In-depth report finds Apple moved $8B in untaxed profits out of Australia over past decade

Posted:
in General Discussion edited March 2014
An investigative report published on Wednesday takes a microscope to Apple's Australian tax dealings since 2002, finding the Cupertino company successfully avoided taxes on profits of $8 billion. The report is the first to assign numbers to Apple's outgoing, untaxed Australian cash flow.

Australia
Units in Australian dollars. | Source: Australian Financial Review


Sifting through a decade's worth of financial statements, the Australian Financial Review found Apple to have shifted some $8 billion out of Australia through its Irish subsidiary, all of which was unencumbered by country taxes.

Apple Sales International, the Irish-based entity in charge of Apple's international tax dealings, has never filed financial returns with the Companies Registrations Office in Dublin, but reported over $100 billion in profit over the last five years while paying less than 50 cents in tax on every $1,000 of income.

As Apple is a foreign company doing business in Australia, however, it was required by Australian law to file annual financials to the Australian Securities and Investments Commission from 2000 until 2009. From these documents, the Financial Review was able to extrapolate the margin ASI charged to sell iPhones and iPads to subsidiaries in a number of regions worldwide.

While no filings exist past 2009, ASI's margins over the preceding decade very closely follow gross margins reported by Apple for worldwide sales. Using Apple's worldwide margin as a proxy for ASI margin, the publication calculated Apple Australia to have paid an estimated $6.5 billion in profits to the Irish subsidiary between 2010 to 2013. This is based on Apple's reports to ASIC of total sales equating to roughly $18 billion and pre-tax profits of $349 million.

Cork
Apple's headquarters in Cork, Ireland, via Flickr user Sigalakos.


As is well known, Apple employs an accounting method, dubbed the "Double Irish with a Dutch Sandwich," that leverages multiple international laws to sidestep taxes. The method is used by a number of large corporations, though Apple has taken the brunt of government and media criticism for employing the technique.

Apple leans on an Irish law that views a company as a tax resident of the country from which it is managed, not incorporated. For international profits, Apple directs money to its subsidiary in Ireland as royalties on company-owned patents, or "intangibles." Ireland's regular tax rate is 12.5 percent, but that is not applied to ASI because, under the law, it is managed by Apple in the U.S. This also means the U.S. and other countries, like Australia, are also unable to levy taxes on Apple's Irish operations because ASI is out well out of their jurisdiction.

Ireland upholds treaties with other European countries that allows companies to pass money across its borders without leveling a tax, meaning Apple's money can be routed through the Netherlands, or Singapore in Australia's case, to ASI in Cork. From there, Apple's still untaxed profit can be sent to the Caribbean or Cayman Islands.

The publication offers a recent example of Apple's reported pretax earnings for 2013, which came out to only $88.5 million after an estimated $2 billion of income was funneled to ASI.

Australia
Units in Australian dollars. | Source: Australian Financial Review


In 2012, the Australian Tax Office slapped Apple with a $28.5 million bill for back taxes, though the details behind the charge remain unknown. The year prior, Apple paid $94.7 million in taxes after having generated $4.87 billion in revenue.

Ireland's Finance Minister Michael Noonan has promised to close the loophole in the country's tax code that allows multinational corporations like Apple, Google, Microsoft and others to avoid paying billions of dollars in taxes.

For its part, Apple's tax dealings cannot be faulted as they don't break any laws and with little impetus other than adhering to the "spirit of the law," a change in corporate policy seems unlikely. CEO Tim Cook has met separately with the U.S. Congress and Noonan over the issue of tax reform, which is the only way to tie up the loopholes.

Critics say the new Irish laws lack teeth and will still allow Apple to choose its own tax residence. Apple in 2010 set up a Singapore subsidiary called Apple South Asia Pte Ltd. and was able to negotiate a ten-year tax incentive for "various concessionary rates" thought to be below five percent. Apple is now reportedly moving its Australian profits through this Singapore arm.
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Comments

  • Reply 1 of 187
    snovasnova Posts: 1,281member

    if it was done illegally, then Australia should prosecute. If it was done legally according to the rules of the tax code, then someone is doing their job well at Apple finance department. 

  • Reply 2 of 187
    gtrgtr Posts: 3,231member

    And to quote the great Kerry Packer:

     

    "I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn't minimize their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra."

  • Reply 3 of 187
    msuberlymsuberly Posts: 226member
    I'm crying for the Australian government.
  • Reply 4 of 187

    Mountain or molehill?

  • Reply 5 of 187
    sudonymsudonym Posts: 233member
    Quote:

    Originally Posted by AppleInsider View Post



    An investigative report published on Wednesday takes a microscope to Apple's Australian tax dealings since 2002, finding the Cupertino company successfully avoided taxes on profits of $8 billion. The report is the first to assign numbers to Apple's outgoing, untaxed Australian cash flow.

     

     

    Apple has the best lawyers and the best accountants of any multinational corporation on the face of the Earth.  I'm sure everything Apple did was 100% legal.

     

    Suck it, Australia!  

  • Reply 6 of 187
    pendergastpendergast Posts: 1,358member
    This, again.
  • Reply 7 of 187
    gfdsagfdsa Posts: 22member
    Think of it as an R&D tax credit.
  • Reply 8 of 187
    aussiepaulaussiepaul Posts: 144member
    Tim Cook said that he complies with the "spirit" of the law.
    These practices don't sound very ethical to me, especially considering it's only large corporations who can afford to set up these mazes.
    I hope ASIC and the ATO change the reporting and taxation requirements to clamp down on this, not just for Apple of course.
  • Reply 9 of 187
    rogifanrogifan Posts: 10,669member
    sudonym wrote: »
    Apple has the best lawyers and the best accountants of any multinational corporation on the face of the Earth.  I'm sure everything Apple did was 100% legal.

