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

Sister of accused Boston Marathon bombers arrested for…

The sister of the accused Boston Marathon bombers was arrested in New York City for threatening a woman over the phone, saying she could "put a bomb on you," police…

Local

Mayor announces public housing improvements

Mayor Bill de Blasio spoke at the Lincoln Houses in East Harlem on Wednesday, calling for the scaffolding to come down at NYCHA complexes across…

National

Peter Theo Curtis: American released by Syrian militants…

An American writer freed this week from two years in the captivity of insurgents in Syria spoke briefly outside his family's Cambridge home Wednesday of…

Local

Bratton defends 'broken windows' work as NYPD support…

Sixty percent of those polled said they support the "broken windows" theory approach popularized by Commissioner Bratton since his first term in the 1990s.

Television

'So You Think You Can Dance' recap: Season…

Season 11’s top four dancers gave their final performances before America’s Favorite Dancers are announced next week.

Going Out

Labor Day in NYC: Make the last weekend…

Soon, it’ll be time for wool accessories and knee-high boots. Even the Pumpkin Spice Latte has already arrived — but we still have one last…

Going Out

Things to do this week in NYC, Aug.…

MUSIC The Electric Zoo Festival Aug. 29-31, 1 p.m. Randall’s Island Park $99-$369, www.electriczoofestival.com The electronic music celebration returns for a fifth year, with 150,000 attendees…

Going Out

5 things to do this weekend in NYC

The Electric Zoo Festival Aug. 29-31, 1 p.m. Randall’s Island Park $99-$369, www.electriczoofestival.com The electronic music celebration returns for a fifth year, with 150,000 attendees expected. David Guetta,…

NFL

Mario Manningham on the bubble as Giants play…

Former Super Bowl hero Mario Manningham hopes his second go-around with Big Blue doesn’t end with Saturday’s final cut day.

NFL

Source: Stephen Hill 'faces a battle' to make…

A team source says Stephen Hill, who has battled injuries and poor performances during his first two years, is no lock to make the Jets’ final roster.

Sports

Serena Williams leaving legacy of talented American women…

It seems only a matter of when, not if, Serena Williams will win her 18th career grand slam championship.

College

When are 2014 college football playoffs? (Schedule, date,…

When and where are 2014 college football playoffs? A look at the schedule, date, TV, time for the semi-finals at championship game.

Food

Recipe: Samuel Adams beer-marinated grilled shrimp

Summer calls for two things: a cold beer and light food. Sam Adams' Latitude 48 IPA fairly bursts with citrus notes, making it an ideal marinade…

Wellbeing

4 healthy ingredient swaps to make your meals…

When it comes to eating well, everyone knows they could be doing better. But cooking in an apartment on a busy schedule is a recipe…

Wellbeing

Heart trumps brain when it comes to movies…

When you need a good cry, do you reach for the movie that’s “based on a true story”? Science says you’re giving your brain far…

Sex

The 10 types of people you meet online

Does it ever seem like online dating profiles tend to get a little repetitive? It turns out you are not the only one to have…