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Monday, May 20, 2013

Apple Saves Billions by Creatively Exploiting Loopholes of International Tax System

Posted By on Mon, May 20, 2013 at 4:55 PM


Think different, Apple tells the world. The Cupertino company, whose creations have defined our technological age, apparently applies the same innovative thinking to its tax evasion strategies.

Stuffing revenue in some low-tax, high-privacy bank in the Caribbean? 'Bout as forward-thinking as a Blackberry. Apple, as the New York Times reported today, uses nothing less than the iPhone 5 of tax havens, exploiting the loopholes of the international tax system in such a way that billions of dollars in profits have not been listed in any tax filing anywhere.

At the center of the operation is an Ireland-based subsidiary called Apple Operations International, which collected $30 billion in income between 2009 and 2012. Over the last five years, Apple Operations International has not filed a tax return in any country.

As USC law professor Edward Kleinbard told the Times, "There is a technical term economists like to use for behavior like this: Unbelievable chutzpah."

The revelations about Apple's tax strategies emerged from a Congressional investigation into the company's finances. The examination found that Apple "shifted at least $74 billion from the reach of the Internal Revenue Service between 2009 and 2012," according to the Times. The most startling discovery, though, was in how Apple's tax plan was so effective.

Per the Times:

Apple currently assigns more than $100 billion to offshore subsidiaries.

Atop Apple's offshore network is a subsidiary named Apple Operations International, which is incorporated in Ireland but keeps its bank accounts and records in the United States, and holds board meetings in California.

Because the United States bases residency on where companies are incorporated, while Ireland focuses on where they are managed and controlled, Apple Operations International was able to fall neatly between the cracks of the two countries' jurisdiction.

Apple did not break any laws. The point of a loophole, after all, is that it operates between the lines of written regulations. But Apple executives have not quite organized the black-curtained, immaculately-staged unveiling for this particular innovation. The opposite actually: though the Senate examination began 18 months ago, the Times noted, "investigators discovered one major subsidiary in Ireland only Sunday night." Which means that (for 17 months) a multi-billion dollar Apple affiliate can sit essentially invisible even to experts specifically tasked with detecting it.

Every dollar Apple saves, of course, is a dollar that doesn't go into America's public bank account. Which means one less dollar to go into education or health care or some other government service; or one more dollar to be pulled from somebody's paycheck. While Apple's revenues make it among the country's largest tax-payers, the Congressional investigation reported that the Silicon Valley giant paid a tax rate of 20.1 percent, which is four to 12 percent lower than it lists in its disclosures.

Apple CEO Tim Cook is scheduled to testify at a Senate hearing on Tuesday.

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Albert Samaha


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