Apple's $17b debt product launch: Is it ethical?

It's legal of course, don't get me wrong, but is it really ethical? That's the question I just cannot resolve as I consider Apple [AAPL] and its record $17 billion bond sale. But is it a bond sale or an attempt to limit tax liability? I'll allow someone cleverer at this sort of financial stuff than I to explain:

[ABOVE: Tim Cook at last year's D conference. He's back this year. Perhaps Walt Mossberg will ask him to explain how he thinks taxation and the debt markets work.]

High finance

"Apple has cash reserves of $144 billion, those are largely held overseas, necessitating debt issuance to avoid repatriation of taxes, said Gerald Granovsky, senior vice president at Moody’s, in a report Monday." Source.

What are the mechanics here?

I'm no expert, but reading between the lines it seems that by selling these bonds Apple is raising cash to engage in its $100 billion stock buyback without repatriating cash held in sundry international tax havens into the US, thus paying low tax within international markets and minimizing tax liability in the US. I'm not certain, but presumably these bonds can be settled at a later date using these foreign accounts, writing the cost off as a business expense.

So this is a sensible business move. It increases Apple's disposable capital while enabling the company to hang onto more of the money it has earned.

Investors welcome it, it's already boosting stock performance and pension funds and those big institutional investors are literally dancing as they've now got a high-yield investment (relatively at least) that's backed up by cold hard cash.

Good news.

Bad news?

The cash Apple has could be used to acquire every office building and retail space in New York. Or to purchase Intel, or even Facebook, Yahoo and HP. If only it were to be repatriated.

To put the sheer quantity of cash into perspective, there's people starving on the streets of Cyprus and other European countries on strength of harsh austerity measures put in place in order to prop up the financial system. The Cypriot shortfall's around $30 billion.

Apple could voluntarily bail out the Cypriot economy and still have change. Or it could choose to pay tax in its many international markets instead of taking steps to minimize its tax liability.

Apple's $17billion debt product launch: is it ethical?

[ABOVE: A tax-related picture from Flickr.]

Low-tax or no-tax?

The Daily Telegraph:

"Technology giant Apple shuttled $11bn (£7bn) into offshore tax havens in the fourth quarter of 2012, an analysis of its corporate filings has revealed.

"The iPad maker has slashed its tax bill by paying less than 2pc on its overseas profits, as it moves money through offshoots in low-tax countries such as the British Virgin Islands."

Apple isn't the only big firm that attempts to minimize its tax. Amazon, Starbucks and many, many others all take steps to reduce their burden.

These firms argue they should have the right to do this because they create jobs, but given these jobs aren't charitable donations but positions that need to be filled in order to help firms make more money, I've never been completely satisfied with that argument.

Does it work?

Apple has been actively lobbying US government for a tax holiday in order to repatriate its international earnings for years.

Not only this, but a previous tax holiday to US corporations given in 2004 "did not produce any of the promised benefits of new jobs or increased research expenditures to spur economic growth," according to the Senate's Government Affairs Permanent Subcommittee on Investigations.

As I said, I'm no expert and I understand that many in the US feel that taxation and government itself are unwarranted invasions of personal liberty, so I hesitate to engage in this discussion to any great extent: I'm not about to propose a template for a brand new economic system, despite what could be construed as a global body of evidence to suggest the current system isn't working that well.

Blind love?

I love Apple's products, most of the time. I was won over by iTunes, because I felt that it was a way to ensure artists got paid for the music they make. I used to work with bands and I've always believed musicians -- who create these wonderful songs that can illuminate the darkest and brightest moments of our lives -- deserve to be paid.

I believe Apple's products, from the Mac on, helped unleash a period of great creative possibility upon this planet. I think that's a good thing, perhaps the best thing. The phrase: "Where technology meets the liberal arts" absolutely reflects my own priorities as a human being. I agree that's just a subjective position.

Despite my huge respect for the company, I can't help but think that in the event corporations changed their approach to taxation then the money put inside international coffers could help ease the austerity burden currently carried by some of the most disadvantaged members of the global population.

It is arguable that the introduction of significant quantities of cash would give governments (love 'em or loathe 'em) much-needed investment capital to pump into their economies, perhaps enabling citizens to create their very own jobs and businesses.

There is no conclusion

Viscerally, I feel that corporations should pay their taxes at the point of origin -- they should pay local tax on local trades. Taxation is just the cost of doing business in a country, and given that the cost of doing business in places is already factored into the prices we pay, it seems odd to avoid those costs.

Logically I recognize that the situation is far more complex than this. I'm well aware that I'm a tech writer, not an expert on global financial affairs.

It's possible, I suppose, that the dichotomy between the tax burden on the world's population and the manner of handling taxation evidenced by the world's multinationals is just a blip, that eventually things will settle down toward a new and more ecumenically fulfilling economic model.

The fact remains that no matter how much I consider the matter I still return to the question: While the debt sale and attempt to minimize the tax burden is legal, is it ethical? And if Apple truly intends becoming a standard bearer for ethical business, then has it taken the most appropriate decision when it chose to jump into the lascivious arms of the debt bond market?

Perhaps these questions don't matter so much, so long as just enough people have just enough money to buy a new smartphone, tablet, PC or future connected device.

I don't know the "right" answer at this time, so I'm open to listening to what you, my readers, think and feel. Please share your opinion in comments below. I look forward to reading them.

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Copyright © 2013 IDG Communications, Inc.

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