Apple created offshore subsidiaries to avoid paying billions in US taxes, Senate panel says

Posted:
in General Discussion edited January 2014
Just hours after Apple published the full testimony which CEO Tim Cook plans to give to the Permanent Subcommittee on Investigations in the U.S. Senate, the government body issued its own findings on the company's offshore tax practices, saying subsidiaries were used to purposefully avoid paying billions of dollars in domestic taxes.

According to the subcommittee's report, Apple moved billions in profits out of the U.S. to affiliate corporations, like Apple Operations International in Ireland, where the effective tax rate is less than 2 percent, reports Bloomberg. Apple currently has $102 billion in offshore accounts.

Cork
Apple's Irish headquarters in Cork.


Of the three foreign subsidiaries Apple claims are not tax resident in any nation, primary affiliate AOI generated a net income of $30 billion between 2009 and 2012, the Senate report said. The other main Irish subsidiary, Apple Sales International, directed some $74 billion in profits away from the U.S. over the same period, and the paid a negligible amount in international taxes. For example, in 2011, ASI generated $22 billion and paid out $10 million in taxes, a rate of 0.05 percent.

?Apple wasn?t satisfied with shifting its profits to a low-tax offshore tax haven,? said chairman of the panel Senator Carl Levin (D-Mich.). ?Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.?

Senator Levin's website outlines the probe into Apple's tax practices, three of which are expected to be discussed at Tuesday's hearing:
  • Using a so-called cost sharing agreement to transfer valuable intellectual property assets offshore and shift the resulting profits to a tax haven jurisdiction.
  • Taking advantage of weaknesses and loopholes in tax law and regulations to ?disregard? offshore subsidiaries for tax purposes, shielding billions of dollars in income that could otherwise be taxable in the United States.
  • Negotiating a tax rate of less than 2 percent with the government of Ireland ? significantly lower than that nation?s 12% statutory rate ? and using Ireland as the base for its extensive network of offshore subsidiaries.
?Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among American?s largest tax avoiders,? said Senator John McCain (R.-Ariz.) in a separate statement. ?A company that has found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue.?

For its part, Apple said in the testimony published on its website today that the Irish subsidiaries are cost-sharing arrangements which helped fund research and development, leading to new U.S. jobs and bigger profits. The statement also noted that Apple paid $6 billion in taxes last year, making it one of the largest taxpayers in the U.S.

The senate subcommittee is slated to further detail its arguments against Apple in a hearing on Tuesday, which itself is part of a broader probe into how other multinational corporations use offshore affiliates to reduce tax burdens. Scheduled to give testimony from Apple are Cook, CFO Peter Oppenheimer and Tax Operations Head Phillip Bullock.

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Comments

  • Reply 1 of 133
    zebrazebra Posts: 33member
    More power to them. Why should they do things to increase their expenses and decrease their return to investors! I congratulate them on avoiding taxes as any sane and lawful citizen or company should do.

    If the senators and others are concerned, tell them not to itemize their own deductions first. They should take the beam out of their own eyes before removing the speck from Apple's eyes
  • Reply 2 of 133
    anantksundaramanantksundaram Posts: 18,814member
    The Senate report is a snow job, full of innuendoes. Apple has, indeed, paid all taxes owed on US pre-tax income. Problems in Ireland are Ireland's problem, not the US's. This is all fundamentally the result of a messed-up tax code created by the Congress.

    But who cares.

    Some of us pointed out that Cook made a mistake in agreeing to testify in front of these maroons. I hope we were not right. At a minimum, this is disastrous PR for Apple.
  • Reply 3 of 133
    emig647emig647 Posts: 2,399member
    Not to mention they possibly pay more taxes than any other corp. in the US. That isn't enough?
  • Reply 4 of 133
    paulmjohnsonpaulmjohnson Posts: 1,380member
    The problem isn't that Apple is doing this, the problem is that it is legal.

    I think everyone and every company should pay no more than they legally have to. I do however question why the politicians allow practices that seem to wrong to be perfectly legal.

    Google are under investigation for the same practices as Apple are using here. In 2011, Google made GBP3bn in revenue in the UK, but only paid GBP6mn in Corporation taxes, because all the sales were booked through Ireland. The politicians have all been complaining about how evil Google must be for doing that, but the fact is, what they are doing is perfectly legal.

    I think what they are doing is wrong, but I can see that it's the politicians who need to fix the problem, not the companies to start voluntarily paying more tax for some reason.
  • Reply 5 of 133
    Unfortunately this is a political witch hunt. Because Apple is very profitable, Apple will be found guilty of hiding billions of taxes, then Apple would appeal, and end up paying a small token penalty and the show will drag on for month. Apple gain nothing to testify and should just say we are sorry and we have been doing this for years and we are ready to negotiate the price being the most valuable company.
  • Reply 6 of 133
    nasseraenasserae Posts: 3,152member


    So, they are upset because they can't compete with other countries tax laws?!

