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