Revealed: Apple’s complex strategy to avoid U.S. taxes

Apple uses Irish subsidiaries to avoid US taxes
Apple uses Irish subsidiaries to avoid U.S. taxes.

Apple has kept billions of dollars in profits in Irish subsidiaries to legally pay little or no taxes to any government, a Senate report on the company’s offshore tax structure said.

In a 40-page memorandum released a day before Apple CEO Tim Cook is scheduled to testify before Congress, the Senate’s Permanent Subcommittee on Investigations identified three subsidiaries that have no “tax residency” in Ireland, where they are incorporated, or in the United States, where company executives manage those companies.

The main subsidiary, a holding company that includes Apple’s retail stores throughout Europe, has not paid any corporate income tax in the last five years.

The subsidiary, which has a Cork, Ireland, mailing address, received $29.9 billion in dividends from lower-tiered offshore Apple affiliates from 2009 to 2012, comprising 30 percent of Apple’s total worldwide net profits, the report said.

“Apple has exploited a difference between Irish and U.S. tax residency rules,” the report said.

Apple said in a comment it does not use “tax gimmicks.” It said the existence of its subsidiary “Apple Operations International” in Ireland does not reduce Apple’s U.S. tax liability and the company will pay more than $7 billion in U.S. taxes in fiscal 2013.

Subcommittee staffers said on Monday that Apple was not breaking any laws and had cooperated fully with the investigation.

Code overhaul sought

Tuesday’s hearing is the second to be held by Sen. Carl Levin, a Michigan Democrat and chairman of the subcommittee, to shed light on the weaknesses of the U.S. corporate tax code. Levin has sought to overhaul the code in Congress.

Lawmakers globally are closely scrutinizing the taxes paid by multinational companies. In Britain, Google faces regulatory inquiries over its own tax policies, while Hewlett-Packard Co and Microsoft Corp have been called to Capitol Hill to answer questions about their own practices.

Corporations must pay the top U.S. 35-percent corporate tax on foreign profits, but not until those profits are brought into the United States from abroad. This exception is known as corporate offshore income deferral.

In submitted testimony ahead of Tuesday’s hearing, Apple said any tax reform should favor lower corporate income tax rates regardless of revenue, eliminate tax expenditures and implement a “reasonable tax on foreign earnings that allows free movement of capital back to the US.”

“Apple recognizes these and other improvements in the U.S. corporate tax system may increase the company’s taxes,” it said.

Large U.S. companies boosted their offshore earnings by 15 percent last year to a record $1.9 trillion, avoiding hefty tax bills by keeping the profits abroad, according to research firm Audit Analytics.

Tax scrutiny

Apple also uses two conventional offshore tax practices typical of multinational companies’ tax-avoidance strategies, the report said.

Multinational corporations value goods and services moving across international borders from one corporate unit to another. Known as “transfer pricing,” these moves are frequently managed to reduce corporations’ global tax costs.

Apple’s tax structure highlights flaws in the U.S. corporate tax code so that Congress “can effectively close the loopholes used by many U.S. multinational companies,” Arizona Senator John McCain, the subcommittee’s top Republican, said in a statement on Monday.

Levin, who announced he will retire at the end of 2014, introduced legislation in February to close tax loopholes. At a news conference on Monday, Levin said his bill should pass independent of any broader tax reform push in Congress.

McCain, the top Republican on the subcommittee, told the joint news conference he would co-sponsor Levin’s bill, the first Republican to support the bill. He called Apple’s tax practices “egregious, and (a) really outrageous scheme.”

Similar legislation has been introduced in the House of Representatives.

Government tax officials from the Internal Revenue Service and Treasury Department also are scheduled to testify before the subcommittee on Tuesday.


News
Entertainment
Sports
Lifestyle
National

Rapper affiliate of Wu-Tang Clan 'cuts off own…

Rapper Andre Johnson, who has performed with New York outfit the Wu-Tang Clan, is in a critical condition after reportedly cutting off his own penis…

National

Cleavage complaint: Disneyland staffer orders curvy mom to…

A curvy mom-of-three says she filed a formal complaint after staff at Disneyland Resort in California ordered her to cover up her boobs. Melissa Behnken,…

International

Canadian charged in 'Heartbleed' attack on tax agency

OTTAWA (Reuters) - Canadian police have arrested a 19-year-old man and charged him in connection with exploiting the "Heartbleed" bug to steal taxpayer data from…

National

Every dog has his day in court, in…

(Reuters) - Call him juror K-9.A computer glitch is likely to blame for a summons that called a German Shepherd to report for jury duty,…

Television

‘Survivor: Cagayan’ recap: Episode 8

Sure, it's called Survivor. But this season should really be called 'The Tony Show.'

Television

Jim Rash talks 'The Writer's Room' and amazing…

For Jim Rash, as the fifth season of "Community" comes to a close, the second season of "The Writer's Room" begins.

Television

'Dexter' star Jennifer Carpenter moves into producing role

The actress who played the title character's sister in "Dexter" is teaming up with producer George Stelzner to adapt Erika Hayasaki's book "The Death Class:…

The Word

Wahlburgers announce North America domination

Tuesday was a huge day for Donnie Wahlberg.

MLB

MLB video highlights: Red Sox beat White Sox…

Red Sox walk 15 times in extra innings win

NBA

Kris Humphries on free agency, future with Celtics:…

Kris Humphries on free agency, future with Celtics: 'I hope to be back'

NBA

Celtics turn attention to NBA Draft, improve lottery…

Celtics turn attention to NBA Draft, improve lottery odds with loss

NFL

2014 NFL Mock Draft: Updated, new April version

2014 NFL Mock Draft: Updated, new April version

Wellbeing

This Week in Health: chocolate may prevent obesity…

Can chocolate prevent obesity and diabetes? Location of study: U.S. Study subjects: Mice Results: The positive health benefits of chocolate have been studied increasingly more…

Wellbeing

This Week in Health News: breastfed infants trying…

Are breastfed infants trying to prevent mom from having another baby? Theory: The act of breastfeeding not only brings mom and baby closer together –…

Wellbeing

Unexplained infertility may be caused by lack of…

Researchers have identified a protein on the egg's surface that interacts with another protein on the surface of sperm, allowing the two cells to join.

Tech

5 surprising facts about Google Glass

Your sex life could get more interesting.