    Suck it, Australia!  
    And suck it to every media outlet reporting this as if it was some outrage.
  • Reply 10 of 187
    aussiepaul wrote: »
    Tim Cook said that he complies with the "spirit" of the law.
    These practices don't sound very ethical to me, especially considering it's only large corporations who can afford to set up these mazes.
    I hope ASIC and the ATO change the reporting and taxation requirements to clamp down on this, not just for Apple of course.
    When ethics and law are at cross purposes, one must follow the law. That is good corporate governance. It is a fiduciary responsibility that must be met. It is ethical behavior. And, most importantly, it supports the rule of law. If you don't like that ethics and the law are at odds, change the law to suit your ethical purpose. If you can't do that, accept that others' views of what is ethical are at odds with yours. If that is still unsettling, either change your ethical values or work to change others'.
  • Reply 11 of 187
    plovellplovell Posts: 818member
    Quote:

    Originally Posted by Rogifan View Post





    And suck it to every media outlet reporting this as if it was some outrage.

    Indeed - page-clicks being the name of the game.

     

    Having "Apple" in the headline boosts them a lot.

  • Reply 12 of 187
    jfc1138jfc1138 Posts: 3,090member
    "For its part, Apple's tax dealings cannot be faulted as they don't break any laws and with little impetus other than adhering to the "spirit of the law," a change in corporate policy seems unlikely...."

    Thus: so what? They followed the law. End of story.
  • Reply 13 of 187
    bizzarebizzare Posts: 62member
    I'm sure you're short on apple
    Missing disclosure
  • Reply 14 of 187
    foadfoad Posts: 707member
    Quote:

    Originally Posted by macaholic_1948 View Post





    When ethics and law are at cross purposes, one must follow the law. That is good corporate governance. It is a fiduciary responsibility that must be met. It is ethical behavior. And, most importantly, it supports the rule of law. If you don't like that ethics and the law are at odds, change the law to suit your ethical purpose. If you can't do that, accept that others' views of what is ethical are at odds with yours. If that is still unsettling, either change your ethical values or work to change others'.

     

    Great post. The problem is that Apple being Apple gets the headlines even though pretty much any large corporation worth anything is operating under the same rules. If Apple as an entity didn't take advantage of laws, whether people like them or not, they could be held liable by shareholders for not upholding their fiduciary responsibilities. If people think Tim Cook is being dragged over hot coals now, imagine what would happen if Apple didn't operate this way.

     

    While I don't necessarily agree with the fact that these loopholes exist, they do at this point in time.

  • Reply 15 of 187
    dewmedewme Posts: 3,827member
    Is there anything newsworthy here?

    Didn't think so...
  • Reply 16 of 187
    s.metcalfs.metcalf Posts: 909member
    Quote:
    Originally Posted by snova View Post

     

    if it was done illegally, then Australia should prosecute. If it was done legally according to the rules of the tax code, then someone is doing their job well at Apple finance department. 


     

    I agree.  It's only natural that any business will do what it can to minimise tax, but...

     

    What's clear is that there's growing public discontent over the situation and just how low the rates of tax actually are.  The fact that a conservative financial newspaper conducted and published this research is evidence of that.  The rates are so low that Apple and others could be thought of as having tax-free status in the countries in which they operate and make massive multi billion-dollar profits.

     

    What's more, the tax avoidance functions to stifle innovation and competition.  Young and smaller companies that can't afford to set up and manage offshore tax havens have a higher burden so it's therefore not a level playing field.  They also can't afford to defend themselves vigorously in courts the way the likes of Apple can and does so they're more of a target.  The balance is clearly skewed too far towards the big multinationals.  I'd prefer to see support and concessions for smaller business instead of the biggest and most profitable companies.

     

    If there's any blame it lies with the government and Tax Office for allowing it.  It should be very simple to close the loopholes but they seemingly don't want to.  In the end, as always, it'll be the public that forces any kind of change.  I think this will happen slowly but there are rumblings of change afoot.

  • Reply 17 of 187
    davendaven Posts: 626member
    As an Apple stockholder I appreciate it. As a taxpayer who doesn't have such options available to me and must make up for the lack of tax income from international corporations, this is a travesty. That said, our politicians made it legal.
  • Reply 18 of 187
    kibitzerkibitzer Posts: 1,114member

    And here's a prime example why Peter Oppenheimer and Luca Maestri deserve recognition for being two of the sharpest multinational corporate finance managers around.

  • Reply 19 of 187

    If Apple isn't breaking any laws, then good for them.

  • Reply 20 of 187
    lilgto64lilgto64 Posts: 1,147member

    The "spirit of the law" when spoken by a politicians to me sounds like "we'll grab every last cent we can get away with" 

     

    Quote:


    As is well known, Apple employs an accounting method, dubbed the "Double Irish with a Dutch Sandwich," that leverages multiple international laws to sidestep taxes. 


     

    It may be well know that all corporations do what they can to minimized expenses across the board, not just "tax burden" (ever wonder why the word burden is used?) but I must be traveling in the wrong circles because I have never before seen the phrase "Double Irish with a Dutch Sandwich" before and had someone asked me what that phrase meant corporate tax law would likely have been my first thought.

     

    Odd that you never hear any of these stories about prosecuting companies who followed exactly the same practices but who do NOT have billions of dollars in the bank. It sounds more like the stories of folks who win the lottery who then have every one and their cousin asking them for money or to invest or loan etc etc. Apple's, or any corporation's, SEC filing that lists a cash in the bank value should not be seen as an invitation to governments and others to try to take it away through lawsuits. 

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