Ireland: Apple's foreign tax rate on its overseas earnings rose to 6% in fiscal year 2015 that ended on 26 Sept 2015, and this compares with a rate of 2% in 2012. Total net income jumped from $53.5bn in 2014 to $72.5bn in 2015. Net income was at $50.1bn in 2013 — the headline corporate tax rate in Apple's main overseas markets is at least 20%.

 

The foreign provision for corporate taxes is based on foreign pre-tax earnings of $47.6bn, $33.6bn and $30.5bn in 2015, 2014 and 2013, respectively.

The data comes from Apple's annual Form 10-K filing with the US Securities and Exchange Commission (SEC).

Apple says its provisions for taxes in 2015, 2014 and 2013 are $19.1bn, $14.0bn and $13.1bn resulting in effective rates of 26.4% 26.1% 26.2% — however, the effective rates are misleading.

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Apple's true effective rate is about 10% lower as it deploys a rarely used form of reserve accounting to boost its reported rate — apparently before it was subject to a US Senate panel investigation in 2013, it didn't wish to draw attention to its low real effective rate.

The foreign tax due at $2.9bn in 2015 compared with $1.5bn in 2014 and the jump likely partly explains the unexpected 74% excess in Irish corporation tax receipts in the first ten months of this year. The Government expected to collect €2.7bn in the period but the actual amount was €4.7bn.

“The overperformance in the year to date is broad-based and primarily relates to improved trading and some timing factors,” the Department of Finance has said.

What does "trading" mean? — in Apple's case it means booking overseas transactions in Irish offshore shell companies, which use the address of the Cork campus.

Apple's principal Irish company was declared to be "stateless" for tax purposes in 2006 and from 1 Jan 2015, the stateless loophole was no longer available. It would then be expected that Apple would have an increased liability to the Irish Revenue and it would still be in its interest to avail of the low Irish rate. 

Apple tax Ireland, Tim Cook, Kenny

Enda Kenny, taoiseach/ prime minister, meets Tim Cook, Apple CEO, at its Cork campus, Ireland, Jan 2014

The Form 10k notes:

Substantially all of the company’s undistributed international earnings intended to be indefinitely reinvested in operations outside the US were generated by subsidiaries organized in Ireland, which has a statutory tax rate of 12.5%. As of 26 Sept, 2015, US income taxes have not been provided on a cumulative total of $91.5bn of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be $30.0bn. As of 23 Sept, 2015 and 27 Sept, 2014, $186.9bn and $137.1bn, respectively, of the company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in US dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the US.

Most of the overseas cash hoard of $186.9bn is likely in onshore US banks and invested in US securities.

The use of the Irish shell companies will end in coming years as countries such as the UK, Germany and Australia etc. will apply new international tax rules.

The foreign tax rate in 2014 was 4.4%, which compared with 3.7% in 2013 and 1.9% in 2012 - the foreign tax rate was 11.8% in 2012 and 7.8% in 2004

Apple warns in the Form 10-K:

The company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including in the US and Ireland. For example, in June 2014, the European Commission opened a formal investigation of Ireland to examine whether decisions by the tax authorities with regard to the corporate income tax to be paid by two of the Company’s Irish subsidiaries comply with European Union rules on state aid. If the European Commission were to conclude against Ireland, it could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid, and such amount could be material [ ] While such amount could be material, as of 26 Sept, 2015 the company is unable to estimate the impact.