Should Congress Take a Bigger Tax Bite Out of Technology Companies? A Case on Apple's International Tax Minimization Strategies and Reporting

• In Event: Public Interest/Taxation/International Accounting

Abstract

Multinational technology companies such as Apple, Google, HP, Facebook, and Microsoft, have taken advantage of tax codes written for an industrial age and ill-suited for today’s digital economy. Some profits at technology companies are not created from physical goods but from royalties on intellectual property, like the patents on software that make devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is for companies in other industries such as grocery stores or automakers.

The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many technology companies are among the least taxed. A technology company that exemplifies the tax minimization and reporting strategies being used is Apple Inc. Even among technology companies, Apple’s tax rates are low. And while Apple has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code.

This case discusses the international tax minimization and reporting strategies used by Apple and other technology companies as well as the related U.S. congressional investigations into “Offshore Profit Shifting and the U.S. Tax Code.” The profits of Apple have experienced exceptional growth due to its successful sales of the iPhone, iPad, and related digital products and services. However, Apple Inc. has been able to minimize its overall tax bill and especially its foreign tax bill by utilizing numerous techniques to shift income to lower tax jurisdictions.

We have created an accompanying website for this case entitled GlobalAccountingCases.com (http://GlobalAccountingCases.com/home/taxation). This site contains original source documents and recent video news reports related to Apple and other technology companies’ tax strategies and the U.S. Senate investigations. The website content was selected to present a balanced view of the various constituents and issues.

Authors

• Mark A Holtzblatt, Cleveland State University

• John Geekie, Cleveland State University

• Norbert Tschakert, Salem State University