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Through a few different methods, The New York Times says Apple has avoided paying millions of dollars in taxes in the U.S. and billions of dollars in taxes worldwide

The New York Times recently released a report on how Apple is evading billions of dollars in taxes annually through a few different methods, but Apple claims it has been playing by the rules all along and pays an "enormous" amount of taxes.

According to The New York Times article, Apple has managed to dodge billions of dollars in taxes around the world. Last year, the tech giant paid $3.3 billion in taxes around the globe on its 2011 profits of $34.2 billion at a tax rate of 9.8 percent. Approximately 70 percent, or $24 billion, of the total $34.2 billion in pretax profits was earned outside of the country while 30 percent was earned in the United States.

This may seem odd, considering the fact that Apple's headquarters are in Cupertino, California. However, Apple products like the iPhone, iPad and MacBook are not manufactured in the state of California.

Through a few different methods, The New York Times says Apple has avoided paying millions of dollars in taxes in California and 20 other U.S. states. It has dodged billions of dollars in taxes worldwide.

How does Apple manage to do this? By putting an office in Reno, which allows Apple to escape California's 8.84 percent tax rate for Nevada's 0 percent; selling digital content, which can be sold from low-tax countries anywhere around the world, and the "Double Irish With a Dutch Sandwich," which allows Apple to cut taxes by directing profits through low-cost Irish subsidiaries, the Netherlands and the Caribbean.

According to former Treasury Department economist Martin A. Sullivan, Apple's federal taxes in the U.S. would have been $2.4 billion higher last year without such methods.

Apple opened a subsidiary called Braeburn Capital in Reno, Nevada in 2006. The reason for this subsidiary is to manage and invest Apple's cash. Braeburn Capital is responsible for depositing profits into accounts and then investing in bonds or stocks. When these investments lead to profit, a certain amount of it is protected from California tax authorities because Nevada has a 0 percent tax rate. If Braeburn was in Cupertino, Apple would be taxed 8.84 percent.

Braeburn's Nevada address also helps Apple reduce its taxes in other states like Florida and New Mexico because these different areas can decrease what is owed when Apple's financial management takes place somewhere else.

While Braeburn's location helps Apple dodge hefty California taxes, those in the state of California are not too happy with Apple's move. For instance, California Legislature upped the state's research and development tax credit to help companies like Apple escape billions in state taxes. The state legislature did this in 1996, 1999 and 2000, allowing Apple to save $412 million since 1996.

Selling digital content is another way Apple can escape pricey taxes. Apple doesn't only sell physical products like MacBooks and iPhones, but also digital items like songs on iTunes. Royalties and digital products can help Apple easily shift profits to low-tax countries because they can be sold anywhere as opposed to physical products.

Apple has another subsidiary in Luxembourg called iTunes S.à.r.l., which takes care of digital sales in Europe, Africa and the Middle East. When apps or songs are downloaded in any of these locations, the sales are recorded in Luxembourg because the country said it would tax the payments collected by Apple at low rates.

The "Double Irish With a Dutch Sandwich" is another way Apple avoids high-priced taxes. Apple established two Irish subsidiaries called Apple Operations International and Apple Sales International. Apple created the first Irish subsidiary because the Irish government offered Apple tax breaks in return for jobs, and also because Apple was able to send royalties on patents developed on California over to Ireland. This meant that profits were taxed at the Irish rate (12.5 percent) instead of the California rate (35 percent).

The second Irish subsidiary let other profits go to tax-free companies in the Caribbean. In addition, Ireland's treaties with Europe allowed some of Apple's profits to move through the Netherlands tax-free. This has helped Apple keep its international taxes at a low 3.2 percent last year.

Earlier this month, it was discovered that Apple made $9.5 billion in Britain last year, but only paid $15.8 million in taxes. This figure came out so low because British tax code rules exempt companies based in Ireland from paying British taxes.

"Apple, like many other multinationals, is using perfectly legal methods to keep a significant portion of their profits out of the hands of the I.R.S.," said Martin Sullivan, former Treasury Department economist. "And when America's most profitable companies pay less, the general public has to pay more."

Apple responded to the NYT article, saying that it pays an "enormous" amount of taxes and also creates jobs in California and other areas in the U.S. as well as other countries.

"Over the past several years, we have created an incredible number of jobs in the United States," said Apple in its response. "The vast majority of our global work force remains in the U.S., with more than 47,000 full-time employees in all 50 states. By focusing on innovation, we’ve created entirely new products and industries, and more than 500,000 jobs for U.S. workers — from the people who create components for our products to the people who deliver them to our customers. Apple’s international growth is creating jobs domestically since we oversee most of our operations from California. We manufacture parts in the U.S. and export them around the world, and U.S. developers create apps that we sell in over 100 countries. As a result, Apple has been among the top creators of American jobs in the past few years. 

