TECHNOLOGY SPECTATOR: How American are US tech companies?

Geography is just a matter of perspective for Google and Apple when it comes to paying taxes or deciding where their products are built. So why are they still considered US icons?

Technology Spectator

Geography, and in particular the concept of nation states, is all a matter of perspective when you are a global corporation like Apple, Google, Amazon or Microsoft. We take it on face value that these companies are American because they are incorporated there and that is where their headquarters are. However, 40 per cent of Microsoft’s employees work outside of the US. Of the 60 per cent that work in America, a large number (especially developers) are actually working on H-1B foreign worker visas and come from all over the world, including Australia. Of the 65,000 H-1B visas granted in the US each year, tech companies take the bulk of them.

So how is a company like Apple, who manufactures all of its products in China and designs them in the US with foreign workers, actually "American”?

Perhaps they are defined as American because that is where they pay their taxes or keep their money? Well, here again apparently not. Apple declared recently that they had paid $US713 million in tax on foreign earnings of $US36.8 billion. A tax rate of 1.9 per cent. In order to further minimise the tax they have to pay in the US, they leave the bulk of the money they earn offshore where it now totals $US82.6 billion.

This $US82.6 billion of Apple’s money is part of $US1.5 trillion dollars in profits kept offshore by US companies.

Given the massive debt the US is servicing with cuts to education can healthcare, you would have thought that getting companies like Apple to pay their taxes would be a priority? Well, they have tried with a US Senate panel recently reviewing tax avoidance in the tech sector. The problem here is that these companies have not done anything "illegal” as such and getting laws changed would require cooperation between the political parties on subject that they share little common ground.

But Apple is not alone in this. In Australia, Google this year paid tax of less than one million dollars on revenue of $1 billion. They did this because the services being provided were from companies registered in Ireland and the Netherlands that have been set up with the explicit purpose of minimising tax liability elsewhere. Of course, none of this had anything to do with the American company who simply supplied the "intellectual property” at some point in the chain.

The truth is that multi-national companies are exactly that, multi-national. Their national status is mainly a marketing construct and their headquarters are situated usually where their founders established them.

As long as the US market remains an important one for these companies, there is value in reinforcing the perception of their "Americanness”. There is also another area where this proves useful and that is in legal fights with "foreign” companies. Apple’s win over Samsung took place in San Jose. No other court outside of the US has resulted in as big a win for Apple. There is no doubt that nationalism played some part in the damages awarded.

In fact, national boundaries become especially important to technology companies when they are trying to stop other products being sold in those countries due to patent disputes. These same boundaries are also important in establishing differential pricing for the different markets. This is the case even when the services and products are digital and they are coming from offshoots of the US company based in Bermuda.

However, it is not just companies that are challenging the concept of nations. Consumers are learning quickly how to circumvent regional restrictions on purchasing products by registering accounts in different countries or setting up delivery proxies. We are less subject now to attempts by companies to limit distribution of TV shows, films and books by region. Consumers can largely circumvent attempts to enforce the payment of local taxes.

Perhaps with the internet being a global medium and cultural equaliser, this is as it should be.

David Glance is a director at the Centre for Software Practice at The University of Western Australia.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles