Apple Operations International, the principal Irish holding company for foreign subsidiaries, was not always stateless for tax purposes based on the last filed accounts in Ireland. It stopped paying tax in Ireland from 2006, based on US Senate Permanent Subcommittee on Investigations evidence.
The most explosive revelation in the May 2013 report [pdf] of the US Senate Permanent Subcommittee on Investigations was Apple’s claim that three key offshore companies were not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies. The report said Apple Operations International had "not paid any corporate income tax to any national government in the past 5 years."
“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said Senator Carl Levin. “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 Operations International (AOI) was formerly known as Apple Computer Inc. Limited. The company was incorporated in 1980 as an offshore company with an address at the Cork, Ireland manufacturing facility.
Finfacts had reported in 2004 that Ireland was the world's most profitable country for US corporations, according to analysis by US tax journal Tax Notes. In a study by the journal's Martin Sullivan, it was found that profits made by US companies in Ireland doubled between 1999 and 2002 from $13.4bn to $26.8bn, while profits in most of the rest of Europe fell. In his analysis Sullivan termed Ireland a 'semi-tax haven' for US firms, because firms are involved in real productivity in contrast with locations such as Bermuda.
In 2005, The Wall Street Journal brought attention to Microsoft's efforts to route for example profits on sales in Germany to Dublin on which the software firm paid Ireland at the low headline tax rate of 12.5%. The Journal said a subsidiary, Round Island One Ltd., operated from the offices of a Dublin law firm and was one of the country's biggest companies, with gross profits of nearly $9bn in 2004 but it had no direct staff. Now Google and Facebook are following on Microsoft's trail.
The Journal said much of Round Island's income was licensing fees came from copyrighted software code that originated in the US. Some of the rights to these lucrative assets ended up in Ireland via complex accounting rules on intellectual property
Through a key holding, dubbed Flat Island Co., Round Island licensed rights to Microsoft software throughout Europe, the Middle East and Africa. Thus, Microsoft routed the license sales through Ireland and Round Island paid a total of just under $17m in taxes to about 20 other governments that represented more than 300m people and $300m in taxes to a country of just over 4m.
WSJ report [pdf; free]
In 2006 in reaction to the WSJ piece, Apple had its Irish companies changed to unlimited status and Microsoft had some Irish companies changed to end public access to financial information including on the Irish offshore companies in island tax havens.
Apple had also changed the name of Apple Computer Inc. Limited to Apple Operations International in 2006 and in the same year as the company was experiencing rapid growth, it established a subsidiary named Braeburn Capital, in Reno Nevada, to avoid California's corporate tax. Its task was to manage investments and tax strategy. Braeburn is a variety of apple.
Apple told the Subcommittee that AOI’s assets are managed by Braeburn Capital. "Apple indicated that the assets themselves are held in bank accounts in New York."
The last accounts filed for AOI (as Apple Computer Inc. Limited) was in 2005 in respect of fiscal 2004.
In that year Apple Inc. reported sales of $8.2bn and a net income before tax of $383m; the consolidated Apple Computer Inc. Limited, Cork + its subsidiaries, reported sales of $3.3bn and net income before tax of $345m.
Tax paid to the Irish Revenue was at $21m after offsets for foreign tax and other adjustments.
Once Braeburn Capital took responsibility for AOI, there was no tax paid in Ireland and cash was routed directly to New York.
The accounts [pdf] show that in 2004, AOI's bank was Bank of America, Dublin; its registered office was in Cork and its auditors and solicitors were also based in Cork.
|Prepared by the US Senate Permanent Subcommittee on Investigations, May 2013. Source: Materials received from Apple Inc.|
Why did the Irish authorities agree to the change to a stateless status with no taxes due?
The Senate report said: "According to Apple, AOI’s net income made up 30% of Apple’s total worldwide net profits from 2009-2011, yet Apple also disclosed to the Subcommittee that AOI did not pay any corporate income tax to any national government during that period."
When asked whether AOI was instead managed and controlled in the United States, where the majority of its directors, assets, and records are located, Apple responded that it had not determined the answer to that question. Apple noted in a submission to the Subcommittee: 'Since its inception, Apple determined that AOI was not a tax resident of Ireland. Apple made this determination based on the application of the central management and control tests under Irish law.' Further, Apple informed the Subcommittee that it does not believe that 'AOI qualifies as a tax resident of any other country under the applicable local laws.'
For more than thirty years, Apple has taken the position that AOI has no tax residency, and AOI has not filed a corporate tax return in the past 5 years."
EU investigates how Ireland aided Apple to avoid foreign taxes - FDI & Ireland’s love affair with American business
Finfacts April 2014: OECD BEPS Project: Ireland should embrace corporate tax reform
The US tax system is dysfunctional as is the use of Irish offshore companies, which are effectively tax avoidance entities.
In Ireland, different rules applied to companies such as Apple compared with indigenous firms and Enda Kenny, taoiseach, can repeat his talking points: "rules based," "transparent" and "ethical" as often as he likes but nobody should believe him.