Apple Inc.’s pricing discrepancies that existed between Australia and the U.S. before 2011
Various factors can explain differences in the pricing of the same Apple products in two countries
Many factors would explain this difference in pricing for the same product in the two regions. The same factors, however, would not be used to explain the case for physical commodities which normally attract transportation and distribution costs, and products such as iTunes music, as in this case, which is marketed directly over the internet.
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According to Jun (2010, pp. 49), economic variability is one of the key factors which can greatly affect the pricing of the same brands and products in different countries (Jun 2010).
Different delivery channels and mediums
Unlike the users in the U.S., who would have direct access to iTunes, Australian users may only access the product through other marketing channels on the internet, that are paid to market and deliver the products to the users in the region. This is much likely to result in an increased price of the product in the Australian region.
Trade barriers and costs
The presence of trade barriers and costs, as enforced by relevant trade rules and regulations, is also likely to cause pricing discrepancies between two countries (Choi & Meek 2011).
The factor of Purchasing Power Parity (PPP)
The purchasing power parity (PPP), widely applied in economic, is another factor that would determine the product’s pricing in the two countries. The PPP concept is likely to apply in determining the pricing here, concerning the relative value of the currencies of the two countries.
Tax minimisation as a part of Apple Inc.’s operating strategy
Apple Inc has fully adopted tax minimization as part of its paying business strategies
Apple is a good example of how technology companies can develop strategies that would help them sidestep taxes (Wolcott & Lippitz 2007). Among the tax-dodging strategies applied by Apple is its successful attempt of establishing corporations in regions with lower tax rates.
The transfer pricing concept has offered a favorable basis for the company in matters regarding taxation
By applying the friendly rules of ‘transfer pricing’ in trying to encourage corporations to pay taxes, the U.S. government has created favorable business conditions for Apple Inc., who has over the years succeeded in sparing substantial amounts of money, in what they give as federal tax bills (Sikka & Willmott 2010). Through this approach, the company has shifted over seventy percent of its overall profit out of the U.S., where it is based, to other parts of the world (Nobes & Parker 2010).
The actions of Apple Inc in matters regarding taxation, as observed in this case, are reasonable
Nobody can claim that Apple Inc has been illegal in its operations in matters regarding taxation. The company is not being evasive to tax, but they are just utilizing one of their brilliant business strategies to avoid paying more tax. In this regard, Apple Inc is quite reasonable in its actions, and there is no way this could be used to condemn the unique strategies applied by the company to reach their success in the ever-changing world of technology (Brush 2008).
Brush, C 2008, ‘Pioneering strategies for entrepreneurial success’, Business Horizons, vol. 51 no.1, pp. 21-27.
Choi, F & Meek, G 2011, International Accounting: International Edition, 7th Ed, Pearson Education, Upper Saddle River.
Jun, W 2010, Accounting with Heart: China’s Role in International Finance and Business, John Wiley & Sons, New York.
Nobes, C & Parker, R 2010, Comparative International Accounting, 11th Ed, Prentice-Hall, London.
Sikka, P & Willmott, H 2010, ‘The dark side of transfer pricing: Its role in tax avoidance and wealth retentiveness’, Critical Perspectives on Accounting, vol. 21 no. 4, pp. 342-356.
Wolcott, R & Lippitz, M 2007, ‘The four models of corporate entrepreneurship’, MIT Sloan Management Review, vol. 49 no.1, pp. 75.