Op-Ed: Apple’s tax evasion disguised under economies of agglomeration

Posted May 31, 2013 by Eko Armunanto
Disguised under the economies of agglomeration, giant corporations are having all the chances to evade its taxes by creating subsidiaries in low-tax countries – sidestepping income taxes.
File photo: Apple s Worldwide Developer Conference
File photo: Apple's Worldwide Developer Conference
Photo by adamjackson1984
Economies of agglomeration says that manufacturing plants don’t exist in isolation; they benefit a lot from being part of a manufacturing cluster, with specialized suppliers and a large pool of workers with the right skills close at hand.
Firms are looking to benefit from the so-called economies of scale and network effects when they locate themselves near each other (agglomerating) to create a chain. Apple, Inc. was accused of evading its taxes by using complicated accounting methods, but long before the accusation Apple was said to have been inducing an agglomeration in China as its entire supply chain is in there.
A report on New York Times said last year that almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold were manufactured overseas. Apple executives say that going overseas is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves.
Disguised under those agglomeration principles, giant corporations are having all the chances to evade its taxes by creating subsidiaries in low-tax countries – in Apple’s case it created them in places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands, said another New York Times report. Apple, Inc. is among those giants who assign overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes.
Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich” – reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations; some of which directly imitated Apple’s methods, say accountants at those companies. Google, Starbucks, and Amazon have also been criticized for using complicated accounting methods to limit their tax bills. Google boss Eric Schmidt was on Sunday forced to mount a defense of the company's tax policy after MP Margaret Hodge accused his company of doing evil.
Apple co-founder Steve Wozniak slams the company's tax evasion. Wozniak, who co-founded Apple with the late Steve Jobs, has called all the criticism against the company's tax policies as 'extremely warranted'. He said there are no personal ethics when it comes to corporations. Therefore, like the way people are not taxed on their profits but on their income, similarly the only solution was to tax large firms on all of their revenues.