"Apple also pays an enormous amount of taxes which help our local, state and federal governments. In the first half of fiscal year 2012 our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax."

This isn't the first time NYT targeted Apple in its reports. Back in January, NYT attacked Apple for the treatment of workers in Apple's suppliers' factories overseas. The report cited issues like long hours, lengthy overtime, and poor working/living conditions as problems occurring in factories like Foxconn, and NYT claimed Apple was doing nothing to change these issues.

Apple ended up voluntarily joining the Fair Labor Association (FLA), which offers random, rigorous inspections of company factories. The FLA ended up finding overtime/pay/safety violations at Apple's Foxconn plants in China, and it's working with Apple and the suppliers to fix it.

Sources: The New York Times, The New York Times

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Why are we mad about companys not paying taxes?
By Dr of crap on 4/30/2012 10:18:08 AM , Rating: 5
Same as GE not paying taxes.
We set up the game, We gave them the loopholes and the deductions, and then when the companys use them to NOT pay as much taxes as we THINK they should we get mad about it.

I know I use ALL deductions possible to not pay taxes.

Do you ever here anybody, or any company, say that they want to pay the govt as much taxes as they can?

By kattanna on 4/30/2012 10:23:06 AM , Rating: 4
I know I use ALL deductions possible to not pay taxes.

LOL yep.

RE: Why are we mad about companys not paying taxes?
By Schrag4 on 4/30/2012 1:16:48 PM , Rating: 1
Yes but they'll only give above and beyond if everyone else is forced to as well. I'm sick and tired of rich liberals whining that they should be paying more. Don't they know that the IRS would gladly accept any more that they pay above their "fair share?"

By Samus on 4/30/2012 2:05:26 PM , Rating: 5
As a S-corp operator, I agree corporate taxes are drafted to be as 'loopholed' as possible.

I especially love the new amendment to s-corps allowing deductible contributions to politicians to be matched 'pre-taxed' with personal contributions up to $10,000 dollars.

Basically I can give $20,000 to a politician and write off $10,000 of it from my personal income taxes, basically screwing the IRS and getting me a small favor from a politician down the road.

Who writes this stuff? Ohh...yeah....

By FITCamaro on 5/1/2012 12:19:41 AM , Rating: 2
No you hear them say they want other people to pay as much in taxes as possible. Some of the biggest liberal Democrats out there are actually tax delinquents and haven't paid their taxes.

By YashBudini on 5/6/2012 12:32:11 AM , Rating: 2
Spiro Agnew comes to mind.

By amanojaku on 4/30/2012 11:42:22 AM , Rating: 5
We set up the game, We gave them the loopholes and the deductions, and then when the companys use them to NOT pay as much taxes as we THINK they should we get mad about it.
What do you mean "we"? I didn't get a say in this, or they sure as hell would be paying their fare share of taxes. It's a shame when 20% of federal taxes comes from corporations, but 40% comes from the people's income. I'm willing to bet corporations as a whole make more money than the people, so why do the people pay more? And taxes are slanted in favor of certain types of wealth, wealth that they average person finds it almost impossible to obtain. In fact, even small businesses struggle because they are not able to get the tax exemptions and deductions that multinational corporations get. The more money you have, the easier it becomes to keep it to yourself. It's never been a better time to be rich.

RE: Why are we mad about companys not paying taxes?
By wookie1 on 4/30/2012 12:49:55 PM , Rating: 3
As a thought exercise, consider for a moment where a corporation gets its money..............

Here's a hint, the only source of income for a corporation is to sell something to you and other consumers............

If you have now figured out that YOU are actually paying the taxes because corporations have to price that into the product, and if they're not making money they go out of business, you've finally figured it out. Corporate taxes are another way for the government to tax you more without you realizing it. Just another stealth tax.

RE: Why are we mad about companys not paying taxes?
By Akerans on 4/30/2012 3:01:11 PM , Rating: 5
Using that logic.

Since corporations pay your salary, then corporations are paying your taxes.

By wookie1 on 5/1/2012 2:02:16 PM , Rating: 2
No, using that logic, consumers are paying my taxes. Corporations only have money because consumers buy their product/service.

By Solandri on 4/30/2012 3:16:44 PM , Rating: 5
Whether the corporation or individual pays taxes is irrelevant. Money is just a representation of productivity. The only sources of productivity in a corporation are individuals. So in the end, all taxes are paid by individuals. Either directly via income taxes, or indirectly via lower wages or higher prices.

