Apple’s decision last week to issue $17bn in bonds has drawn attention to America’s abominable corporate tax system. The tech giant’s first debt issue comes at a time when it has more than $100bn in cash held outside the US. By borrowing from the capital markets, Apple can pay dividends to shareholders more cheaply than if it used the money stored outside the country, while getting a tax deduction for interest expenses. This decision has angered those who like to inveigh against “tax avoidance” and “corporate greed”. But the culprit is not Apple; it is the over-complex US tax system.

Apple’s actions can be explained by two features of the tax code: its treatment of foreign income and its bias towards debt over equity.

When an American company generates income outside the US, it first pays taxes in the country where the income is generated and then pays the “differential” tax when that income is returned. Consider an example. A company that generates $1bn in income in Taiwan, where the corporate tax rate is 17 per cent, will pay taxes of $170m to the island. It will then have to pay an additional $180m in federal taxes when the income returns to the US, where the corporate tax rate is 35 per cent.