It was a humbling experience for the chief executive of the world’s most valuable company. Hauled before a Senate panel, Apple’s Tim Cook had to explain how an American company whose American engineers had created the iPhone and the iPad was able to avoid paying any taxes on billions of dollars in profits generated by those products — not to United States, not to any country. The only defense the Cook could conjure up for Apple “stateless” income was that it was all perfectly legal. A few miles away in Arlington, a 55-year-old economist named Marty Sullivan sat on a folding metal chair at a card table in the garage of his modest brick home and watched the hearing unfold on his laptop computer. Sullivan is one of those unheralded members of the permanent Washington establishment who make things work, at least when the politicians let them. And for two decades, from the same home office, Sullivan has been exposing the tax-dodging schemes of multinational corporations in the columns of Tax Notes, a must-read publication for tax lawyers, accountants and policy wonks. It was Sullivan who shined an early light on how companies had finagled “transfer prices” — the price one division charges another for parts or services — to shift profits to low-tax jurisdictions. It was Sullivan who had called out the big drug and tech companies for transferring ownership of their patents and trademarks — the source of much of their profits — to subsidiaries in Ireland and other low-tax jurisdictions. It was Sullivan who highlighted the absurdity of tax havens in which just a handful of multinationals claimed to earn annual profits that were several times the country’s entire GDP. And it was Sullivan who in 2010 pieced together from public filings that Apple had understated its reported profits to hide the fact that it was paying a tax rate of less than 2 percent on its overseas profits, shining the spotlight on Apple’s tax avoidance schemes. “We’ve been banging the drum on this stuff for years,” Sullivan said with just the slightest hint of satisfaction as the morning sun filtered into the garage he shares with bicycles, garden tools, an American flag and an old coffee maker. “But it’s finally gone prime time.” For years, big multinational corporations, waving the banner of competitiveness, have been pushing hard for corporate tax reform. “Reform” means different things to different people, but to multinational corporations, it has meant a sizeable cut in the 35 percent corporate tax rate and an end to all U.S. taxation on profits earned overseas. Now, however, revelations of elaborate tax dodges by respected companies such as Apple, Google, Microsoft and Starbucks have badly undermined their “reform” push, not just in the United States but around the globe. At a recent meeting in St. Petersburg, the leaders of the 20 leading industrial nations vowed to push ahead with tough new global standards that would put an end to “stateless” income and limit the ability of firms to avoid taxation by shifting profits to tax havens. After years of competing against one another for corporate investment by offering ever-more-favorable tax regimes, cash-strapped governments have decided to go after the companies rather than each other. “There’s been a race to the bottom, and the multinationals were winning,” said Eric Toder, co-director of the nonpartisan Tax Policy Center in Washington. In Washington, meanwhile, a newly appointed House-Senate conference committee has been instructed to come up with a long-term budget plan by mid-December in the hopes of avoiding a replay of this month’s government shutdown. President Obama, along with both Republican and Democratic leaders have expressed hope that some form of corporate tax reform will be included in that budget blueprint. The chairman of the House Ways and Means Committee, Rep. Dave Camp (R-Mich.), is in the final stages of crafting a “revenue neutral” tax reform proposal that looks to lower the corporate rate by closing the most egregious loopholes while imposing what amounts to a modest minimum tax on overseas profits. The chairman of the Senate Finance Committee, Max Baucus (D-Mont.), promises his own plan by the end of the year that is likely to be even less tax-friendly to overseas operations. For multinationals, in other words, the political tide seems to have turned. Rather than coming out the winners from corporate tax reform, as they once fantasized, they now face the very real prospect of paying more taxes rather than less— an outcome Apple’s Cook told the Senate his company is prepared to accept.
Posted on: Tue, 29 Oct 2013 03:10:57 +0000
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