Irish Economy
Apple has special Irish tax rates; 'Stateless' companies based in Ireland
By Michael Hennigan, Finfacts founder and editor
May 21, 2013 - 6:50 AM

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Apple’s international structure. Source: Prepared by Apple for the Senate Permanent Subcommittee on Investigations.

Apple Inc. used Irish companies, which it regarded as 'stateless,' to avoid paying corporate taxes to any national government on tens of billions of dollars in overseas income over a period of four years, according to a report [pdf] published by a US Senate panel on Monday. However, even though stateless, the Apple companies have secret agreements with Ireland's revenue authorities to also partly operate as resident companies and be subject to corporate tax rates of lower than 2%. 

On Tuesday, Tim Cook, Apple' CEO, Peter Oppenheimer, CFO, and Phillip Bullock, Apple's head of tax, will testify at a Senate Permanent Subcommittee on Investigations hearing on Apple's tax avoidance in recent years.

The high tech giant has a cash hoard of $145bn with $100bn technically overseas to avoid US corporate taxes that would fall due on repatriation.

Irish law regards companies as tax residents if they are managed and controlled in Ireland, and Apple says it manages three stateless Irish companies from the US.

However, Apple Operations International and Apple Sales International have secret agreements with the Irish Revenue  that allow Apple to use those businesses to hold foreign earnings, even though the units have no employees in the country.

Since the early 1990s, the government of Ireland has calculated Apple's taxable income in such a way as to produce an effective tax rate in the low single digits, the report says.

It adds: "Apple told the Subcommittee that, for many years, Ireland has provided Apple affiliates with a special tax rate that is substantially below its already relatively low statutory rate of 12 percent. Apple told the Subcommittee that it had obtained this special rate through negotiations with the Irish government."

Since 2003 this rate has been 2% or less - - in one year, 2011, it was 0.05%.

The headline Irish rate is 12.5% -- Microsoft told the Senate panel last year that its effective rate in Ireland (after R&D and investment allowances plus no tax on patent income) was 5.69%. Google in 2011 cut its earnings by intercomppany charges to pay a fraction of 1%.

The report said its findings "demonstrate Ireland has essentially functioned as a tax haven for Apple, providing it with income tax rates approaching zero".

Ireland has also provided Apple affiliates with a corporate tax rate of less than 2% and as low as 0.05%.

The panel said Apple’s claim that three key offshore Irish companies - - Apple Operations International, Apple Sales International and Apple Operations Europe - - are not tax residents of Ireland, even though incorporated there, or of the United States, where Apple executives manage and control the companies. One of those Irish subsidiaries has paid no corporate taxes to any national tax authority for the past five years.

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said Senator Carl Levin, majority chairman. “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. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed.”

“Apple claims to be the largest US corporate taxpayer, but by sheer size and scale, it is also among America's largest tax avoiders,” said Senator John McCain, minority leader. “A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the US economy should not be shifting its profits overseas to avoid the payment of US tax, purposefully depriving the American people of revenue. It is important to understand Apple’s byzantine tax structure so that we can effectively close the loopholes utilized by many US multinational companies, particularly in this era of sequestration.”

Sen. McCain added: “I have long advocated for modernizing our broken and uncompetitive tax code, but that cannot and must not be an excuse for turning a blind eye to the highly questionable tax strategies that corporations like Apple use to avoid paying taxes in America. The proper place for the bulk of Apple’s creative energy ought to go into its innovative products and services, not in its tax department.

Apple Operations International has not filed an income tax return in either Ireland or the US, or any other country, for the past five years. From 2009 to 2012, it reported income totaling $30bn.

A second Irish subsidiary claiming not to be a tax resident anywhere is Apple Sales International which, from 2009 to 2012, had sales revenue totaling $74bn. The company appears to have paid taxes on only a tiny fraction of that income, resulting, for example, in an effective 2011 tax rate of only five hundreds of one percent.

The Senate panel said that in addition to creating non-tax resident affiliates, Apple Inc. has utilised US tax loopholes to avoid US taxes on $44bn in otherwise taxable offshore income over the past four years, or about $10bn in tax avoidance per year.

Tim Cook, Apple's chief, will say on Tuesday that Apple does not break any tax laws, according to a copy of the firm’s prepared testimony. [pdf]

Cook and colleagues will claim that that their Irish subsidiaries help the US economy by funding research and development projects and assist the company’s expansion in Asia and Europe, according to the testimony.

“Apple does not use tax gimmicks,” the company wrote in the prepared testimony. The Irish subsidiaries contributed more than half of Apple’s R&D costs in 2012, the company said - - however, the R&D move is a gimmick.

The panel report says: “By structuring its intellectual property rights and distribution operations in the manner it did, Apple Inc. was able to avoid having worldwide Apple sales revenue related to its intellectual property attributed to itself in the United States where it would be subject to taxation in the year received. Instead, Apple Inc. arranged for a large portion of its worldwide sales revenue to be attributed to [Apple Service International] in Ireland. As explained earlier, according to Apple, Ireland has provided Apple affiliates with an income tax rate of less than 2% and as low as 0.05%.”

Apple says it has a payroll of 4,000 in Ireland.

Eamon Gilmore, tánaiste (Irish deputy prime minister), said today that the Irish tax system was "very transparent."

This appears to be an official talking point but it's either a lie
or the minister is out of his depth.

Two of Ireland's biggest companies by revenue, are owned by Microsoft. They are based at the offices of a Dublin law firm and they have no employees.

Their accounts have not been transparent since 2005.

Are Apple's accounts transparent?

"We want to see tax evasion and loopholes closed so that everybody pays their due tax including all companies. It is an issue that Ireland supports strongly at EU and at OECD level," he said.

He said the Government would examine the US Senate report.

"But let's be clear about this. Ireland has a very strong, very transparent tax regime."

Say it often enough and some may believe it but it's not true!

Finfacts 2012: US Senate panel slams Microsoft's 'tax gimmickry' in Ireland, Singapore and Puerto Rico

Irish Economy 2012: At least a third of value of Irish services exports is overstated

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