News Column

Apple Said to Duck Billions in Taxes

May 21, 2013

Apple, the tech giant that has made a corporate bonanza by selling iPhones, iPads and iPods to consumers worldwide, has avoided tens of billions of dollars in U.S. taxes on its profits, according to a Senate report summary issued Monday and swiftly challenged by the firm.

The California-based firm has used a web of offshore entities -- including three Ireland subsidiaries that it said don't have tax residency in any country -- to cut some of its tax rates to 0.05%, the Senate Permanent Subcommittee on Investigations reported.

One of those Apple subsidiaries reported $30 billion in net income for 2009-2012, yet filed no corporate tax return and paid no income taxes to any government during those years, the panel reported in advance of a public hearing set for today.

Another affiliate received $74 billion in sales income over four years, but paid taxes "on only a tiny fraction of that income," the report said.

Apple also transferred economic rights for some of its intellectual property to its offshore affiliates in low-tax jurisdictions, saving tens of billions of dollars in levies, the Senate panel concluded in its latest look at corporate tax avoidance tactics.

The company went a step further by using U.S. tax loopholes to avoid federal taxes on $44 billion in otherwise taxable income from the intellectual property rights during the last four years, the report concluded.

"The secret to Apple's business success isn't in the aluminum and the steel and the glass of an iPhone," Sen. Carl Levin, D-Mich., the panel's chairman, said Monday. "The genius is the ideas that bring those elements together in an elegant package. That intangible genius is intellectual property ... nurtured and developed here in the United States. And yet, it ends up that most of the profits are shifted to a tax haven."

Arizona Sen. John McCain, the panel's ranking Republican, said Apple "should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue."

In written testimony filed with the subcommittee, Apple said "in accordance with U.S. law," the firm "pays U.S. corporate income taxes on the profits earned from its sales in the U.S. and on the investment income of its controlled foreign corporations."

Insisting it doesn't use "tax gimmicks," Apple said it does not move intellectual property to offshore tax havens and use that structure to sell products in the U.S., thereby ducking domestic taxes. The firm, which reported $102.3 billion of its $145 billion in cash was held in offshore affiliates as of March 30, said it has that much money outside the U.S. because most of its product sales are overseas.

Apple CEO Tim Cook and two other executives are scheduled to testify at the hearing.

Apple said it paid $6 billion in federal corporate income taxes during its 2012 fiscal year and expects to pay $7 billion in the current year.

Those totals make Apple "likely the largest corporate income tax payer in the U.S," the company said.

Tax-avoidance techniques are commonly used by many large U.S.-based global firms as a legal way to reduce government levies at home and abroad.

In a separate study last fall, the Senate panel reported two other U.S. tech giants, Microsoft and Hewlett-Packard, used such strategies to avoid billions in federal taxes.

In its Apple study, the Senate panel reported that Apple for the last decade has operated in Ireland with a specially negotiated tax rate of less than 2%, well below the country's 12% statutory rate.

Apple has several subsidiaries in Ireland, including Apple Operations International, its top-tier offshore affiliate, and sub-affiliates Apple Operations Europe and Apple Sales International.

AOI "has no physical presence" in Ireland or elsewhere and no employees, the report said. Its assets are managed by an Apple subsidiary in Nevada.

"According to Apple, AOI's net income made up 30% of Apple's total worldwide net profits from 2009-2011, yet Apple also disclosed to the subcommittee that AOI did not pay any corporate income tax to any national government during that period," the report said.

Apple said "it had not determined" whether AOI was managed and controlled in the U.S., which would make its profits taxable, the report said, noting that the subsidiary hadn't filed a tax return in the last five years.

Apple Sales International in 2011 paid $10 million in global taxes on $22 billion of income, the report said. In 2010, it paid $7 million in taxes on income totaling $12 billion.

The amounts raise questions about whether ASI is declaring the full income it got from other Apple affiliates, the report said.

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Source: Copyright USA TODAY 2013. Distributed by MCT Information Services

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