A Taxing Question: Are Apple and Google Acting Ethically?

By Annie Burnham

If you thought April 15 would bring the end of discussion about taxes, you were mistaken. In addition to the IRS being in the news for scandal, several global corporations are under scrutiny for evading taxes in the United States. Apple and Google are both in the spotlight because of their global presence and the huge amount of tax money they allegedly haven’t paid. Americans are now asking if it is ethical for these global organizations to house their money in areas with lower interest rates to avoid paying 35 percent of their profit in taxes, or if avoiding the corporate tax rate is unethical and hurting the American consumer.

Apple is accused of avoiding paying California state taxes for the last several years by housing an investment office in Reno, Nev. California has an 8.84 percent corporate tax rate; Nevada has no corporate income tax. Apple also has many subsidiaries in Ireland, Netherlands, Luxembourg, and the British Virgin Islands, where they keep large amounts of revenue and avoid paying the United States’ 35 percent corporate tax rate.

Google puts a lot of its money into accounts in Bermuda, which in effect cuts its tax rate in half. Google chairman, Eric Schmidt said, “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.” The company defends its decision as a way to earn the most profit for their shareholders, and the way they go about that is completely legal.

The governments of the countries in which these corporations work feel they are being cheated, particularly European and American governments. But some argue that these global companies could end up being taxed twice or three times if they paid taxes in all countries of which they are a part.

According to Thomas Baekdal, an online magazine publisher, these large corporations have no choice in evading taxes. He uses an example, which is illustrated in the diagram below, of how Google could be taxed multiple times if they did nothing to protect their assets. Google has a consulting office in the UK; Google Europe is based in Ireland; and Google’s headquarters are in the US. If each country taxed the profit earned by Google, it would end up losing 66 percent of its profit to taxes. Approximately two thirds of Google’s profit could be taken away for tax purposes in three separate countries.

from http://www.baekdal.com/opinion/the-other-side-of-amazons-apples-and-googles-tax-evasion/

Others argue that Apple’s avoidance of paying more than $44 billion in taxes over the last four years is unethical. Apple and Google are not the only corporations that have accounts in countries with lower corporate income taxes. Hewlett Packard, Microsoft, Starbucks, Amazon, and many others have also avoided the corporate tax rate in the United States by having offshore accounts.

One major issue with these companies skipping out on paying taxes, argue some, is that the countries’ citizens must make up the difference. Therefore, higher tax rates or cutting of services are the only options to counter balance this.

Here at the College of Business, the Daniels Fund Ethics Initiative helps establish a commitment to ethics and integrity. Based on the principles set forth by Bill Daniels (honesty, integrity, and fairness), do you think Apple and Google have acted ethically? Leave your thoughts in the comments below.

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Ron Johnson’s Mistake: The Importance of Market Research

By Annie Burnham

On Monday, April 8, JC Penney fired its CEO, Ron Johnson, and rehired previous CEO, Mike Ullman. Johnson was hired in an effort to improve the corporation’s profits after the 2008 recession; unfortunately, Johnson tried to make too many changes too quickly. Now, with 700 stores in the middle of a costly remodel, the (once again) new CEO Ullman has his work cut out for him.

The news that JC Penney was letting go of Ron Johnson came as no surprise to many. According to one source, the industry had started taking bets on when he would be ousted. “His Q4 2012 was probably the worst quarterly performance ever in the history of major retail,” wrote Business Insider, Jim Edwards.

“One of the big mistakes was perhaps too much change too quickly without adequate testing on what the impact would be,” Ackman said at a Reuters conference last week.

Mark Ellwood, a retail expert and author of the upcoming book “Bargain Fever”, compared Johnson to Marie Antoinette. “He always seemed slightly embarrassed that he was dealing in middle market product,” Ellwood said. “His attitude when he gave a rare interview was very much along the lines of ‘let me tell them what’s good for them,’ rather than ‘tell me what you want as a customer and let me see how I can achieve that.”

Business 2 Community stated that market research should underpin everything your business does, something the College of Business prides itself on. The research skills that are taught in the classroom compliment the outstanding work done for organizations by our faculty and graduates.

If Johnson had used the same types of research techniques and strategies that CSU COB students are taught, he would have been able to make better-informed decisions. Johnson may have avoided financial loss and disdain for his leadership by testing the market to see if the idea works with JC Penney’s consumer base.

Johnson created one of his problems by pushing away loyal customers and ignoring their needs. JC Penney has been around for 111 years and has a large customer base. Johnson treated JC Penney customers like he treated Apple’s customers, despite the differences between the companies and their customers. The failure to recognize those differences coupled with the sudden and vast number of changes helped lead to Johnsons failures as CEO.

Had Johnson spent more time getting to know the customer base, testing his plan to remodel stores, and not doing away with the coupon sales that drove much of JC Penney’s revenue, he might still be CEO of JC Penney, slowly transforming another retailer into a Wall Street superpower. Let this be a lesson to you readers – doing your homework pays off in the long run.