In the very recently installment of the “iEconomy” series, a birds eye view look has been taken by The New York Times to see how Apple has minimized their corporate tax burdens, which is by taking advantage of a few legal maneuvers and also loopholes around the globe. The strategies made by Apple of course are legally to the last line in the book and are actually used by alot of other corporations aswell, though with a spotlight dangling over Apple as they have reached the surface in popularity and success so fast, they have become the globes most valuable and publicly traded company with new record-setting profits, though they have attracted alot of attention obviously on how they handle their own money.
Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.
Across all the tactics that have been used by Apple:
- Setting up subsidiaries in low-tax locations such as Nevada, Ireland, Netherlands, Luxembourg, and the British Virgin Islands, routing as much revenue as possible through these locations. By routing much of its U.S. revenue through its Braeburn Capital subsidiary in tax-free Reno, Nevada, Apple is able to avoid California’s corporate tax rate of 8.84%, while also reducing its tax burden on money earned in other states.
– Apple’s iTunes S.à r.l. subsidiary in Luxembourg consists mainly of a mailbox and a few dozen employees, but records $1 billion per year in revenue as the entity responsible for all iTunes Store transactions throughout Europe, Africa, and the Middle East. With the iTunes Store offering strictly downloadable goods, Apple is able to take advantage of favorable tax treatment available in Luxembourg as part of the country’s efforts to attract businesses.
– Apple has substantial operations in Ireland, but the report notes that one of the main benefits of locating there is that Apple is able to internally transfer its patent royalty earnings to a subsidiary there, with the money being subjected to a 12.5% tax rate rather than the 35% tax rate found in the United States. More than one-third of Apple’s worldwide revenue is booked through its Irish subsidiaries.
– Apple records 70% of its revenue overseas, even though much of the product value would normally be considered to derive from their design, which occurs in the United States.
Overall though, $3.3 billion has already been paid by Apple in corporate taxes for 2011 on the earnings of 34.2 billion in profits made, which is a very effective tax rate of 9.8%, which is considered to be extremely low by all corporate general standards. Though with the strategies of the company being reliant on a very disjointed and complex system of laws in taxes throughout the globe, it’s quite hard for the U.S. to by themselves require Apple to book even more of their own revenue within their home country, which right now has the highest corporate tax rate on the globe when the federal and average state rates are added in.
Apple has already provided a response officially to The New York Times, which highlights their role in job creations within the U.S., as the tax payments they do make, it’s giving that is charitable. It has also been noted by the company that their own practices in business are within the full compliance of all of the laws and also accounting rules.