3 Mindbending Ways Apple Dodged $13.8B In Taxes

[Azure]

1. Ireland: Come For The Beer, Stay For The Tax Haven

In addition to the majesty of rolling hills, towering waterfalls, and a rich culture, Ireland also welcomes billion-dollar multinational corporations with an appealing 12% tax rate. Even better, in a sweetheart deal with the makers of the laptop used to type this story, the Irish have offered Apple a tax rate below 2%. At least since 2009, according to the report, it was, on average, 0.06%.

Senate investigators found this curious, since nearly all of Apple research, development, and board meetings are conducted in the United States. So, when they quizzed Apple about where it calls home, “Apple responded that it had not determined the answer to that question.”

As a result, Apple has had an effective tax rate of just 20.1%, below the 24-32% it tells investors (according to the report), and well below the 35% the U.S. government wants it to pay. In 2011, it paid a mere $2.5 billion.

2. Sell To Yourself and It’s (Technically) Not Income

On paper, Ireland would appear to buy enough Apple products to reconstruct Blarney Castle from discarded iPods, but Apple’s Irish HQ legal entity is merely a passthrough shell corporation to funnel profits to tax havens, says the report.

The investigators determined that Apple cleverly splits itself into entities around the world, charged with selling products and intellectual property at distorted prices. For instance, Apple Sales International, a shell corporation entitled to Apple Inc’s intellectual property, sells products to its worldwide retailers at a “substantial” markup, technically raking in most of the profits from goods sold in stores.

“For example, in 2011, Apple reported $34 billion in income before taxes; however, just $150 million of those profits, a fraction of one percent, were recorded for Apple’s Japanese subsidiaries, even though Japan is one of Apple’s strongest foreign markets. ASI, meanwhile, reported $22 billion in 2011 net income,” explains the report.

3. Choose Which Entity Pays Taxes (Hint: The One With The Lowest Income)

Apple avoids taxes on its $102 billion in offshore holdings, thanks to an unintentional loophole that allows the company to decide which subsidiary gets taxed. In an effort to simplify the global tax rules, the IRS permitted multinationals to “disregard” sub-entities that were normally taxed (the so-called “check-the-box” rule).

Apple structured the relationship so that its tax-haven entities received billions in otherwise taxable dividend payments from subsidiaries it had elected to be among its disregarded entities.

In other words, according to the IRS, the payment within corporations is treated as a kind of internal transfer, which Apple funneled to its tax-friendliest locations.

“Those figures indicate that Apple’s Japanese profits were being shifted away from the United States to Ireland, where Apple had negotiated a minimal tax rate and maintained two non-tax resident corporations.”

http://techcrunch.com/2013/05/21/3-m...3-8b-in-taxes/

Thoughts? Unless they did something illegal, I'm not sure why Congress is so outraged. They helped write the rules, and how they are complaining about it?

Perhaps a flat rate of 25% would work a lot better. I'm assuming the 35% that Cook is talking about would be the corporate tax rate in the US. Canada is what? 10% provincially, and 15% federally?

[sclitheroe]

Originally Posted by Azure

Thoughts? Unless they did something illegal, I'm not sure why Congress is so outraged. They helped write the rules, and how they are complaining about it?

I believe Apple is also the source of $1 for every $40 the United States government collects.

[Cheese]

Rotten "Apple". There said it.

[mykalberta]

Originally Posted by sclitheroe

I believe Apple is also the source of $1 for every $40 the United States government collects.

Do you have a source for that?

[Red]

nothing new or revealing. These tax loopholes were a big part of campaigns by Obama, Romney and McCain.

GE pays no taxes and take in more than Apple I believe.

http://www.huffingtonpost.com/2013/0...n_2852094.html

[Bertuzzied]

I have no problems with Apple does that. Loopholes are there to be exploited.

They are going to be in a whole heap of hurt though if they don't come out with another revolutionary product soon. There is only so much dividends it can pay out to keep their stock price up there.

[sclitheroe]

Originally Posted by mykalberta

Do you have a source for that?

The Cupertino, California-based company, which has about $102 billion in cash held overseas, says it paid nearly $6 billion in taxes to the U.S. treasury last year — or $1 for every $40 in corporate income tax the government collected. Apple’s full statement can be found here.

http://www.forbes.com/sites/conniegu...mittee-claims/

Direct from Apple, including numbers listing how much they pay to the gov in taxes:
http://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf

[valo403]

Congress is feigning outrage due to how bad this looks politically, but at the end of the day it's their rules that allowed it.

