Could Bitcoin Help Everyone Else Avoid Taxes Like Apple?

The big news this week has been the revelation of Congressional investigators that Apple, one of the country’s most profitable companies, had avoided billions in taxes by exploiting loopholes in the system. Of course, tax avoidance has long been a luxury of international companies and the rich, armed with their squadrons of legal experts, bankers and accountants. Without the same kind of support, regular people like you and me have no other option than to pay up. But what if Bitcoin changed all that?

In fact, this kind of corporate “cost-cutting” behavior has been expected and accepted ever since The Economist detailed how News Corp. paid just six percent in taxes in 1999 by exploiting global tax havens with offshore subsidiaries. This isn’t just an American problem. European authorities are coming to the same conclusion, having exposed the strategies of Google, Starbucks, and Amazon in recent months.

Indeed, if the CEO of a major corporation were to shun such methods in the name of “patriotism,” he or she would be written off as naive and briskly fired. Such practices are now so commonplace, the lines of morality have blurred as initial anger has faded into general indifference, concluded The Atlantic’s Derek Thompson.

“Rather than a story about patriotic duty, or funding the social net, or corporate ethics, this is really a story about unrealistic expectations,” Thompson writes. “We wish we could tax American companies on their earnings from all around the world. And we can't. We just can't.”

Meanwhile, companies like Apple continue to stretch the limits of what’s possible, to the dismay of Senator Carl Levin, a Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations. “Apple successfully sought the holy grail of tax avoidance,” he told the Times. “It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.” In other words, Apple has been able to effectively create stateless subsidiaries, shell companies that are wholly exempt from filing tax returns to, well, anywhere.

Having just returned from the libertarian fest otherwise known as the 2013 Bitcoin conference in San Jose, it suddenly sounds all too familiar. A stateless existence with minimal taxes? Multinational corporations like Apple are already living the libertarian dream! Moreover, society is beginning to accept this as business as usual.

It’s the same storyline Bitcoin ideologues sold all weekend. If you have the option to pay less taxes, you’ll take it. And if everyone is doing it, it will, over time, feel less and less morally reprehensible. Countries like Greece and Italy are prime examples. Once a society gets used to a culture of not paying taxes, especially since their neighbors aren’t either, it’s extremely difficult to reverse the trend.

Just like the (legal) strategies Apple has employed, there’s little the government could do to tax Bitcoin transactions and stashes it knows nothing about. People who are paid in cash are already well aware of this phenomenon. There’s no overt political, anti-government agenda here. People simply like more money than less money. And if CEOs aren’t being patriotic, why should others be?

To be perfectly clear, I am in no way promoting tax evasion. I'm merely pointing out the fact that, if given the option, most people, like corporations, will choose to pay less taxes if possible. And so on one end of the spectrum you have “cash only” small businesses. On the other end are the multinationals. Could Bitcoin fill in the gaps?

In some places, this is already happening. A Finnish software firm recently offered to pay a portion of employee salaries in bitcoins. In this case, the bitcoins paid are already tax deducted, but how long will it be before an enterprising employee discovers a novel loophole, just as Apple has? Or take it one step further. How long will it be before savvy employers start helping their employees exploit such loopholes?

If the employer can pay the employee less, even as the employee earns more, everyone wins. Except the government that is. But if governments are powerless to stop such “legal” activities, will anyone even care (outside of politicians)? Given what’s happening on a far grander scale, is such a reality really that ridiculous?

Perhaps most telling is Apple’s response in the form of a prepared testimony on Tuesday. The company said that it “welcomes an objective examination of the US corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy.” Sound familiar?

@sfnuop