As Sen. John McCainJohn Sidney McCainGOP senators appalled by 'ridiculous' House infighting MSNBC's Nicolle Wallace, Chris Christie battle over Fox News Trump's attacks on McConnell seen as prelude to 2024 White House bid MORE (R-AZ) declared in his opening statement, “Apple's corporate tax strategy reflects a flawed corporate tax system that allows large multinational corporations to shift profits offshore to low-tax jurisdictions."
My concern is with a corporate tax system that allows one of the world's wealthiest corporations to avoid tens of billions of dollars of tax on profits through use of research and development cost sharing, transfer pricing with affiliates, gaps in anti-deferral provisions, and not distributing offshore earnings. How can this type of practice engender trust by the American public that our tax system is just?
If this type of conduct is not dealt with quickly it will further encourage a race to the bottom by multinationals and others. It's a zero sum game and if some U.S. based multinationals substantially minimize their U.S. tax burden with such practices, other entities or individuals will have to make up the difference. A tax system that's viewed as rigged is corrosive to our society.
Apple is entitled to a great deal of praise for its success in business, leadership in technology innovation and creation of jobs. Apple being an ‘American success story’ shouldn't, however. serve to mask the fact that our laws for taxing multinationals allow this abuse to occur.
There are some, like Sen. Rand PaulRandal (Rand) Howard PaulCotton swipes at Fauci: 'These bureaucrats think that they are the science' Paul, Cruz fire back after Fauci says criticism of him is 'dangerous' No deal in sight as Congress nears debt limit deadline MORE (R-Ky.), who argue that the Senate Subcommittee's action amounted to a vilification of Apple and that Apple's failure to engage in such practices to minimize its income tax bill would amount to malpractice. I believe many Americans who are aware of what's going on will have a different reaction. It's a further example that the tax system and perhaps government in general is fixed, and those who make substantial campaign contributions write the law that results in such inequity.
I'm not concerned with how little foreign taxes companies like Apple wind up paying. My distress is a tax structure that allows very successful innovation taking place in the United States resulting in enormous profits to escape much U.S. taxation. This U.S. tax base erosion and profit shifting is something that must be curtailed not only for the revenue loss but the message sent.
Congress needs to not only, as Sen. Carl LevinCarl Milton LevinOvernight Defense: First group of Afghan evacuees arrives in Virginia | Biden signs Capitol security funding bill, reimbursing Guard | Pentagon raises health protection level weeks after lowering it Biden pays tribute to late Sen. Levin: 'Embodied the best of who we are' Former Colorado Gov. Richard Lamm dead at 85 MORE (D-MI) stated, to shine a light on such practices but to remedy the situation without delay. U.S. companies without foreign operations shouldn't be put in a competitive disadvantage. Neither should those U.S. based multinationals who do not pursue tax strategies like those utilized by Apple.
The answer is certainly not the enactment of a territorial tax system that would provide a statutory basis for eliminating U.S. income tax on most foreign earnings. This would serve to further encourage not only profits but jobs moving offshore. Neither would permitting multinationals to repatriate offshore earnings at substantially reduced tax rates as is advocated by many companies. This would further exacerbate the inequities in the present system.
It's not just too much taxes that bother many of us but the gaming of the system by the powerful and the well-connected, even those that make great products. Our tax system must promote equity and fairness and not the utilization of egregious loopholes to shift the burden to others.
Cohen is a tax professor at Pace University’s Lubin School of Business and a retired Vice President-Tax & General Tax Counsel for Unilever United States, Inc. The opinion expressed here is his personal view.