Apple avoided billions in taxes, aimed for 'holy grail of tax avoidance', panel says

Apple avoided billions in taxes, aimed for 'holy grail of tax avoidance', panel says

Summary: Apple is not only innovative when it boils down to products it seems.

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TOPICS: Apple, Government US
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Cash-rich Apple's balance sheet may please shareholders, but Congressional investigators are less than happy, claiming that the firm has avoided paying billions in tax.

apples-ios-where-i-is-for-irony

An investigation into Apple's tax practices which revealed the creation of a complex web of subsidiaries worldwide in order to avoid paying tax is expected to result in an interesting confrontation between CEO Tim Cook and lawmakers today, as reported by the New York Times.

Investigators found that rather than taking the usual route of companies that wish to lower their tax bills -- such as opening accounts in tax havens -- Apple created a number of subsidiaries that contained no staff apart from top executives. Although run from the iPad and iPhone maker's headquarters in Cupertino, Calif., subsidaries were officially located in countries such as Ireland. This, in turn, meant that each offshore entity was effectively stateless -- and therefore exempt from taxes, record-keeping and the need to file tax returns.

Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations which is holding Apple's hearing, commented:

"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven. Apple successfully 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."

Lawmakers say that Apple used "gimmicks" and "schemes" to avoid paying billions in tax to the U.S. government. However, the tech giant denies these claims, and within Apple's full testimony (.pdf), the company says that it contributes much to the U.S. economy, and welcomes tax reform in the United States. Apple says that reformation is necessary to promote growth and competition, and says that current legislation "has not kept pace with the advent of the digital age and the rapidly changing global economy."

Apple argues that it must keep vast amounts of cash away from U.S. shores due to the unreasonably high amount claimed by the system -- 35 percent -- and as 61 percent of the company's revenue last year came from international sales, foreign funds have to be used for expansion, acquisitions and "expenses required by its overseas operations."

The iPad and iPhone maker makes one key point: the company does pay U.S. taxes; nearly $6 billion in 2012 alone. If the U.S. government believes this amount is too low, then the system needs to be changed.

In contrast, investigators say that Apple has taken at least $74 billion away from the hands of the U.S. Internal Revenue Service.

Apple's comments come as other companies face enquiries over tax avoidance; the U.K. parliament is currently scrutinizing the financial practices of Google, Starbucks and Amazon, whereas over in India, Infosys, Google, Samsung and Nokia have been hit with tax demands by the Indian government following tax evasion claims.

Topics: Apple, Government US

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48 comments
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  • Neutral reporting versus objective reporting

    Somehow within the text this blatant fact that Apple earns about 2/3 of all of their money abroad is not contrasted with the nonsensical allegations that Apple uses "gimmicks" and "tricks" to avoid tax payments.

    There is no need for any "gimmicks" for Apple since those money were never on USA's soil, and were never subjected to any taxes to begin with.

    AND Apple paid ALL taxes from ALL profits it earned in the USA. This is how they topped $6 billion in tax payments last year and going to have $7 billion tax payments this year.

    The question about what to do with foreign profits that have nothing to do with being earned in the USA is different issue. Obviously, it is pricey for companies -- all of them, including Apple -- to import those money to the USA.
    DDERSSS
    • Neutral versus objective reporting political example

      Neutral reporting: "Republicans say "2 + 2 = 0", Democrats say "2 + 2 = 1"".

      Objective reporting: "Republicans say "2 + 2 = 0", Democrats say "2 + 2 = 1", the fact is "2 + 2 = 4"".

      (Notice the difference between facts and opinions, which are totally irrelevant: "Republicans say "2 + 2 = 0", Democrats say "2 + 2 = 1", and the Democrat's way is better".)

      This is the key issue with our media in every area; politics is just the most obvious example.
      DDERSSS
      • Why should anyone give their hard earned money

        ... to government whose #1 specialty is wasting money?
        LBiege
        • To be fair, not all of the money that government gets is wasted

          Elderly got health care support since 1965. And some poor people get health care and food support, too. There is still free school education, as well as fire and police departments. And the roads are still getting built (though not near enough even in places like CA -- but, again, this is thanks to tax cuts).

          Though in other areas -- where government spends a TRILLION on illegal aggressions, huge international crimes and assaults like war in Iraq, the money are wasted.

          When government spends $400 billion of F-35 air fighter which was supposed to be ready by 2010 but failed, and then add ANOTHER $600 billion for the plane to be ready by 2018 -- it is a waste.

