An in-depth report in the New York Times claims that Apple pioneered ways to pay as little tax as possible. It also says that technology companies are uniquely placed to take advantage of outmoded tax laws that haven't kept up with today's digital products.
Apple, for example, set up a small office in Reno -- just 200 miles from its Cupertino headquarters -- to collect and invest its profits. Why? Well it wasn't just because Tim Cook loved the biggest little city in the world. It's because Nevada's corporate tax rate is zero, compared to California's 8.84 per cent.
Indeed, the report claims Apple would have paid $2.4bn more in federal taxes in the US last year, had it not used these strategies. Just think of all the MacBooks you could buy with that.
The company allocates about 70 per cent of its profits overseas, according to the report. This is through use of techniques such as the "Double Irish With a Dutch Sandwich." And no, it's nothing rude.
Basically, it involves reducing tax by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Hundreds of companies now use it, apparently. Apple also designates overseas salespeople in high-tax countries, letting them sell on behalf of low-tax subsidiaries on other continents, handily side-stepping income taxes.
Of course there's nothing new about companies wanting to reduce their tax bills. But tech companies are uniquely placed, thanks to selling digital products like MP3s.
An Apple subsidiary in Luxembourg means anything downloaded from iTunes by people in Africa, Europe and the Middle East is recorded as being sold in Luxembourg. And Luxembourg has promised discounted taxes to Apple and other tech companies for setting up there, so both parties win.
"We set up in Luxembourg because of the favourable taxes," said Robert Hatta, who oversaw iTunes retail marketing and sales in Europe until 2007. "Downloads are different from tractors or steel because there's nothing you can touch, so it doesn't matter if your computer is in France or England. If you're buying from Luxembourg, it's a relationship with Luxembourg."
Ker-ching.
It's an interesting read. Obviously not everyone is in favour of Apple's tax techniques, but there's not much they can do. As Brian Murphy, the De Anza college president says: "When it comes time for all these companies -- Google and Apple and Facebook and the rest -- to pay their fair share, there's a knee-jerk resistance. They're philosophically antitax, and it's decimating the state.
"Not that I'm complaining," he added. "We can't afford to upset these guys. We need every dollar we can get."
You can read the whole report here.
If you're wondering about Apple's response, it's issued a statement saying its "international growth is creating jobs domestically, since we oversee most of our operations from California." It also pointed out that the vast majority of its workforce remains in the US, with more than 47,000 employees, and that it donates to charities without seeking publicity for doing so.
Do you think the rules should be changed for tech companies? Let me know in the comments, or on our Facebook page.
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Comments 4
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anonymous 29 April, 2012 15:17
Greed feeds on greed, but those steeped in it are too self-absorbed to take such notice.
The states, therefore, should impose a minimum corporate tax against companies like Apple that have gotten too clever for our own good. If Apple does business in the United States, then it should pay a minimum state tax to be shared by all the state where it actually does business. And if Nevada does not want the tax, it should be shared by the states that do. Either way, the company pays an overall state minimum tax. This should discourage the bogus operation centers now set up in places like Reno.
And if Apple decides to pack up and go altogether to Ireland or the Netherlands, the states should deem such move to be an effort to skirt state tax laws -- with stiff penalties ready to be imposed.
A corporate minimum tax is not a new idea in federal taxation. The states should find a way to implement it as well. Waiting for the free market to fix the problem is not only naive, but also foolish.
anonymous 30 April, 2012 08:33
A solution would be to pay tax by where the server is hosted. It's more difficult to move infrastructure like that.
anonymous 30 April, 2012 11:11
The way I see it is that Apple need to do this to remain competitive with other organisations that are all doing the same things.
The real call is to politicians to make more robust laws to contain it as much as possible.
imaginarynumber 30 April, 2012 15:02
"An Apple subsidiary in Luxembourg means anything downloaded from iTunes by people in Africa, Europe and the Middle East is recorded as being sold in Luxembourg"
????
Erm... someone is not being honest here.
UK iTunes customers are paying a higher rate of VAT, 23% rather than 20% because the itunes servers are based in Ireland. The only winners are Apple who pay less corporation tax (10%). The punters pay 3% more tax than they would if the transaction was classified as taking place in the UK.
You can verify this for yourself at
http://store.apple.com/uk/help/payments
"Why do I pay 23% VAT on Electronic Software Download orders and other products which are classified as services?
The VAT rate for Apple customers who purchase Electronic Software Downloads or other Apple products which are classified as services under EU VAT law will be 23% Irish VAT. This is because the place of supply of these products under EU VAT law is Ireland as the country from where Apple Distribution International makes these supplies."
In short, Apple customers pay more for the same products, so that Apple can save money.