Apple uses companies outside U.S. to avoid taxes

WASHINGTON — Apple Inc. employs a group of affiliate companies located outside the United States to avoid paying billions of dollars in U.S. income taxes, a Senate investigation has found.

WASHINGTON — Apple Inc. employs a group of affiliate companies located outside the United States to avoid paying billions of dollars in U.S. income taxes, a Senate investigation has found.

The world’s most valuable company is holding overseas some $102 billion of its $145 billion in cash, and an Irish subsidiary that earned $22 billion in 2011 paid only $10 million in taxes, according to the report issued Monday by the Senate Permanent Subcommittee on Investigations.

The strategies Apple uses are legal, and many other multinational corporations use similar tax techniques to avoid paying U.S. income taxes on profits they reap overseas.

But Apple uses a unique twist, the report found. The company’s tactics raise questions about loopholes in the U.S. tax code, lawmakers say.

The spotlight on Apple’s tax strategy comes at a time of fevered debate in Washington over whether and how to raise revenues to help reduce the federal deficit.

Many Democrats complain that the government is missing out on collecting billions because companies are stashing profits abroad and avoiding taxes.

Republicans want to cut the corporate tax rate of 35 per cent and ease the tax burden on money that U.S. companies make abroad.

They say the move would encourage companies to invest at home.

Apple CEO Tim Cook, the company’s chief financial officer and its tax chief are scheduled to testify and explain the company’s tax strategy at a hearing by the subcommittee today.

Apple spokesmen didn’t immediately respond to a request for comment Monday on the subcommittee report.

The company has made clear that given current U.S. tax rates, it has no intention of repatriating its overseas profits to the U.S.

The subcommittee also has examined the tax strategies of Microsoft Corp., Hewlett-Packard Co. and other multinational companies, finding that they too have avoided billions in U.S. taxes by shifting profits offshore and exploiting weak, ambiguous sections of the tax code.

Microsoft has used “aggressive” transactions to shift assets to subsidiaries in Puerto Rico, Ireland and Singapore, in part to avoid taxes.

HP has used complex offshore loan transactions worth billions while using the money to run its U.S. operations, according to the panel.

The subcommittee’s report estimates that Apple avoided at least $3.5 billion in U.S. federal taxes in 2011 and $9 billion in 2012 by using the strategy. The company, based in Cupertino, Calif., paid $2.5 billion in federal taxes in 2011 and $6 billion in 2012.

Apple uses five companies located in Ireland to carry out its tax strategy, according to the report.

The companies are located at the same address in Cork, Ireland, and they share members of their boards of directors.

While all five companies were incorporated in Ireland, only two of them also have tax residency in that country. That means the other three aren’t legally required to pay taxes in Ireland because they aren’t managed or controlled in that country, in Apple’s view.

The report says Apple capitalizes on a difference between U.S. and Irish rules regarding tax residency. In Ireland, a company must be managed and controlled in the country to be a tax resident. Under U.S. law, a company is a tax resident of the country in which it was established.

Therefore, the Apple companies aren’t tax residents of Ireland nor of the U.S., since they weren’t incorporated in the U.S., in Apple’s view.

The subcommittee said Apple’s strategy of not declaring tax residency in any country could be unique among corporations.

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” Sen. Carl Levin, D-Mich., the subcommittee’s chairman, said in a statement. “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.”

Sen. John McCain of Arizona, the panel’s senior Republican, said that while Apple claims to be the biggest U.S. corporate taxpayer, it is also “among America’s largest tax avoiders.” He said the company is “purposefully depriving the American people of revenue” by using a “byzantine” tax structure.

The subcommittee report also noted that Apple has been setting aside billions for tax bills it may never pay. As previously reported by The Associated Press, the overlooked asset that Apple has been building up could boost Apple’s profits by as much as $10.5 billion.

However, Apple has been lobbying to change U.S. law so it can erase its tax liabilities in a less conspicuous fashion.

In its second quarter ended March 31, Apple posted its first profit decline in ten years. Net income was $9.5 billion, or $10.09 a share, down 18 per cent from $11.6 billion, or $12.30 a share, in the same period a year ago. Revenue increased 11 per cent, to $43.6 billion.

Apple said in April that it will distribute $100 billion in cash to its shareholders by the end of 2015. The company is expanding its share buyback program to $60 billion, the largest buyback authorization in history, and is raising its dividend by 15 per cent, to $3.05 a share.

President Barack Obama has proposed using the tax code to encourage companies to move jobs back to the U.S. and discourage them from shifting jobs abroad. Many in both parties say they want to overhaul the entire tax code, but there are vast differences in how they would do so.

The subcommittee’s inquiry and hearing are intended to shine a light on “offshore tax-avoidance tactics” by Apple, Levin said at a news conference Monday. Companies’ use of such loopholes has the effect of raising the taxes of ordinary Americans and increasing the federal deficit, he said.

