Apple Prefers to Pay Lower Taxes – Are You Really Surprised?

As noted in Apple’s 2012 annual 10K report to the Securities and Exchange Commission, the company incurred effective income tax rates on their 2012, 2011, and 2010 net income of 25.2%, 24.2%, and 24.4%, respectively. The U.S. statutory rate during those periods was 35%.

Ok, so, because I was aware of the above, I wasn’t surprised that Tim Cook, Apple’s CEO, when meeting with Congress to discuss his company’s income tax payment status, told Congress that the company uses various legal tax avoidance strategies to legally reduce their Federal income tax payments (http://www.nytimes.com/2013/05/21/business/apple-avoided-billions-in-taxes-congressional-panel-says.html?ref=business).

Did I mention that Mr. Cook pointed out to CONGRESS, that Apple’s tax avoidance strategies are LEGAL?

Now, I’m not a political scientist, but the last time I had a U.S. civics class, I was told that Congress legislates, i.e., establishes U.S. Federal laws, which includes the laws pertaining to the assessment and collection of Federal income taxes. So, Mr. Cook informed Congress that his company followed the rules established by them; i.e., the folks asking him the questions, to lower his company’s Federal income tax obligations (http://www.reuters.com/article/2013/05/21/us-usa-tax-apple-idUSBRE94J0U320130521).

I’m guessing that the Congressional representatives meeting with Mr. Cook knew that Apple and other global corporations employ various legal strategies to reduce their income tax obligations. After all, with the help of corporate lobbyists, those same Congressional representatives established the tax rules that allow corporations to legally reduce their tax obligations.

So, the meeting between Congress and Tim Cook, was mostly for show. If Congress wants corporations to pay more in Federal income taxes, they must eliminate the many tax loopholes that they, the Congress, have built into the U.S. income tax code.

By the way, anyone can learn about a public company’s income tax payment status. Just download the company’s annual report and take a look at the footnote disclosure related to the company’s financial statements. A public company’s annual report can be obtained from their corporate website. Usually, you can find it in the section of the website titled “Investor Information”.

In Apple’s case, the income tax information discussed above is disclosed in Note 5 to their financial statements, which is titled Income Taxes.

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About docjonz

I am an Associate Professor of accounting at Hofstra University in Hempstead, NY. Additionally, I have more than 30 years of professional accounting experience in various capacities including auditing, accounting standard setting and corporate accounting policy.
This entry was posted in Financial Accounting, Income taxes, Tax policy and tagged , , , . Bookmark the permalink.

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