As Sen. John McCainJohn McCainOvernight Defense: Pentagon denies troops on Syrian front lines | Senators push for more Afghan visas McCain files B amendment to boost defense spending Senators push to authorize 4,000 more visas for Afghans 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?
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 PaulRand PaulOvernight Energy: Trump outlines 'America First' energy plan in North Dakota Overnight Regulation: GOP slams new Obama education rules Paul blocks chemical safety bill in Senate 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 LevinCarl, Sander Levin rebuke Sanders for tax comments on Panama trade deal Supreme Court: Eye on the prize Congress got it wrong on unjustified corporate tax loopholes 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.