Mark Ritson: Apple can’t claim it is socially responsible while keeping billions abroad to avoid tax

Apple CEO Tim Cook claims his company has an “incredible responsibility” to the communities it operates in and thinks the US should spend more on infrastructure, so why is Apple keeping hundreds of billions of dollars in cash abroad where it can’t be taxed?

Mark Ritson thumbs down

A lot of people ask me about my expensive cars and jewellery. It’s true, I have a lot of bling for a marketing professor. But it could not be more simple: I do three quarters of my work overseas and rather than bring it home and pay stupid taxes on it, I just stash it in international bank accounts and only pay income tax on the tiny fraction of my work that I do in the UK.

I do that because I think that paying ‎‎£11,000 a year in taxes on my £44,000 salary is not fair. I disagree with paying that much money so I don’t. Instead, I am comfortable paying £1,000 a year and keeping most of my savings overseas. But don’t get me wrong, I believe in taxes in theory. In fact, I am pissed off with the way this government has been underinvesting tax revenues in hospitals and schools.

What I have just described is indefensible, hypocritical and – let me make this clear to the tax authorities – patently not true. But it’s very close to Apple’s current approach to tax and one which CEO Tim Cook appears to be entirely comfortable with. The arrogance and hypocrisy of the Apple boss were there for everyone to see in a rare interview with the Washington Post last week.

READ MORE: Mark Ritson: Should marketers really aspire to be like Google and Apple?

On the one hand Cook wants to be seen as a quintessentially purpose-driven CEO who feels an “incredible responsibility” to “the communities and the countries that the company operates in”. He is so concerned, in fact, that Cook openly calls on the US government to invest more in “infrastructure and roads and bridges and airports”. Lovely.

But on the other, this is a CEO that has expertly used various entirely legal, entirely disgusting tax minimisation tactics to ensure that much of Apple’s corporate income remains offshore and therefore unexposed to federal and state taxes that, according to Cook’s estimate, could total 40%. A report by Citizens for Tax Justice last year suggested Apple held around ‎£140bn overseas. It is refusing to return that money to the US and pay the £45bn in corporate tax that the report claims would then be owed on it until the US government revisits the tax legislation and lowers the rate. To put it in context, that amount would educate around five million American kids next year.

There is a lot at stake here. With the US elections fast approaching, a new government is imminent and it is entirely likely that the corporate tax rate will drop and Apple will be able to negotiate a settlement in which billions of dollars in tax payments can instead be retained by the organisation.

In the interview Cook could not be more arrogantly transparent: “We’ve said at 40%, we’re not going to bring it back until there’s a fair rate. There’s no debate about it. Is that legal to do or not legal to do? It is legal to do. It is the current tax law. It’s not a matter of being patriotic or not patriotic. It doesn’t go that the more you pay, the more patriotic you are.”

All true, Mr Cook. Apple is behaving neither illegally nor unpatriotically. But no-one thought that in the first place. What we are increasingly thinking is Apple is behaving immorally, hypocritically, arrogantly and ultimately in a manner that makes many feel differently about Apple the brand.

Apple is by no means alone in its attempts to legally minimise its tax responsibilities. Despite what all the naïve morons that espouse CSR and brand purpose keep telling you, there are very few brands that don’t actively and massively avoid tax liabilities to a disgraceful degree. What makes Apple notable in this uniformly disgusting context is the manner in which Cook has continued to portray himself as a different kind of CEO, who takes his societal responsibilities very seriously.

Google’s approach to tax minimisation is no less disappointing than Apple’s, but to its credit at no point does Google or its holding company Alphabet pretend that it’s about anything other than the business of search. In contrast, Apple wants to have its billion-dollar tax cake while eating it at a brand purpose party using CSR cutlery.

Tell that to the Mayor of Cupertino, Barry Chang. His town of 60,000 people is also the site for Apple’s new £4bn headquarters. Chang is adamant that his small community and its overburdened infrastructure cannot support such a huge endeavour without massive investment in the city’s crumbling resources. Apple paid just over £7m in local taxes in Cupertino in 2012-13, almost exactly the same amount they paid Tim Cook for his services in 2014.

Ultimately, my point with this column is not to accuse Apple of doing anything illegal. Indeed, from a purely financial point of view they are playing a very clever game with a multibillion-dollar pay-out. But their actions will come at a cost to brand equity.

When Steve Jobs introduced Apple’s new HQ in 2011 he referred to it as Apple Campus 2. Five years on the campus is almost complete and Apple is a very different kind of brand. These days most people, including many Apple employees, refer to the building as the Death Star.

That’s my point.

