As tax policy analysts, wonks and researchers, it’s not a surprise that we love data and number crunching. But we also appreciate an eloquent turn of phrase. So, after reading Apple CEO Tim Cook’s response to this week’s European Commission (EC) ruling on his company’s tax avoidance, we had to admit his letter is a compelling, lyrical work of art. Convincing obfuscations often are.
Within hours of the EU competition Commissioner Margrethe Vestager’s announcement that Apple will have to repay as much as $14.5 billion in illegal Irish tax breaks, Cook wrote a letter claiming that the EU’s decision is a money grab, violates Irish law and will undermine the sovereignty of EU nations:
“It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe,” Cook wrote.
In a vacuum, this is compelling. But this phrase and Cook's entire letter ignore why Apple was the target of an EC investigation in the first place, not to mention what the EC seeks to accomplish with this ruling: applying the same 12.5 percent tax rate to Apple’s Irish profits that must be paid by the thousands of smaller Irish businesses.
More generally, Cook’s argument that the EC decision strikes a “devastating blow to the sovereignty of EU member states” misses the forest for the trees. When countries like Ireland can dole out special tax deals to companies as big as Apple, the ability of every other nation to tax corporate profits is threatened. Imposing basic limits on the ability of tax havens to subvert the tax base of other nations helps strengthen the rule of law and makes it possible for the corporate tax to survive in the modern era. If the most profitable corporations in the world are able to negotiate sweetheart deals that essentially zero out their taxes, the “sovereignty” of EU member states over their tax systems will be utterly meaningless in the long run.
But the master stroke at the heart of Cook’s letter is an extraordinary claim of the black-is-white, night-is-day variety: that “[a]t its root, the Commission’s case is not about how much Apple pays in taxes.”
There is one narrow sense in which this is true: the EC’s ruling really focuses on just how little Apple pays in taxes. But make no mistake, the main finding of Vestager’s commission, and of a U.S. Senate investigation of Apple’s Irish subsidiaries that announced its findings three years ago, is that Apple has played the Irish tax system and Irish taxpayers like a piano, creating a special post-office-box subsidiary with tax rates so low it’s hard to discern how many zeros to insert after the decimal point to show Apple in fact paid some semblance of taxes to the Irish government (the company’s 0.005 percent Irish rate in 2014 is precariously close to zero).
Cook attempts to counter the EC’s low-tax-rate claims by pointing out that Apple is “the largest taxpayer in the world.” While this claim is not easy to verify, it seems plausible given the enormity of Apple’s worldwide profits, which totaled $72 billion in 2015—more than virtually any Fortune 500 corporation in recorded history. Even the lowest tax rate on $72 billion will yield a very large number—but that doesn’t make Apple a good corporate citizen. It is possible for a company as highly profitable as Apple to pay billions in taxes and still clock in at a super low rate. Conspicuously absent in Cook’s rebuttal is any mention of the tax rate the company pays.
More so than most companies, Apple’s leadership clearly values public relations. The company cherishes its image as a responsible corporate citizen. But the EC’s huge tax penalty against the tech giant confirms what the U.S. Senate’s Permanent Subcommittee on Investigations first found more than three years ago: Apple has taken steps to set up an elaborate network of shell corporations with little or no substance, for the sole purpose of avoiding paying taxes to the United States and other nations.
Tim Cook has made we data crunchers at ITEP and CTJ appreciate the power of words, for sure. But as much as we have the skill to tease out what data tell us about tax trends, we—and the broader public—are also savvy enough to read between the lines and discern the difference between truth and a well-delivered public relations ploy.