          When government spends billions of dollars on drones to commit international crimes such as drone strikes, that kill thousands of civilians, does heinous double tapping striking practices just as Al Qaeda does, and even kills USA's own citizens without trial or even indictment -- it is a waste, too.

          In the end, government is a mixed bug: it does good, and it does bad (and no one gets prosecuted and jailed for that).
          DDERSSS
          • You seem to miss the details

            Tricks for tax avoidance are exactly what they have been using; buy hardware cheap from China, add massive mark-up in low tax zone, retail units buy 'at cost' to reduce profits in higher tax zones. It's legal so what's the problem. Oh yeah, this sudden outpouring of morals. Get over it. No government prides itself on it's morals, no government pays out more than it needs to and lets not even start with politicians.

            However, going into full denial mode just makes you look idiotic. We know how much you love apple and how you idolise their huge profits but seriously, grow up, read a little and you might not be quite so blinded. FFS, if apple blew up a small island you'd still deny they had done wrong and proclaim them as your heroes. It makes you look a tool.
            Little Old Man
          • You are in denial

            There is no such scheme; this is why Apple paid over $6 billion of taxes last year. Of course, the taxes and profits would be bigger on USA's soil, if Apple would export their research and development elsewhere and would not empoy all those people in the country. But Apple's headquarters is the USA, so it is convenient that they have all of the staff in the country. And they provide jobs, too.

            But there is no artificial buff-up of prices of the incoming goods that get manufactured in China. There is $6 billion proofs of that.
            DDERSSS
          • DO SOME READING

            This is exactly what apple are REPORTED to be doing. The same as everyone else.

            Denying it does not hide the fact that they are avoiding tax where LEGALLY able to.

            Alright, I'll simplify this for you, DO THE MATHS, % tax to profits. That should keep you going for days. Not the sums, I believe you can do those, it's the new excuses that will take the time.
            Little Old Man
          • Furthermore

            You have no idea what you are talking about:

            "Of course, the taxes and profits would be bigger on USA's soil, if Apple would export their research and development elsewhere and would not empoy all those people in the country."

            It is actually completely the opposite because the money would be filtered into wherever they send these functions and even less tax would be due in the US. This is pretty basic stuff.
            Little Old Man
          • "even less tax would be due" -- not necessary; it depends on the financial

            ... policy.

            As to the math, do it yourself: lets say, Apple earned $63 billion of before tax profits overall last year. Abstractly, of those about $22 billion were earned in the USA.

            However, the actual distribution of earning is different, because Apple have over 50 000 workers in the USA, and well as handles all of research and development in the country, let alone billions of dollars costing data centres and such. Sales that generated abroad have just a small portion of these huge expenses that Apple bears in the USA.

            So in reality before tax profits for Apple in the USA are not $22 billion, but lets say, $18 billion (or even less). And viola: Apple pays over $6 billion of taxes.

            HINT to those who are in denial: no any schemes are used. No off-shore accounts, not moving the money here and there, no nothing. ALL real sales, ALL real expenses, ALL real taxes.
            DDERSSS
          • Double hint: 35% of $18 billion is ... $6 billion

            What a shocker, I know. Not sure how you will handle your bubble popping. ;))
            DDERSSS
          • Wow, look at the shill go

            Good job dderss. And when I say "job" I mean it literally. No way you aren't being paid by apple for this flurry of "apple can do no wrong" posts.

            apple needs to be punished for this, their ebook cartel (apple has now been shown to be the ringleader) and many other corporate crimes against consumers.
            toddbottom3
          • IRS can ram it where the sun doesn't shine

            I am 100% behind Apple. As far as I'm concerned Corporate America, and the general public should LEGALLY circumvent as much taxation as possible.

            The bottom line is that the gov. should get their wasteful spending in check before holding out their hand for more money. Apple is doing what any smart person does; shield him/herself from a horribly wasteful gov. flushing their hard earned money down the toilet with little to show for it.

            The way to fight big politics is to circumvent it by any means necessary no matter how creative you have to be in order to TECHNICALLY not run afoul of the law. You can call it what you want, but that's the reality that a significant number of citizens and businesses understand all too well.
            Teila Day
          • Okay

            Find me a report that says apple pays 35%, anywhere, in the world. Muppet.
            Little Old Man
          • Right so doing the maths

            Is you guessing at numbers and then making up %'s. You really do not understand how global business works do you.

