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The New York Times seems to have big business in its sights these days.

Last Sunday, it was a piece detailing how Walmart appears to have bribed its way to success in Mexico, a story that continues to have enormous implications as questions are raised about its global business ethics, accounting practices, and the viability of current management to ride out the storm.

Yesterday,, the Times trained its investigative eyes on Apple Inc., detailing how the company has set up satellite offices - sometimes with no more than a mailbox or almost empty office - in places including Reno, Ireland, Luxembourg, the Netherlands and the British Virgin Islands - to help it reduce its tax bill around the world.

Here’s how the Times frames the story:

“Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

“The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’. (Cash taxes may include payments for multiple years.)

“Even among tech companies, Apple’s rates are low. And while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.”

The story goes on:

“Apple’s domestic tax bill has piqued particular curiosity among corporate tax experts because although the company is based in the United States, its profits — on paper, at least — are largely foreign. While Apple contracts out much of the manufacturing and assembly of its products to other companies overseas, the majority of Apple’s executives, product designers, marketers, employees, research and development, and retail stores are in the United States. Tax experts say it is therefore reasonable to expect that most of Apple’s profits would be American as well. The nation’s tax code is based on the concept that a company ‘earns’ income where value is created, rather than where products are sold.

“However, Apple’s accountants have found legal ways to allocate about 70 percent of its profits overseas, where tax rates are often much lower, according to corporate filings.”

Apple responded to the Times by saying it “has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules,” and noting that “in the first half of fiscal year 2012, our US operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax.”
KC's View:
Fascinating piece.

The entire story can be read here.

This may not be the same as bribing foreign officials in order to grease the wheels of global expansion, but at a time when debates about tax fairness are very much front and center, not to mention a time when Apple has been dealing with accusations that it exploits foreign workers, stories like this can have an impact.

Sure, most businesses do what they can to avoid paying taxes. In that sense, Apple is no different. But since Apple’s entire business is built on an image of being different, the issue could be problematic.

In the broadest sense, the story does illustrate the problem with the tax code - clearly something has to be done to streamline and simplify the system.

But since that seems unlikely to happen in a time of political tumult and gridlock - not to mention a time when one of the Presidential candidates has money in the Cayman Islands and a Swiss bank account - I think I’m going to have to start looking into opening up MNB satellite offices. Ireland sounds good, but the British Virgin Islands sound even better...