Apple’s cash mountain

2015-02-01 13.44.12I am not an Apple fan. I do not like the design. I do not even like the font they use on their iOS interface. I hate the hype. But the results announced last week suggest I am in a minority. Apple reported profits of $18bn for the third quarter of 2014 generated by selling 34,000 iPhones per hour for the whole of that quarter. Mind boggling.

Apple now sits on a $180bn cash pile, a good amount of it is stashed in a bank account in Ireland selected so as to avoid paying tax on it in the United States of America. Good citizenship if ever I saw it.

So how does Apple reward its shareholders – ultimately the owners of the company? Well, apparently, according to the BBC’s Ian Jack (his explanation can be heard below), Apple is borrowing money in order to buy back its own shares so that shareholders pay a lower tax rate – capital gains tax rather than income tax.

It has been pointed out by the likes of Mariana Mazzucato in her book The Entrepreneurial State that, notwithstanding the immorality of avoiding paying tax, buying back shares also diverts money away from investment in new products, processes and technologies. Essentially, these companies not only avoid paying tax in the countries where they trade and/or are based, but they also get subsidised by the public sector through universities that make up the shortfall in basic research that should be done by the firms that utilise that research for new products and services. A double injustice.

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