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  (Source: todaysiphone.com)
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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RE: Nothing to see here
By acer905 on 4/30/2012 12:46:23 PM , Rating: 2
As far as I am concerned, kill every tax law in existence and replace it with just two sentences. Businesses pay 15% of all profit earned, regardless of where. Individuals pay 15% sales tax on all items purchased, regardless of where.

No income tax
No deductions
No tax credits
Nothing but a simple, flat rate, based on whether you are a consumer (person) or producer (business)


RE: Nothing to see here
By chripuck on 4/30/2012 1:17:34 PM , Rating: 2
And if a company operates out of 6 countries and they all adopt the same rule the company would pay 90% of it's profits to those 6 countries. Heaven forbid they sell in a 7th country.


RE: Nothing to see here
By SoCalBoomer on 4/30/2012 4:52:03 PM , Rating: 2
You're mis-reading it.

The tax would be applied at the same rate in each country or state. So money made in the UK would be taxed and paid to the UK; money made in the USA would be taxed by and paid to the USA/IRS; etc.

That's what he's saying.


RE: Nothing to see here
By Lochness22 on 4/30/2012 1:31:10 PM , Rating: 2
Congrats, you just killed the economy with your 15% sales tax.

I'm for more of a flat tax system, but nothing is this simple. Nothing.

There are many good reasons for people to not pay federal taxes but the best one is if they can barely afford rent and food. Increasing the tax on poor people will just create more poor people.


RE: Nothing to see here
By acer905 on 4/30/2012 6:21:19 PM , Rating: 2
Honestly, the argument that a flat tax is worse for poor people is simply getting old. If you earn the federally mandated minimum wage, $7.25 per hour, and work a full 40hr work week all year, you earn $15,080 in a year. The 2012 poverty line for a person in the lower 48 states is $11,170. IF everything that person purchased was taxed at 15%, and no income tax was applied, that would be $12,818 net. $1,648 higher than the poverty line. For a minimum wage job. Anyone who can only hold a minimum wage job and has any significant debt, apart from possibly a house and car payment, has other problems.

If anything the people with money would be hurt the most, as often there are caps to tax rates. You simply cannot be taxed over a certain income. Specifically, with regards to the current taxation for Social Security, any wages over $110,100 are not taxed. Make a million in a year? Its okay, we'll just tax the first hundred thousand. Switch to a flat tax and remove that limit and Social Security would gain $54,513.(Assuming the current 6.2% rate, the taxable portion of the cap is only $7,486.8, instead of the 62,000 that it should be.)

And, even if all that still makes you scream out about the "poor people" then simply add up the combined taxes that a person pays who is considered poor, and make that the flat tax rate. Even then, the taxed income would probably increase due to the elimination of loopholes for the excessively wealthy, and likely those in the middle class would pay a lower tax rate as well.


RE: Nothing to see here
By ilt24 on 4/30/2012 2:18:57 PM , Rating: 2
quote:
Businesses pay 15% of all profit earned, regardless of where.


If this was the tax law in 7 different countries a company did business in, what would their tax rate be?


RE: Nothing to see here
By Kurz on 5/1/2012 10:19:37 AM , Rating: 2
The Sphere of Influence is only within the USA.
You cannot tax someone for their economic activity in another country. Soverignty comes to mind.

a 1% Sales tax is all that is needed. Though Everyone pays the tax regardless if you are a business or a individual. You'll generate enough revenue I assure you (Many articles on this)

Stop taxing income since the person paying that tax is going to try to find a way to get out of it. You are moving the burden of taxing away from the individual.

If you are at poverty level you can have a tax free card of some sort.


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