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War on Error

Why Apple and Amazon should pay more tax

Image representing Apple as depicted in CrunchBase

Image via CrunchBase

Last week Amazon was publically named as talented avoider of UK Corporation tax and this week it’s Apple’s turn. According to The Daily Mail, the US giant that generated sales approaching $10 billion in the UK last year pays a miserly £10 million (or thereabouts) in tax.

As far as anyone can tell, the two companies are guilty of avoidance not evasion, an important distinction because one is legal and the other isn’t.

Legal it might be, then, but is it a good idea for companies making huge amounts of profit from large markets in the US and the EU to domicile themselves in small markets such as Luxembourg or Ireland that happen to offer implausibly low tax rates?

Even taking that into account the boost big economies get from Amazon and Apple employing local staff (and paying payroll taxes), the discrepancy between the tax being paid and the profit being siphoned off from a country’s citizens is substantial.

The case against paying unnecessary tax is precisely that it’s unnecessary. If the Republic of Ireland levies a 12.5 percent corporation tax rate then why wouldn’t a sane company avail itself of this concession when the UK asks almost double that?

It is not only sensible to make use of a favourable tax jurisdiction it’s is probably morally necessary governance. Apple has shareholders and they want a return, even if in Apple’s case that normally happens in the form of a rising share price rather than a cash dividend.

The case for paying more tax (or at least the case for distributing it more evenly around the markets served by companies such as Apple and Amazon), is equally compelling if decidedly more abstract.

If enough companies legally dodge tax in large markets such as the US and the UK, then those countries will have less money to invest in government-funded services such as education which create long-term demand for Apple’s sophisticated products.

Educated people buy more Apple kit so less education and fewer educated people will eventually mean fewer Apple products sold.

This is a long term issue that plays out over decades of course, but perhaps there is an important short-term one Apple and Amazon should pay close attention to - popularity.

Apple in particular has spent a small fortune on its image and some would argue that without its smart marketing pitch the company would be just another tech provider offering kit that can be bought from rivals for substantially less.

Tax avoidance, however legal, isn’t exactly chic. It smacks of the UK’s billionaire club whose members deport themselves to Monaco for half the year as a way of avoiding paying tax into the country and system that gave them the platform for their money-making genius in the first place. Just ask the unloved clothes emperor, Sir Philip Green.

There are signs that in a financially constrained age, Amazon and Apple could be about to join him in the doghouse. That might be a distant worry for Apple’s rich shareholders but it shouldn’t be ignored.

Banks are utterly despised by most citizens but at least they have the financial system to fall back on. Amazon and Apple sell consumer goods and look a deal more vulnerable to a change of sentiment.

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