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Apple Has Been Accused of Large-Scale Tax Avoidance

May 24th 2013
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Apple, the global technology giant, is under fire from the Senate for tax avoidance on a large scale. On May 21, CEO Tim Cook appeared before the Senate Permanent Subcommittee on Investigations to defend his company's tax practices, including a 2 percent corporation tax rate deal it struck with the Irish government on two of its subsidiaries.

Apple has a number of subsidiaries in Ireland, including financial services, distribution, and manufacturing, and has been there since the 1980s.

In its report, the committee accused Apple of avoiding tax on $74 billion of overseas profits held offshore in the last four years, accounting for 61 percent of its earnings.

Appearing before the Senate, Cook claimed in his pre-written testimony that Apple is one of the United States' biggest taxpayers, contributing $6 billion to the Treasury in taxes last year at a tax rate of 30.5 percent.

He added that Apple did not use "tax gimmicks", such as holding its intellectual property offshore or using complex transfer pricing structures.

Money made outside the United States was "taxed in the local market", he said, before being transferred to Apple Operations International (AOI), registered in Ireland but controlled in the United States. Because of this, AOI is considered tax resident in either the United States or Ireland.

The Senate maintains, however, that Apple is one of the biggest US tax avoiders, dodging an estimated $44 billion of tax in the last four years.

Apple has a cash stockpile of $145 billion, but the report said that $102 billion of this is currently held offshore.

One of the company's tax avoidance schemes included incorporating its overseas holding companies in Ireland. US taxes are based on where the companies are incorporated, while Ireland taxes the company on the basis of where they are managed. Therefore, this enabled to make them "stateless" and exempt from the need to file a tax return anywhere.

The Irish government was also accused of facilitating such avoidance by the Senate committee, but defended itself, saying the issue was not a result of the country's tax regime.

This article first appeared on our sister site in the United Kingdom.