Shortly after Apple published the full testimony which CEO Tim Cook plans to give to the Permanent Subcommittee on Investigations in the U.S. Senate, the government body issued its own findings on the company’s offshore tax practices, saying subsidiaries were used to purposefully avoid paying billions of dollars in domestic taxes. According to the subcommittee’s report, Apple moved billions in profits out of the U.S. to affiliate corporations, such as Apple Operations International in Ireland, where the effective tax rate is less than 2%. As of right now, the Cupertino California company has $102 billion in offshore accounts.
Of the three foreign subsidiaries that Apple claims aren’t tax resident in any nation, primary affiliate AOI generated a net income of $30 million between 2009 and 2012 according to the Senate report. The other main Irish subsidiary, Apple Sales International, directed roughly $74 billion in profits away from the U.S. over the same period of time and paid a negligible amount in international taxes. An example of this would include the fact that ASI generated $22 billion in 2011 and paid out $10 million in taxes, which is a rate of 0.05%. According to chairman of the panel Senator Carl Levin (D-Mich.):
Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven. 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.
- Using a so-called cost sharing agreement to transfer valuable intellectual property assets offshore and shift the resulting profits to a tax haven jurisdiction.
- Taking advantage of weaknesses and loopholes in tax law and regulations to “disregard” offshore subsidiaries for tax purposes, shielding billions of dollars in income that could otherwise be taxable in the United States.
- Negotiating a tax rate of less than 2 percent with the government of Ireland – significantly lower than that nation’s 12% statutory rate – and using Ireland as the base for its extensive network of offshore subsidiaries.
Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among American’s largest tax avoiders, A company that has found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue.
As of right now, the senate subcommittee is slated to further detail its arguments against Apple in a hearing tomorrow, which itself is part of a broader probe into how other multinational corporations use offshore affiliates to reduce tax burdens. Those following the issue should expect a testimony from CEO Tim Cook, CFO Peter Oppenheimer, and Tax Operations Head Phillip Bullock.
Both arguments seem quite compelling so we’ll have to wait for a decision as the decision affects not only Apple but several tech giants.
Source: Bloomberg, Senator Carl Levin