Analysis The New York Times has revealed, as a simple matter of fact, that Apple's cash-paid tax rate for 2011 was only 9.8 per cent.

Which is a stunningly good result from the fruity tech titan's bean counters and one that should be applauded by us all, if only it hadn't been calculated using the wrong tax year.

First, let's look at what the NYT reported:

The company paid cash taxes of $3.3bn [£2bn] around the world on its reported profits of $34.2bn [£21bn] last year, a tax rate of 9.8 percent.

There is a problem with this calculation. One so large, in fact one so sufficiently damn stupid, that one has to wonder if ignorance or mendacity played a part at some point.

For here's the other thing that the same article says about Apple's 2011 tax bill:

Companies report their cash outlays for income taxes in their annual Form 10-K, but it is impossible from those numbers to determine precisely how much, in total, corporations pay to governments. In Apple’s last annual disclosure, the company listed its worldwide taxes — which includes cash taxes paid as well as deferred taxes and other charges — at $8.3bn [£5bn], an effective tax rate of almost a quarter of profits.

So, are we talking about a 9.8 per cent or a nearly 25 per cent tax rate for 2011?

The 9.8 per cent figure originates from this PDF report by the Greenlining Institute (who they?) In fact, it's by the organisation's lawyer and a law student. Here's how they, in their own words, calculated Apple's bargain-basement tax rate:

The third method, which this report uses, is what a company reports on its 10-K as “cash taxes paid”. This is how much a company actually paid in taxes in a given year. But that figure includes the company’s taxes paid everywhere, including taxes paid to states, the US federal government, and to other countries. Some of that money could be paid for back taxes and some could eventually be refunded. While imperfect, this is the best estimate of how much a company actually pays in taxes in a given year. Until the government or the Financial Accounting Standards Board requires companies to report more, this is the best figure available.

Here's the rub: how on Earth can you pay your quarterly taxes on your profits before you've reached the end of the accounting year and totted up your expenditure and actual winnings? Well, quite, you cannot. So, one answer is that the taxes that Apple paid, actually coughed up the cash for, in 2011 are based on the profits that they made in 2010.

Nothing is ever quite that simple in corporate taxation, of course. This is why the tax codes of all countries extend to the thousands and tens of thousands of pages of close type.

The US system says that if you think you're going to make a profit of more than $500 in a year then you've got to pay estimated corporate income tax. You send in the cheques once a quarter, two weeks after the end of that quarter.

And, naturally, there are different ways you can estimate the tax that you ought to be paying.

For example, thanks to a one James Gordon Brown, here's how the UK system works: the taxman will ask you, "How much do you think you're going to make this year, and why don't you send us that?" You even have to pay interest if you get the calculation wrong, such as if you have a good last week of the year or something.

Another possible method would be this: "Tell us," again asks the taxman, "what did you make last year? Send us taxes based on that for us to be getting on with, and we'll take a cheque after the end of the year to balance it up."

The US system asks you to do both of these: you pay either on your estimation of this year's profits or on the basis of last year's. But, and here's the crucial part: you are supposed to take the lower of these two numbers as the basis for your estimated payments.

What Apple actually paid its tax on

In 2011 Apple coughed up the cash for estimated corporate income tax. That estimation being based, as the law says it should be, on profits for 2010. As in 2012 they'll be sending in quarterly dosh based upon 2011's profits, after they've made that balancing payment to Uncle Sam for 2011's profits being larger than 2010's.

Now, bear in mind that Apple's profits have soared into the stratosphere. They have doubled in a year.

Which is how we can get to a 9.8 per cent tax rate for Apple: they paid in 2011's taxes based on their 2010 profits, those 2010 profits being less than half of 2011's. But this is clearly and obviously insane as a method of calculating Apple's actual tax bill on its 2011 profits: it's entirely ignoring the balancing payment they have to make to bring estimated payments up to what is actually due.

Now, there's an awful lot more to Apple's taxes than just this: they do use Double Irish with a Dutch Sandwich (safe for work, honestly), they do indeed sell iTunes stuff through Luxembourg, they do indeed park profits offshore where Uncle Sam doesn't take a slice. That last one doesn't bother me: why should something made in China and sold in Germany raise cash for the US government?

But this particular point, about the 9.8 per cent, doesn't have anything to do with tax dodging in any form. It's really just a side effect of the high growth rate of the company.

Any company that doubles its profits, whatever else they were doing offshore, would by this method of calculation have a very low tax rate. And I think the one thing we're all already aware of is that Apple has been growing its profits quite swiftly of late.

There is another way of looking at this, and that's as a comment on the coming downfall of the major newspapers. The Greenlining report is only two weeks old and in that fortnight that 9.8 per cent tax rate has gone from an error to an established fact printed in America's newspaper of record. The Gray Lady's demise cannot come soon enough, can it? ®