Apple’s Tax Strategy

I was at the gym a couple of days ago bantering with a gal in one of the classes I take and she asked me what I did. I told her I had an accounting practice and she asked me the name but she’d never heard of us. I told her that’s because we try to keep our profile down locally. I got all the high profile I ever want during an unsuccessful campaign for U.S. Congress.  I told her we don’t have a sign on our building or on the door to our offices, but my practice is one of the largest individually owned CPA firms in the United States. We have clients in 46 states. After oooing and ahhhing for a moment, she said something very interesting. She said, you seem very … “lively” for an accountant. And of course, you all know what she meant.

Besides the issues this attitude creates for ‘unlively’ accountants, it raises a larger point more pertinent to the typical businessman about the innovations people expect from their accountants and tax advisors. They expect absolutely none.  Because they’ve never gotten anything other than ‘timing differences’ whenever they asked for tax advice. Year end tax advice is always swimming with timing differences. Unfortunately, with unlively goes dull and slow, at least in the minds of most business owners. Their tax accountants have trained them to think that way. Creativity and innovations are certainly unexpected.

That puts many business owners in the unfortunate position of having to plod along year after year paying more tax than the law requires and missing profit opportunities because they think they’re getting all you can expect from an accounting firm. But that’s not true.

Take the case of Apple. In 1998 when Steve Jobs returned to Apple, the company was three months from running out of cash and going bankrupt.  We all know the story about how Jobs pulled Apple from the brink of bankruptcy and propelled it into the most valuable company in the world.  Everybody knows about the iMac and the iPod and iTunes and the iPhone and iPad and what a great successes they were. But very few people know about the role tax strategy played and the 400 billion dollars it added to Apple’s coffers and cash balances.


Tax Strategy is an essential element of each of these companies’ success. They built their cash positions and balance sheets with tax strategy.  They are all wildly successful companies, and all of them have been heavily criticized for pursuing legal, effective tax strategies.  GE’s still embroiled in controversy for paying no income tax in 2010. Google and Amazon have been heavily criticized throughout the E.U. In fact the U.K. Parliament went so far as to ‘condemn’ Google.  But Apple’s story is the most interesting.

Apple’s story is below.

It may be a coincidence that this story spans Steve Jobs’ tenure at Apple, but I don’t think so. It begins in 1997 with Jobs’ return and Apple sitting at the brink of bankruptcy.  It ends sixteen years later after the greatest turnaround in history and Jobs dead and in the grave.   From a single billion in 1997, Apples cash position had risen to $57 billion by 2010; and, as Apple’s market value had risen from $839 million to $549 billion, the company had become the most valuable company in the world.

The NYT initially broke the story in 2010, alleging, apparently inaccurately, that Apple’s effective tax rate was only 9.8%. It culminated In 2013 with Congress grilling Apple for avoiding $400 billion in tax using a “web of tax shelters” with catchy names like the ”Double Irish and a Dutch Sandwich”. Note the use of the word “avoiding” which implies it was all done legally, instead of “evading” which would imply laws were broken.

Apple had broken no laws. They will never be prosecuted for tax avoidance, because tax avoidance is not against the law. It’s human nature to avoid income tax. None of these companies had broken any laws. None of them will ever be prosecuted.

This story is not about Apple outwitting the world’s governments. The point of this story is that the biggest companies in the world are quietly and effectively sheltering their income from taxation with legal tax savings devices and tax preferences that legislators embedded in tax codes for this particular purpose. The story is about Apple cutting it’s taxes all the way to zero in many cases by taking advantage of what the world’s governments willingly provided. Many tax savings devices and tax preferences have been embedded in the U.S. Tax code by the U.S. Congress. And most businesses are leaving them unused. But not voluntarily.

In Apple’s case, newspapers have reported the company saved $400 billion in taxes. But if the truth were known, it was probably more than that. Never the less, that $400 billion went into the cash balances on their Balance Sheet and into their market value, fueling their rise to ‘the world’s most valuable company. But their tax strategies added greatly to bottom line profits and company value.  It’s a statistical fact, that $400 billion in tax savings fueled Apple’s rise to overtake Exxon Mobile as the most valuable company in the world.

Jobs obviously had no desire to contribute precious working capital to taxing authorities through faulty tax advisors.

Here’s the moral of this paper: If you want your company to break through the barrier that separates the ordinary companies from the remarkable companies that leave their mark on the universe, you need to pay a lot more attention to your income tax and your income tax advisors. If you intend to survive and thrive in the tumultuous 21st century, it’s essential to cut tax to the legal minimum. Paying more tax than the law requires is not the pathway to success.  For multinationals sophisticated tax strategy is required to keep pace with competitors.  But for closely held companies, those savings open doors otherwise closed and provide a needed burst of competitive advantage.

Tax strategy is the first prong in a four pronged approach to turning a company around. The others are ‘modern workforce management’, ‘regulatory management’ and a form of analytics we call ‘analytical accounting’ or ‘transactional analysis’.  If you’re doing this, greatness is a viable option. And so is putting your mark on the universe … a’ la’ Apple.

You can bet Apple’s tax advisors are of the lively variety.

For more information, visit our web site: , or call: 888-241-5040.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: