Apple not solely focused on Shareholder value

Business Insider reports on a recent Apple shareholder meeting, during which a representative from a decidedly far right thinktank asked Tim Cook "to commit on the spot to only making moves that were profitable for the company," to which Cook replied

"When we work on making our devices accessible by the blind, I don't consider the bloody ROI." He said that the same thing [applies] about environmental issues, worker safety, and other areas where Apple is a leader.

This is an interesting comment on the role of corporate social responsibility in shaping how CEOs talk about their management practices. One area where Apple is a leader is in its tax dodging capacity, though perhaps its leadership in this respect is less well known than that associated with its contract manufacturing practices. If those activities are not ROI-focused, it is difficult to know why they form such an integral part of Apple's global business strategy. I continue to look for signs that the aggressive tax planning is becoming anathema to Apple's polished CSR image, but none have yet emerged.

Starbucks' £20m pledge is not a tax, but likely is a tax benefit

I've mentioned here and there that Starbucks' decision to pledge £20m to the UK as penance to the public for its extremely effective tax planning over the past fifteen years is not a tax but might be and probably is a tax benefit, and I've been asked to explain why that is, and why it matters.

First, lets define what a tax is. A tax is a compulsory extraction of resources undertaken by a government, for which failure to comply results in threat of penalty.  A government can do this because it monopolizes the use of force. A tax can be fair or unfair, regressive, progressive, good, bad, or ugly. Not every forceful extraction of resources is a tax per se, but every tax is certainly a forceful extraction of resources. Governments can be (and are) lax, selective, even grossly unjust, in enforcing stated penalties, but so long as the threat exists, an extraction is a tax. No threat of penalty for nonpayment, no tax.

Now let's look at three reasons why Starbucks' £20m pledge cannot possibly be a tax.

1. It is not being imposed by a government.  Despite the BBC calling this an "agreement," Starbucks itself has characterized the 20m as the product of its own internal decision-making processes. Sure, it's responding to public pressure, but that's not government extraction.
2. It is not compulsory. After David Cameron piled on at Davos, Starbucks hinted that it might change its mind about its pledge, maybe not be quite so generous if the government won't even bother to be decently grateful about its magnanimity. Who's to stop that? Not HMRC.
3. There is no penalty if Starbucks doesn't actually hand over the money. At least, not by government; the court of public opinion might be a different story, depends on the news cycle I suppose. But having failed to levy taxes, HMRC can hardly argue if the 20m doesn't show up at some point.

One happy result is that at least Starbucks will not be able to immediately claim the 20m as a credit against taxes it owes at home in the USA (not a tax, let alone one on income, so no foreign tax credit). But what can we say then of the 20m? If it is not a tax, what is it?

The answer is, it is a charitable contribution to the UK government. Why, you may say, that would imply that it's deductible! Yes, depending on the UK's rules for deductibility of contributions to the government. I suspect it would be deductible (UK readers, correct me if I am wrong). Certainly in the US a similar pledge would be deductible under s170:

[T]he term "charitable contribution" means a contribution or gift to or for the use of— 

(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes. 

Notice: no need for it to be out of generosity, just need a contribution for exclusively public purposes. Not, say, lobbying, outings for lawmakers, bribery, kickbacks, collusion, etc. But I digress.

Keep in mind that the whole point here is that Starbucks has no income in the UK against which to take any deduction, should it be available...at least, right now. But if the UK rules for NOLs are anything like those in the US, they can hold that £20m on the books for years, maybe even a couple of decades and deduct it later, if and when they ever do have positive income being booked in the UK (maybe subject to some limitations, as in the US).

 So, it's not a tax, but if Starbucks in fact turns it over it will be a tax benefit, tucked away somewhere in some regulatory filing in extreme fine print, to be used at some future date to--wait for it---reduce the company's tax bill.

Neat trick!

Starbucks to UK: Kneel before Zod!

When it comes to tax, we know by now that Starbucks only giveth when it wants. That means of course that Starbucks can taketh away.  After David Cameron made some remarks about companies smelling the coffee, Starbucks feels bullied and makes noises about maybe not being quite so generous.