What taxing a corporation does is hide the actual tax burden. Instead of knowing 30%-35% of your work goes to pay taxes, you only see taxes of 15%-20%. The remaining 10%-20% gets siphoned off through depressed wages and higher prices. Your anger thus gets deflected at the "evil corporation" instead of at the government. And your ability to decide whether or not a government program is really worth it is impaired.

I don't have a problem with using taxes to promote/ dissuade certain types of behaviors (whether individual like sin taxes, or corporate like a higher capital gains tax on investments less than 1 year). But people have got to stop thinking of this as us vs. them. The global economy is a closed system - shifting taxes to corporations does not magically give individuals more money to spend. If the world's governments take 30% of the world's GDP, the average person is going to be directing 30% of his productivity into the government's coffers regardless of where the taxes fall.

By zozzlhandler on 4/30/2012 8:35:40 PM , Rating: 1
The only sources of productivity in a corporation are individuals.

This is a Marxist idea (and I mean that literally, not as an insult) and it is wrong. Robotics and machinery to not contribute to productivity? They absolutely *do* contribute.

By Reclaimer77 on 4/30/2012 8:40:48 PM , Rating: 2
A corporation built those robots and machines. Hundreds more build the components for said robots and machines. So ummm, yeah, think it over.

By FITCamaro on 5/1/2012 12:24:37 AM , Rating: 2
To build on Reclaimers reply, who runs and oversees those robots? People.

Your statement that individuals being the productive source of a corporation is a Marxist idea is blatantly false. Marxism focuses on the collective, not the individual. The individual is supposed to give up their rights for the good of everyone else. A corporation may be a group of individuals working towards a common goal but no one is there by force. You can quit a job any time you want.

By Just Tom on 5/5/2012 8:51:01 AM , Rating: 2
Actually, believing individuals are the productive source of corporations is Marxist. Read up on Marx's Labor Theory of Value, the concept is pretty simple. It is also completely wrong, but Marx was good at being wrong.

By FITCamaro on 5/1/2012 12:21:21 AM , Rating: 2
BS. You do get a say in who you vote for for your representative and Senators. Part of that whole constitutional republic with a democratically elected Congress thing.

RE: Why are we mad about companys not paying taxes?
By Boze on 4/30/2012 11:59:01 AM , Rating: 3
A tax on a corporation is just an additional tax on everyone in the country, state, parish, county, city, etc. in which that corporation does business.

Corporations are made up of people. If people (corporations) can offset the additional costs of doing business (read: taxes), then they'll do so by increasing the price of their goods or services.

Its pretty amazing that the New York Times' writers don't understand this. Evading taxes allows a company to lower its prices on good, especially if its a competitive marketplace, like say... smartphones and tablets. OR it allows the company to produce better earnings and higher values for shareholders. Both of which are GOOD for the country in which they operate.

Unless, of course, they operate in a highly socialist country where the government is willing to tax the hell out of everything in order to buy the votes of those that are receiving the entitlement checks. After all, if someone's threatening your Lincoln Navigator with 24" rims with repossession, that's something you'd likely want to know about, so you can vote for the candidate / party that says, 'Don't worry, I'll keep the checks coming!'.

RE: Why are we mad about companys not paying taxes?
By wookie1 on 4/30/2012 12:51:11 PM , Rating: 2
The NYT has a narrative to support. Do you really expect anything else?

By FITCamaro on 5/1/2012 12:25:56 AM , Rating: 2
Pretty much. Its the New York Times. They're liberal to the core. Of course they're going to attack corporations. Where's their write up on GE though? Doesn't exist. Why? Because GE is another organization controlled by liberals. One's with close ties to the President.

By chripuck on 4/30/2012 1:11:51 PM , Rating: 3
The problem is the inter-dependency of multiple taxing entities. It's the fact that they are operating outside the spirit of the law that's the issue.

Fact of the matter is I can't say I earned wages in Tennessee (which has no income tax) while living and working in Atlanta. Meanwhile Apple is exactly able to do that.

By RedemptionAD on 5/1/2012 7:21:34 PM , Rating: 2
I now think that since a buiness is made up entirely of people that actually pay tax and a business is an inanimate object, the business itself should pay no tax.

The tax code should be reworked so that unique specialty loopholes are removed for personal taxes, and business owners are taxed at the personal taxes format, not the business one. I can only see about 3 actual excemptions that need to exist, homeowners, children, retirement accounts, a bounus one would be a fit american credit for below 21%/25% M/F Body fat % (which I have some actual science to prove it won't cause mass eating disorders, while giving people a reason to not be extremly unhealthy).

A 20% flat tax should be enacted and the majority of americans will see their taxes fall, while due to an average effective tax for the wealthy of 15-18% theirs will go up, increasing general revenue for the government, while decreasing reasons for businesses to use these crazy loopholes that keep money out of where it is actually owed.

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