How Apple Sidesteps Billions in Taxes:

Almost every major corporation tries to minimize its taxes, of course. For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $45.6 billion in its current fiscal year — which would be a record for any American business.

For anyone slightly concerned about inequality, this record ought to raise another red flag concerning the effect of copyright and patent monopolies. (Similarly, review a list of the wealthiest individuals.)

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.)

First tax: monopoly pricing. Second tax: burden shifted to entities less able to move profits. Remove monopolies for much good, then resume debate about all aspects of taxation per usual, as you wish.

Caveats:

• Real economy usually refers to non-financial sector. Suggestions welcome for non-IP sector.
• I may be double counting: without copyright and patent, “real” economy share of profits would increase, tax burden concomitantly.
• Not all profits that are easy to move result from copyright and patent, e.g., I suspect a small proportion of Google’s profits are even indirectly resulting from such.
• There are more non-IP than IP-related entities on record wealth and profit lists, in particular natural resource entities. I don’t claim IP is the dominant source of inequality — but surely an increasing one — and more easily mitigated than natural resource entities, or for that matter, dictators and other state entities, which I wish were included on rich lists.