            Simple answer because you're thick as a plank or too far in denial to listen. You move costly functions to lower tax zones, you offset the subsidies from the US by the subsidies gained from the new location. You then charge excessive costs back to the US unit who then make lower profits. Lower profits mean lower taxes. THIS IS VERY SIMPLE BUSINESS PRACTICE, is done by many firms including, reportedly apple, surprisingly. Do you read anything other than zdnet for you denial food? You think the US government is just making things up and picking on apple?

            You are a fool and in denial dderss. I'm not the first, the only or the last person to say this, I just stop short of calling you an apple employee because you don't have the skills or professionalism to put together the required level of argument that a paid position would dictate.
            Little Old Man
          • Show me how $6+ billion indicate ANY level of use of tax evasion schemes

            You can not dispute the math. Apple's earnings in the USA are about $18 billion, just $4 billion lower than abstract $22 billion, derived from the fact that 60+% of all sales are done abroad, and the overall before tax profit worldwide was about $63 billion.

            There is no way to hide any scheme here, it is the math. The expenses are not blown up any artificial way.

            So you can only continue to be in denial and working for Google/MS/Samsung or whoever you are working for. ;)
            DDERSSS
          • profit is not revenue

            "before tax profit worldwide was about $63 billion". The key word is PROFIT. If Apple earned $180 Billion then followed Little Old Man's tactic, $117 Billion is written off as costs. The argument with Apple is they are making sure that the PROFIT is as low as possible in the USA so they pay a much smaller amount to the tax man. THIS IS CALLED TAX EVASION/AVOIDANCE. Last quarter Apple posted quarterly revenue of $43.6 billion. mutiply by 4 (yes i know each quarter will be different) and the answer is not $63 billion. Add this to the fact that Apple negotiated a 2% tax rate with Ireland and the numbers DON'T add up.
            Apple needs to return to what it does best - INNOVATION. Pay the damn taxes, ignore the copycats and make iconic products.
            clane_
          • I am not talking about quarter, I am talking about year

            They have about $170 billion (very roughly) sales last year, and their profit before taxes was around $63 billion. So all of the calculations are conceptually correct. No tax avoidance whatsoever; all of due taxes are paid, none of the income that earned in the USA was moved to abroad, NOT A DIME.

            The income that was earned abroad and was never on USA's soil is another matter. For now, USA's corporations have $1.8 trillion of profits that that were earned abroad, and it is too pricey to import those money to the USA.
            DDERSSS
          • do you read the comments?

            I used the quarterly revenue AND MULTIPLIED IT BY 4 to EQUAL 1 YEAR. you still have a basic misconception about revenue and profit. TAXES are paid on PROFITS.
            I never said anything about Apple evading tax by moving money(Profits) out of the US - that would be tax evasion which is illegal. Apple uses tax avoidance and loopholes in the tax laws to make sure their US profit is as small as possible. No one in their right mind would import more money into the US and pay more tax.
            If you can lower your apparent US profit by billing Apple US for costs accrued by Apple Ireland, you lower the profit (taxed at 35%) in the US and increase the profit (Taxed at 2%) in Ireland. This shows up as $6B tax on $63B profit in the US & $10M tax on $22B profit in Ireland.
            clane_
          • What misconception?

            Before-tax profits are about $63 billion for the year. ~1/3 of those profits were earned in the USA, which would be about $22 billion. And there are few billions of deductions (huge investments such data cenres, et cetera). So the base for applying 35% tax is $18 billion, which results in $6 billion actual federal tax (as Apple said yesterday, effective tax rate is 30.5%, thanks to deductions I cited earlier).

            What part of this you do not understand?

            ALL real sales, ALL real expenses, ALL real taxes paid, not a dime "shifted" anywhere, no a single trick or scheme is used. Fair and straightforward all-around, #1 federal tax payer.
            DDERSSS
          • ROFL

            "ALL real sales, ALL real expenses, ALL real taxes paid, not a dime "shifted" anywhere, no a single trick or scheme is used."
            Really? several websites/new organisations are reporting differently:
            "Apple Operations International (AOI), had not submitted a tax return anywhere for five years"
            "Apple told the subcommittee that AOI has no employees and no physical address."
            "Apple's retail units in France, Germany and Britain purchase goods from the Irish units. The prices are set at levels that ensure these units in bigger states do not report much profit. This means the company avoids tax on sales in its bigger markets."

            Those 3 quotes (1 from Apple itself) refute your statements. Each one of those PROVABLE statements shows real taxes avoided, dimes "shifted" anywhere it was cheaper, multiple tricks or schemes used by Apple and proves you don't have a clue.

            You wombat.
            clane_