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

PHOTO: New Zealand Heral uses wrong image to…

The New Zealand Herald made a terrible mistake of using the wrong image to illustrate the tragic death of Staff Sergeant Guy Boyland – a New Zealand-born Israeli soldier who…

Local

Katz's Deli wins name battle with Florida cafe

The New York City delicatessen Katz's has won a legal battle to force a Florida restaurant to change its name, according to court documents made public on Monday.

Local

Rethinking the NYC subway map and mass transit…

Max Roberts has never ridden New York City's subway — but he's thought about system's twists and turns more than most daily riders. A 47-year-old…

National

U.S. coastal flooding on the rise, government study…

By Ryan McNeill(Reuters) - Flooding is increasing in frequency along much of the U.S. coast, and the rate of increase is accelerating along the Gulf…

Movies

'Get on Up' producer Mick Jagger on the…

Mick Jagger, a producer on the James Brown biopic "Get on Up," talks about the time had to tell the singer some bad news and his favorite JB record.

Television

'Glee' star Lea Michele to appear on 'Sons…

"Glee" star Lea Michele has been confirmed as a guest star in the final season of "Sons of Anarchy."

Television

TV watch list, Monday, July 28: 'The Bachelorette'…

See Andi Dorfman make her big choice on tonight's 'Bachelorette' finale.

Entertainment

'Kim Kardashian: Hollywood' game easter eggs and cheats

"Kim Kardashian: Hollywood" is the hottest game of the moment. Here are its best easter eggs as well as some tips and tricks to speed your way to the top.

NFL

Computer to Jets: Start Michael Vick over Geno…

Jets general manager John Idzik says the choice of who starts between second-year quarterback Geno Smith and veteran Michael Vick will be a “Jets decision.”

MLB

Yankees looking to trade for Josh Willingham: Report

CBS Sports’ Jon Heyman reported Sunday the Yankees are interested in Twins outfielder Josh Willingham.

MLB

Joe Torre: I'm in Hall of Fame because…

Joe Torre spent 18 years putting together a near Hall of Fame career as a player. But it was the 12 years he spent as…

MLB

Yankees GM Brian Cashman breaks down art of…

The action frequently accelerates as the non-waiver trade deadline approaches, as it will on Thursday.

Food

Zagat releases '30 Under 30' list

Zagat releases a list of the people changing the food and drink industry across the country.

Wellbeing

Fist bump gets respect as clean alternative to…

Though long used to give props, the fist bump is getting some actual respect. The gesture, once dubbed a “terrorist fist jab,” could become the new…

Wellbeing

Fist bump gets respect as clean alternative to…

Though long used to give props, the fist bump is getting some actual respect. The gesture, once dubbed a “terrorist fist jab,” could become the new…

Tech

Amazon offers 3D printing to customize earrings, bobble…

By Deepa SeetharamanSAN FRANCISCO (Reuters) - Amazon.com Inc will offer 3D printing services that allow customers to customize and build earrings, bobble head toys and…