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Comments
  • Jeo Ten 19 Aug 2016 at 1:00 am

    Apple is smart for keeping billions abroad. What idiot would move that money to the country with the highest tax rates? Politicians are idiots however by not reducing the stifling tax. That money doesn’t need to go to the federal government where politicians waste a majority of it. It should be used by those companies to hire more people, buy more equipment and grow their businesses, and yes, return profits to the owners of the company … like me and you.

    • m ritson 19 Aug 2016 at 8:18 am

      Yes Jeo I feel you. Hence my comment about Google. It’s the double standards of a CEO that is at the heart of the issue. Nothing illegal or illogical about tax minimisation but don’t tell us you support society and walk a different path from other CEOs. That’s clearly a load of balls.

    • Grant Simmons 19 Aug 2016 at 12:35 pm

      I believe Apple is one of the US’s largest tax contributors when you look as local sales tax, employment taxes and corporate taxes.
      Apple contributes millions to charities and lobbies for minority rights.
      They are far from angelic, and I am far from a blinded fan boy, but they also have a responsibility to their shareholders, and is would be fiscally ‘stupid’ (that’s a technical term FYI) to return their overseas funds to a country that a) has one of the highest tax rates b) doesn’t (and hasn’t) have decent accountability for their inefficient social policies.
      I think they can do more… But I agree with Cook that bringing the cash back to the states to allow the government to take an (unfair) onerous chunk would be dumb. (That’s another technical term)
      Cheers expat in US

  • Jonathan Cahill 19 Aug 2016 at 8:32 am

    I think the focus on social responsibility is spot on. As Supreme Court judge Oliver Wendell Holmes said: “taxes are the price we pay for a civilised society.”

    Also Cook’s claims ring rather hollow when one bears in mind the working conditions and salaries at Foxconn.

  • David Lourie 19 Aug 2016 at 9:25 am

    Couldn’t agree more with your article Mark.

    It is like the traditional days of CSR where companies were touting how much money they were giving to charity as a mark of being a ‘good’ company while continuing to treat their staff badly, break-up communities and destroy the environment.

    Companies have caught on to the fact that this traditional approach of being a ‘responsible’ company no longer stacks up and responsibility comes from how the business behaves in all it relationships and in all that it does, all of the time.

    Unfortunately too many companies have not made the connection between paying a fair amount of tax in the countries where they make their profits (the work of the Richard Murphy and his Fair Tax Mark is a move in the right direction) and being a decent business (and successful company with strong long-term brand equity) that wants (and needs) to be part of a successful society (i.e. one that has good schools, good infrastructure, good healthcare etc.).

    Sure what these companies are doing is not illegal or illogical, but the trouble is that those companies do not usually invest that money back in ‘hiring more people and buying more equipment’ in the places where they should be paying taxes – so the benefits are primarily seen elsewhere. It also fails to ensure that the money needed for the schools, the roads, the hospitals is there in the places where these businesses have their employees (who will be using many of these services) – just ask Mayor of Cupertino, Barry Chang.

  • Ville Porttila 19 Aug 2016 at 10:52 am

    Bang on as always. My only issue:

    ‘But their actions will come at a cost to brand equity.’

    I would say this is unfounded optimism. Consumers, by and large, don’t care about Apple and Starbucks’ tax strategies. They haven’t and won’t take any action on a scale that would make these companies reconsider what they are doing

  • Michael Goff 19 Aug 2016 at 10:47 pm

    So they have a social responsibility to bring money made outside of the states back into the states? No. That’s just a silly argument. They’re not just an American company and acting as though they owe America money made outside of its shores is nothing short of nationalism at its worst.

    • Allan Hassell 21 Aug 2016 at 1:43 pm

      Sadly Michael, Apple is also avoiding paying their full tax liability in the other countries that they operate too – so the argument still stands.
      Again they are not alone in this, but they need to stop talking about what a great company they are and start paying what they owe – either that or stop spouting about their fantastic CSR….

      • Michael Goff 21 Aug 2016 at 3:39 pm

        That’s a good point, but not the one the article makes. The one the article makes is wrong. It isn’t immoral for Apple to keep foreign profits foreign.

  • Connugy 30 Aug 2016 at 2:03 pm

    Tim Cooke needs top talking. He’s the Louis van Gaal of the business world.

    Not only are his hypocritical comments around (Apple’s) responsibilities and the Government’s need to invest deeply offensive, he’s almost like a poor man’s Alan Sugar even when he steers clear of the purpose driven diatribe….

    “Hi, I’m Tim Cooke, you may know my comments from such visionary fluff like “cashless will be here soon because Apple pay” and “the PC will be killed off because iPad Pro”.”

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