Warren is correct that public companies in the U.S. calculate income under (at least) two different sets of rules.
First, there are Generally Accepted Accounting Principles (GAAP) written by the Financial Accounting Standards Board (FASB). These rules are meant to reflect the economic performance of the business so that shareholders, among others, can evaluate the firm and its management.
Second, corporations calculate profits according to the Internal Revenue Code, created by Congress, to determine taxable income. The Internal Revenue Code is meant to raise revenue for the government, and in some cases, to change the ways companies behave — encouraging investment and research and development (R&D), for example.
The media spotlight has recently been on Apple Inc. AAPL +0.52% for shifting profits overseas to avoid U.S. taxes. In its international tax strategy, though, Apple is no different from other American technology companies, which (like Apple) began moving manufacturing overseas starting in the early 1980s.
Initially, U.S. technology firms that went abroad during this period were drawn by the lower labor, sourcing, and procurement costs. They also found they could eliminate exchange-rate risk by producing and selling in the same currency.
But these companies soon discovered another important advantage of being global: favorable taxation.