As you may have seen over the weekend, the New York Times published an attention-grabbing story on how Apple avoids billions of dollars in corporate tax obligations by channeling profits through a complex, multi-national maze that last year saved its investors $2.4B. In fact, as I write this post, it’s the main topic of discussion on CNBC.
I don’t begrudge Apple for mitigating its taxes – that’s simply good business – but it’s an eyebrow raising story. Not just because of the great lengths Apple goes to, to avoid what seems to be the spirit of the tax code, even if it’s operating well within legal boundaries, but because of how quickly and fervently its customers (of which I am one, several times over) quickly come to its reputational aid, allowing it to enjoy a double-standard that other companies can only dream about. Arguments in Apple’s defense include such gems as:
“I’d rather have them allocate their capital than the government.”
And, “better to invest the dollars back into product innovation than into the government’s coffers,”
And perhaps my favorite, “Apple’s tax strategy allows them to keep prices lower.” Lower prices!? Really?
Undoubtedly, Apple can find uses for its cash that are more in alignment with its investors’ interests — that’s not my point. My point is the bullet-proof halo that Apple has earned after years of producing beloved hardware and software products (from Macs to iTunes to iPods to iPhones to iPads … and now, iCloud), that allows it to walk the line of the tax code and possibly even corporate integrity, while maintaining its status as a customer-focused, community-friendly company. In fact, Apple’s “reality distortion field” is so mesmerizing and thick that it persists despite a growing rap sheet of behavior that at best underscores Apple’s imperfections, and at worst demonstrates behavior inconsistent with that of a company that is truly focused on its customers. A few, top-of-mind examples:
- The signal to the iPhone 4’s internal antenna is distorted when you hold it in the palm of your hand. Jobs’ initial response was to instruct us not to hold it that way (Apple later offered vouchers for free cases that compensated for the interference, but never fixed the root cause of the problem)
- iPhone users have unknowingly had their web browsing tracked by Safari with a loophole that let Google install cookies (Apple later fixed the issue with a software patch)
- Apple has been accused of addressing viruses on its own schedule, putting millions of users at risk
- While considered by many to be a stroke of operational genius, Apple’s ruthless supply chain strategies tie up critical components needed by competitive devices, arguably suppressing competition and consumer choice
- Steve Jobs bucked the generally accepted trend of driving innovation by listening to customers when he said, “a lot of times, people don’t know what they want until you show it to them” (although it’s hard to argue with the company’s exceptional track record)
- And now, extraordinary tax avoidance
Bravo, Apple! You have successfully constructed a virtuous cycle of product and reputation that insulates you from missteps and PR gaffes. But you’d better keep the cool products coming, or you’ll quickly find yourself back on earth with everyone else.