  • Reply 7 of 133
    nealgnealg Posts: 132member

    Quote:

    Originally Posted by emig647 View Post



    Not to mention they possibly pay more taxes than any other corp. in the US. That isn't enough?


    Apple has become the lightning rod for not only the financial press but also, it seems, the US Senate. Apple, because of its size, has become a target for everybody. It would be interesting to see a fair assessment of what other corporate biggies pay as a percentage of tax of their earnings compared to Apple. I wonder if that isn't something that Apple should be looking at doing?

  • Reply 8 of 133
    paulmjohnsonpaulmjohnson Posts: 1,380member

    Quote:

    Originally Posted by nealg View Post


    Apple has become the lightning rod for not only the financial press but also, it seems, the US Senate. Apple, because of its size, has become a target for everybody. It would be interesting to see a fair assessment of what other corporate biggies pay as a percentage of tax of their earnings compared to Apple. I wonder if that isn't something that Apple should be looking at doing?



     


    As mentioned above, Google are doing the same thing.




    Amazon are doing the same thing (book all their UK sales through Luxembourg).


     


    The problem is the politicians don't stop it.


     


    I don't think it's right that large companies can setup such circumstances to give themselves a benefit that small companies can't afford to setup (I believe the playing field should be level), but I can't blame large companies (or small companies for that matter) for doing what is perfectly legal.


     


    When will politicians understand that they create laws.  Everyone else merely abides by them (otherwise they goto prison).

  • Reply 9 of 133


    And why does anyone care what anyone in Congress has to say? This is fresh... pick on the most successful American company in history and accuse them of (gasp) following the law as written. My god, are they now saying there is a "higher moral obligation" to pay taxes that are above and beyond what is required by the IRS? And if so, why are you singling out Apple and not every other corporation in America?


     


    These so-called "senators" are nothing but a clown show and should be treated as such.

  • Reply 10 of 133
    drblankdrblank Posts: 3,383member
    Like they're the only one's doing it. What they revenue they generate in other countries are subjected to THOSE other countries taxes. What? They have get taxed again? They should only get taxed on what gets sold in THIS country to the end user.
  • Reply 11 of 133
    paulmjohnsonpaulmjohnson Posts: 1,380member

    Quote:

    Originally Posted by AZREOSpecialist View Post


    And why does anyone care what anyone in Congress has to say? This is fresh... pick on the most successful American company in history and accuse them of (gasp) following the law as written. My god, are they now saying there is a "higher moral obligation" to pay taxes that are above and beyond what is required by the IRS? And if so, why are you singling out Apple and not every other corporation in America?


     


    These so-called "senators" are nothing but a clown show and should be treated as such.



     


    And, for that matter, they could also single out a lot of senators.




    I'm pretty sure they are able to lower their personal rate of tax more than I can because they are rich enough to setup investment trusts and such like.  Surely it's morally wrong that they don't pay the same effective tax rate as me?


     


    Still, morals don't set the tax rate - the tax laws do.

  • Reply 12 of 133
    just_mejust_me Posts: 590member

    Quote:

    Originally Posted by emig647 View Post



    Not to mention they possibly pay more taxes than any other corp. in the US. That isn't enough?


    Wrong.

  • Reply 13 of 133
    tribalogicaltribalogical Posts: 1,171member

    Quote:

    Originally Posted by PaulMJohnson View Post



    The problem isn't that Apple is doing this, the problem is that it is legal.



    I think everyone and every company should pay no more than they legally have to. I do however question why the politicians allow practices that seem to wrong to be perfectly legal.



    Google are under investigation for the same practices as Apple are using here. In 2011, Google made GBP3bn in revenue in the UK, but only paid GBP6mn in Corporation taxes, because all the sales were booked through Ireland. The politicians have all been complaining about how evil Google must be for doing that, but the fact is, what they are doing is perfectly legal.



    I think what they are doing is wrong, but I can see that it's the politicians who need to fix the problem, not the companies to start voluntarily paying more tax for some reason.


     


     


    Well, there's the great irony. The same people calling Apple out on this issue are the same people who wrote the damned tax laws to begin with. All they need to do is legislate a fix to the "problem" they created, right?


     


    Except THAT would then deprive them of income (and campaign contributions) they enjoy today, gained so often from the people and companies practicing exactly the same behavior as Apple (and Google). 