McCain called Apple’s strategy “an egregious and really outrageous scheme that Apple has been able to orchestrate to avoid paying taxes.”

Just Posted

Ella Stoner, five, is ready to cut off her hair and donate it to A Child’s Voice Foundation. (Photo by Lauren Stoner Photography)
Central Alberta girl to donate her ‘princess hair’ to A Child’s Voice Foundation

A five-year-old girl from Rimbey has never had a haircut before. Now,… Continue reading

Asymptomatic testing will now be available for "priority groups" who are most likely to spread the COVID-19 virus to vulnerable or at-risk populations. File photo by THE CANADIAN PRESS
Alberta adds 1,195 new COVID-19 cases Saturday

Red Deer has dropped to 760 active cases

Lacombe-Ponoka MLA Ron Orr
Central Alberta MLAs comment on UCP members kicked out of caucus

A pair of central Alberta MLAs have commented on the two United… Continue reading

Contributed photo
Johanna Hannaford: Central Alberta designer offers inclusive clothing

By Stephanie Rhodes Local designer Johanna Hannaford’s inclusive clothing creations are smashing… Continue reading

Red life-ring with splash
Started from the bottom: How a family business started and grew in central Alberta

By Carina Moran We started our business in the basement of our… Continue reading

Vancouver Canucks' Zack MacEwen (71), Travis Boyd (72) and Jimmy Vesey (24) celebrate a goal against the Edmonton Oilers during third period NHL action in Edmonton on Saturday, May 15, 2021.THE CANADIAN PRESS/Jason Franson
Big third period lifts Vancouver Canucks to 4-1 victory over Edmonton Oilers

Canucks 4 Oilers 1 EDMONTON — Matthew Highmore scored twice in the… Continue reading

A vial of the Medicago vaccine sits on a surface. CARe Clinic, located in Red Deer, has been selected to participate in the third phase of vaccine study. (Photo courtesy www.medicago.com)
Canada’s vaccine rollout operation won’t miss a beat with new military leader: expert

DARTMOUTH — The sudden departure of the senior military officer in charge… Continue reading

Quebec Premier Francois Legault speaks during a news conference on the COVID-19 pandemic, Tuesday, September 29, 2020 at the legislature in Quebec City. THE CANADIAN PRESS/Jacques Boissinot
Quebec premier argues province has power to amend constitution in letter to Trudeau

MONTREAL — Quebec Premier François Legault has written a letter to Prime… Continue reading

A demonstrator stands in front of riot police officers during a banned protest in support of Palestinians in the Gaza Strip, in Paris, Saturday, May, 15, 2021. Marches in support of Palestinians in the Gaza Strip were being held Saturday in a dozen French cities, but the focus was on Paris where riot police countered organizers who said they would defy a ban on the protest, ordered on the grounds that it risked turning violent. (AP Photo/Rafael Yaghobzadeh)
Police fire tear gas on banned Palestinian march in Paris

PARIS (AP) — French riot police fired tear gas and used water… Continue reading

Photo by The Associated Press
NYC Pride parade bans police; Gay officers ‘disheartened’

NEW YORK (AP) — Organizers of New York City’s Pride events said… Continue reading

Welcoming cowboy boots at the historic and colourful Last Chance Saloon in the ghost town of Wayne near Drumheller, Alta., on Thursday, Sept. 19, 2019. The bar and hotel are up for sale. THE CANADIAN PRESS/Jeff McIntosh
‘It was a going concern’: Remaining bar and hotel in Alberta coal ghost town for sale

WAYNE, Alta. — Built during the First World War, it survived the… Continue reading

A letter from a bottle that washed up in New Brunswick in 2017 is shown in an undated handout photo. A team of researchers from Université du Québec à Rimouski are trying to solve the mystery of whether a letter in a bottle that washed up in New Brunswick in 2017 was indeed from a young victim of Titanic shipwreck or simply a hoax. THE CANADIAN PRESS/HO, N. Beaudry, UQAR *MANDATORY CREDIT*
Real or hoax? Quebec scholars probe mystery letter allegedly from Titanic passenger

MONTREAL — Researchers from Université du Québec à Rimouski are trying to… Continue reading

Minister of Transport Marc Garneau takes part in a press conference on Parliament Hill in Ottawa on Tuesday, Nov. 26, 2019. Advocates, experts and opposition MPs say correspondence showing close communication between the federal Transport Department and the Canadian Transportation Agency regarding passenger refunds throws into question the independence of the CTA, an arm’s-length body. THE CANADIAN PRESS/Sean Kilpatrick
Emails reveal close communication between government, transport regulator on refunds

OTTAWA — Advocates, experts and opposition MPs say correspondence showing close communication… Continue reading

Most Read