[sclitheroe]

Originally Posted by Bertuzzied

They are going to be in a whole heap of hurt though if they don't come out with another revolutionary product soon. There is only so much dividends it can pay out to keep their stock price up there.

Amazon makes no profit, and pays no dividends, and their stock seems to do OK

[Azure]

Lets not make this about the Apple stock price please and thanks.

Fact is they generate a lot of profit, and are choosing to exploit a lot of loopholes in order to avoid paying taxes on those profits.

My problem with Apple is the US simply can't compete with the .06% effective tax rate Ireland is offering Apple. So Cook can talk all he wants about a fair rate in the US, and he is right about that, but while the loopholes exist, Apple and other companies will continue using them.

[Azure]

Originally Posted by sclitheroe

Amazon makes no profit, and pays no dividends, and their stock seems to do OK

Amazon is also an interesting case. They paid around $3.6 million in taxes last year, and got almost the same amount in federal grants.

Like WTF.

[sclitheroe]

Originally Posted by Azure

My problem with Apple is the US simply can't compete with the .06% effective tax rate Ireland is offering Apple. So Cook can talk all he wants about a fair rate in the US, and he is right about that, but while the loopholes exist, Apple and other companies will continue using them.

It's a bit of a simplistic view to have though - the very same loopholes resulted in Apple's bond issuance to initiate the stock buy back, and the gov will tax proceeds on that. Anything that keeps money moving through the system benefits the system.

On a tangent, are they really loopholes? Seems like these companies that keep money offshore do so within the legal tax framework established by the government, so if massive loopholes existed, why wouldn't they be ammended? I don't know enough about this aspect of the larger story.

[silentsim]

Common practise amongst the big companies. Google is the same.
Google shifts much of their earnings to Bermuda I believe.

http://www.bloomberg.com/news/2012-1...0-billion.html

Loopholes are there. Of course they will take advantage of them.

[mykalberta]

Originally Posted by sclitheroe

http://www.forbes.com/sites/conniegu...mittee-claims/

Direct from Apple, including numbers listing how much they pay to the gov in taxes:
http://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf

That makes more sense 1/4 of Corporate tax, not overall revenue.

[Azure]

I suppose we call them loopholes because big companies like Apple exploit them. Technically it is really just part of the tax code. A complicated 3.7 million word tax code that tax lawyers working for Apple are making a killing on.

As for why they are not amended, I'd imagine the lobbyists in DC have a lot of say so over what is done in terms of tax reform, and like I said, Cook can say he wants the fair rate of say 25%, or lower, but big companies like the loopholes. It allows them to get away with paying nothing at times.

[GGG]

I think it is important that these issues are discussed publicaly and it is good that Congress is investigating these things. Public shaming and giving the consumer the power to choose where their dollars go is important.

We also know that Congress won't change anything to close these loopholes as it is large businesses that exploit the loop holes that pay for the election campaigns of both sides of Congress.

[Cowboy89]

Originally Posted by GGG

I think it is important that these issues are discussed publicaly and it is good that Congress is investigating these things. Public shaming and giving the consumer the power to choose where their dollars go is important.

We also know that Congress won't change anything to close these loopholes as it is large businesses that exploit the loop holes that pay for the election campaigns of both sides of Congress.

Public shaming won't work at all. Shareholders won't stand for a company that pays additional billions in taxes than it has to under the law because the 'fair share' crowd is outraged. Consumers won't care in large enough numbers to affect profitability so long as their products are still desireable. The only solution is to reform the tax act, but even then there's nothing stopping foriegn governments from providing loopholes for multi-nationals to exploit.

[The Yen Man]

Yah, I don't see why Apple should take any blame whatsoever for this. It's no different than an individual hiring a tax accountant to try to minimize taxes. Everyone wants to pay as less taxes as possible. Businesses just have a lot more capital to have professionals in place to find every tax savings possible. If the US is really outraged by this, then it's their responsibility to close the so called loopholes. You can't expect a business to pay more tax than absolutely neccessary.

[Bertuzzied]

Originally Posted by sclitheroe

Amazon makes no profit, and pays no dividends, and their stock seems to do OK

FUUUUU Amazon!!! I should have never shorted this stock. haha

It has always been fishy with them and their free shipping.

[JD]

If Apple was an oil company, there would be far more outrage in this thread.

Essentially, Apple's only obligation is to their shareholders. There should be outrage if they're not doing all these things!