     


    It's a sideshow. Apple is a convenient whipping post. They'll make a bunch of "caring about revenue" noise, then this too shall pass...


     


    Anything and everything except doing what really needs to be done. Raising taxes on people like Mitt Romney for starters, so they pay a fair share of taxes (I mean, come on. Net 12%? On millions? I'd LOVE to pay only 12% on my income!). We need to close a few loopholes, and tighten up the revenue ship.

  • Reply 14 of 133
    mactoidmactoid Posts: 112member


    I keep hearing every April 15th that GE paid $0 in US income tax.  Why aren't they testifying?  Could it be that they have bought and paid for the very senators running this witch hunt? PJ O'Rourke was right when he titled his book "Pariliment of Whores".

  • Reply 15 of 133
    landcruiserlandcruiser Posts: 208member
    Don't trust anything the government tells you on this matter. If you do, you may as well join a herd of cattle while you're at it. This is the same government that can't balance a budget (year after year), lies about healthcare, and doesn't follow ANY of the same rules and laws they make the public follow. They are going after Apple and others to find new ways (revenues) to cover their enormous, bloated, growing pension and benefits plans (this is where all you government employees chime in a chide me). And as a side note, it's the same government and their judges that are protecting foreign business interests to the detriment of US businesses. And if you don't agree, you haven't owned a business here in the US.

    Phew. Now I feel better.
  • Reply 16 of 133
    drblankdrblank Posts: 3,383member

    Quote:

    Originally Posted by winstein2010 View Post



    Unfortunately this is a political witch hunt. Because Apple is very profitable, Apple will be found guilty of hiding billions of taxes, then Apple would appeal, and end up paying a small token penalty and the show will drag on for month. Apple gain nothing to testify and should just say we are sorry and we have been doing this for years and we are ready to negotiate the price being the most valuable company.


    Yeah, you're probably right. But I'm sure others like Microsoft, etc. are doing the same thing.


     


    How does Samsung do it with the money they generate in other countries?  Are they hiding it from the South Korean government?


     


    What's the tax rate if they brought in the money?  Does anyone know off the top of their heads?


     


    The most they should ever charge, if they did might be 5 to 9%, which isn't that much, that's tolerable.  That's more like a sales tax if they sold the product to customer.

  • Reply 17 of 133


    Senators: Blah Blah Blah


     


    Tim Cook: Is that Illegal?  image  


     


    Senators: image


     


    Tim Cook: Are you guys done questioning?


     


    Senators: image


     


    Tim Cook: Now listen to me or [email protected] off! I need to go and get ready for WWDC.

  • Reply 18 of 133
    tribalogicaltribalogical Posts: 1,171member


    The worst part is, Apple isn't asking for anything outrageous. Simply to have a lower tax hit than the full 35% corporate rate on "repatriated" funds (a bit of a misnomer, since those funds were all generated abroad). They really aren't asking to avoid or eliminate the taxes altogether.


     


    It makes sense to me that we shouldn't be double-taxing that money, or making it less possible to "write off" against it. They don't suffer the same "full tax" hit on domestic funds.


     


    Why would the government want to damage successful companies like that by draining them of funds? 35% (on top of any taxes they already paid abroad) is pretty harsh… so much for a healthy profit margin, eh?

  • Reply 19 of 133
    paulmjohnsonpaulmjohnson Posts: 1,380member

    Quote:

    Originally Posted by drblank View Post



    Like they're the only one's doing it. What they revenue they generate in other countries are subjected to THOSE other countries taxes. What? They have get taxed again? They should only get taxed on what gets sold in THIS country to the end user.


    The point is (and this is the crux of the problem), Apple and many other companies are recognizing revenue in Ireland that there is no way they actually generated in Ireland, and they are recognizing the revenue there purely because Ireland have a very low rate of Corporate tax.


     


    There is no chance Apple actually did $30bn of revenue in a country of 4.6 million between 2009-2012 (especially considering the Irish economy was dying at the time), but that is what they reported and it would equate to $1630 per year over that period for every person in Ireland.  That is in a country with an average pre-tax income of $45,000.  It's just not sensible to believe that every person in Ireland is spending 3.5% of their income on Apple products every year.


     


    I don't doubt Apples reporting was perfectly legal and above board, because within the European Union, you can book sales in one country even if they are made in another (Starbucks, Google, Amazon all do the same).  The question is, why do our politicians allow it to be legal?

  • Reply 20 of 133
    macsharkmacshark Posts: 229member
    I have a feeling that if I were to incorporate a foreign subsidiary of myself and licensed my intellectual property rights to that entity, and then start deducting license fee payments to that entity from my gross income on my tax return, I would get in serious trouble with IRS. Why do corporations get a break?
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