. At the September hearing, Senator Levin said the investigation indicated that Apple had deferred taxes on over $35.4 billion in offshore income between 2009 and 2011.
Tech companies are able to easily shift “intellectual property, and the profit that goes along with it, to tax havens,” said a former Treasury Department economist, Martin A. Sullivan. “Apple went out of its way to try and ensure that its tax savings didn’t attract too much public attention, because tax avoidance of that magnitude— even though it’s legal and permissible— isn’t in keeping with the image of a socially progressive company.”
In its statement, Apple said it paid “an enormous amount of taxes” to local, state, and federal governments. “In fiscal 2012 we paid six billion dollars in federal corporate incomes taxes, which is one out of every forty dollars in corporate income taxes collected by the government,” it said. In the 1980s, Apple was a pioneer of an accounting technique known as Double Irish With a Dutch Sandwich, which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations— some of which directly imitated Apple’s methods, say accountants at those companies. More recently, Apple has moved revenue to states like Nevada and overseas nations where the company pays less, or in some cases no, taxes.
Almost every major corporation tries to minimize its taxes. However, technology companies are particularly well positioned to take advantage of tax codes written for an industrial age and ill-suited to today’s digital economy.
Some profits at companies like Apple, Google, Amazon, Hewlett-Packard, and Microsoft emerge from royalties on intellectual property, like the patents on software. At other times, products are digital, such as downloaded songs or movies. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers.
Although technology is now one of the nation’s largest and most highly valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index— including Apple, Google, Yahoo, and Dell— reported paying worldwide cash taxes at a rate that, on average, was a third less than other S&P companies’, according to a New York Times analysis.
Companies report their cash outlays for income taxes in their annual Form 10-K, but it is impossible from those numbers to determine precisely how much, in total, corporations pay to governments.

Rico says if anyone is surprised that companies work hard at paying as little as possible, they should remember that rich people do the same thing...