Aw, poor Starbucks! Oh, but don't worry, because when you're Starbucks, you just demand a meeting to set things straight:

Kris Engskov, the multinational’s UK managing director, demanded talks at Downing Street after the Prime Minister said tax-avoiding companies had to “wake up and smell the coffee”.

...“The PM is singling the business out for cheap shots, a company that, it should not be forgotten, has pledged to pay tax now and into the future,” said a source close to the firm.

Can we possibly descend into anything more absurd than this ridiculous status quo?  Well sure, of course we can!

The warning on investment comes amid concern among businesses that Government rhetoric on tax avoidance is hurting their image while their creation of jobs and wealth is not highlighted. 

You see, it is the government's job to produce the proper kind of propaganda on these things.  In sum, what we are now being told by multinationals is:

1. We will pay tribute when and where and in the amount we wish to, according to the will of our PR department and no one else.
2. Those upon whom we graciously bestow tribute must grovel in thankfulness and describe us favorably, or we will soon regret our generosity.

The Two Faces of Facebook

£440M hidden in the Caymans to avoid tax; $500M given to charity.  In my view this is no coincidence; the two events are inextricably intertwined.

Fortune 500 holding trillions offshore

Taxprof links to a Citizens for Tax Justice report (pdf) that says Fortune 500 corporations are holding at least $1.6 trillion in profits offshore.  290 of the 500 collectively self-reported the figure (via SEC filings), as at the end of 2011. Interesting: half of the $1.6T is reported by just 20 companies (7% of the self reporting, .4% of the fortune 500--the corporate 1%?).  The report includes a list of each of the 290 and the amount they reported as offshore.

It looks like notorious tax dodger GE tops the list here, with $102B waiting for a holiday to repatriate (recall that GE's global head of tax Will Morris, is also head of the tax committee of the business and industry advisory council at the OECD, winner of an "external engagement award" for his service to HMRC, and a long time and vociferous opponent of corporate tax transparency efforts through the OECD and related fora, for a discussion, see here).

Next in line comes a familiar cast of characters, all on that ever-growing tax dodger ledger:

• Pfizer (63B) 
• Microsoft (60B) (and check out Microsofttaxdodge.com)
• Apple (54B) 
• Exxon (47B)
• Merck (44B)
• Johnson & Johnson (a family company that doesn't like to pay taxes in its very own family's back yard, let alone around the world, 42B)

But really, every big American company you can think of appears on this list.  Starbucks can be forgiven for being a bit touchy on the tax dodging radar, since its offshore holdings of less than a billion look positively benign compared to the companies occupying the top of the list.  No wonder that multinationals fear increased corporate tax disclosure, because you never know where the media will train its spotlight for naming and shaming.

The Tax Dodger Ledger, Updated

Here is the Guardian with a "roll call of corporate rogues who are milking" the UK, naming (I've re-ordered alphabetically, and added links):

Amazon--"paid just £30m in tax over the past four years despite generating more than £3.1bn in sales"
Apple--"avoided over £550m in tax on more than £2bn worth of underlying profits in Britain"
Asda--"payments it has made to US parent Walmart has cut its UK tax bill by £250m"
eBay--"channels payments through Luxembourg and Switzerland to avoid paying nearly £50m in tax in Britain"
Facebook--"paid just £30m in tax over the past four years despite generating more than £3.1bn in sales"
Google--"paid just £30m in tax over the past four years despite generating more than £3.1bn in sales"
Ikea--"siphoning off profits abroad in the form of royalty payments to a sister company"
Starbucks--"no corporation tax in Britain for the last three years"
Vodafone--paid no tax in the UK last year, and proud of it.

As I've said before, this is all part of the global system--a feature, not a bug.  It's not a coincidence that these same countries would be listed on a US-based ledger (well, not Asda).  So if a person wanted to avoid supporting tax avoiders with their post-tax wages, they would have to work very hard to do that.