Harvey — a distinguished Professor of Practice at Villanova University’s School of Law — says that while what Apple has done is acceptable under current International tax law, it still widely uses tax tricks and gimmicks to avoid paying what it fully owes.
“What Apple has done is acceptable under current International tax laws,” said Harvey. “In some extent, Apple is not as aggressive as others, but at the end of the day, Apple funnelled 64% of its earnings into Ireland… and paid very little tax on it.”
Referring to Apple’s statement yesterday, Harvey said that when he read Apple say they “do not use tax gimmicks,” he fell off his chair.
“Apple funnelled $78 billion over four years into an Irish subsidiary with zero employees. If that’s not a tax gimmick, I don’t know what you should call it.”
How Apple was able to do this, Harvey says, is due to the U.S.’s adoption of arms-length pricing, which allows companies to shift income into other countries if that income is derived from a joint effort and joint intellectual property. “It’s true for companies making a cure for cancer, or an iPhone or iPad.” In Apple’s case, they shifted their intellectual property and income derived from it to non-existent entities overseas.
So Apple entered a cost sharing agreement with its own Irish subsidiary, and paid less than 0.05% on taxes in over $78 billion in income.
“Is it right that Apple can transfer this to an affiliate with no employees and very little presence?”
Harvey suggests that Apple cut a deal off-the-books with the Irish government to pay essentially no tax in four years.
Harvey says that the real question is what to do about all of this. Apple is doing nothing illegal, he says, but what’s legal here is an issue. “Something needs to be done when so much income can be allocated to an entity with no substance.”
Harvey’s recommendation was that Congress should demand greater transparency and higher reporting standards on U.S. multinationals about where and how much they pay taxes overseas. “It needs to be administerable.”