Print 62 comment(s) - last by YashBudini.. on May 6 at 12:32 AM

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

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

RE: Mo Money, mo less tax bracket
By Solandri on 4/30/2012 4:06:21 PM , Rating: 2
Romney and Buffet are pretty much exceptions to the norm. Even the 15% capital gains tax rate is pretty high. To get an effective Federal tax rate of 15% using only the standard deduction and no tax credits, you need an income of around $50k. But add in itemized deductions and credits, and the average American paying 15% makes about $150k (Buffet's secretary made a bit more than that).

There's an inversion above $5 million. Those making $5+ mil on average pay less than those making $2-$5 mil, and those making $10+ mil on average pay less than those making about $600k. That's where the Buffet rule would really help. But on average those in Romney's and Buffet's income bracket pay a heckuva lot more taxes (as a percentage) than you and I do; nowhere near as low as 15%.,...
2009 figures, column T:

4.8% = $1 - $4,999
2.6% = $5,000 - $9,999
2.3% = $10,000 - $14,999
3.0% = $15,000 - $19,999
4.5% = $20,000 - $24,999
5.4% = $25,000 - $29,999
6.0% = $30,000 - $39,999
6.8% = $40,000 - $49,999
7.7% = $50,000 - $74,999
8.5% = $75,000 - $99,999
11.9% = $100,000 - $199,999
19.6% = $200,000 - $499,999
24.4% = $500,000 - $1 million
25.3% = $1 million - $1.5 million
25.6% = $1.5 million - $2 million
25.8% = $2 million - $5 million
25.4% = $5 million - $10 million
22.6% = over $10 million

In general, it's a bad idea to decide policy based on exceptions. e.g. Raise taxes on rich people because those two guys paid so little tax. You should instead concentrate on laws making the exceptions conform with the average.

If you're middle to lower-upper class and paying a high effective tax rate, you are most likely single and renting. The home mortgage deduction is the biggest tax break there is, and being able to spread one person's income across two people for tax purposes helps tremendously. It has very little to do with rich people (on average) not paying their fair share.

RE: Mo Money, mo less tax bracket
By Reclaimer77 on 4/30/2012 6:11:32 PM , Rating: 1
Actually Buffet is a liar who pays something in the order of a 40% tax rate. In fact he's paying so much in taxes he's currently SUING the IRS because he thinks he should pay less lol.

The man is a hypocrite and a lying shill for Obama.

The "Buffet Rule" is based on total, and easily disproved, lies. It's class warfare election year rhetoric, and the man it's named after is damn well aware of it. He knows that he's paying FAR more than 15%.

Not to mention the "Buffet Rule" is NOT a serious response to budgetary problems. It's projected to raise $40 billion more over 10 years, big deal. In ten years we'll add $16 TRILLION to the debt. Hello?

RE: Mo Money, mo less tax bracket
By ritualm on 4/30/2012 8:15:59 PM , Rating: 2
Hold it right there, hot shot. NetJets suing the IRS for being overcharged in excise taxes = Buffett suing the IRS? What left-field BS is this?

Not to mention this guy has more foresight than the rest of the market. The Oracle of Omaha > Reclaimer77.

RE: Mo Money, mo less tax bracket
By Reclaimer77 on 4/30/2012 8:30:22 PM , Rating: 2
What's the difference? If he really believed that he's not "paying enough taxes", there wouldn't be this lawsuit. He's full of it.

Warren Buffet isn't a person. Get that out of your head. Warren Buffet is a giant multimillionaire entity. If one of his businesses sues the IRS, then HE is suing them for all intents and purposes. If the IRS sues a subsidiary for dodging taxes, then HE is a tax dodger.

The line is so grey here I'm amused you're even able to attempt to toe it.

RE: Mo Money, mo less tax bracket
By room200 on 4/30/12, Rating: 0
RE: Mo Money, mo less tax bracket
By ritualm on 5/1/2012 4:00:06 PM , Rating: 1
Wow, you're too dense.

There is a very clear difference between "not paying enough taxes" and being overcharged on tax assessments:
The Internal Revenue Service improperly assessed the so- called ticket tax, an excise tax on payments made in exchange for air transportation, NetJets said in its complaint in federal court in Columbus, Ohio, dated Nov. 14.

NetJets seeks a refund and abatement of the ticket tax. The company claims in its suit that Congress intended the tax to apply to passengers who use commercial or charter aircraft owned by others.

“The ticket tax was not intended to apply to private aircraft owners and the fees they pay to maintain and operate their aircraft,” NetJets said in the complaint.

NetJets also claimed that the IRS didn’t provide any guidance about the types of fees for which the company would have to collect the ticket tax from passengers.

Last year I was hit with a customs import tax of $420 (plus $30 non-refundable post office handling fee) on the basis I imported $17,000 worth of audiovisual goods. There was one problem: the total value of the imported goods was $170. I had to get the parcel reassessed; customs eventually refunded $380 of it back.

Warren Buffett isn't a person? Google disagrees with you:

Warren Buffett did say the rich people in America were not paying enough taxes. But corporations are not persons, they are entities. Corporations don't breathe, drink, eat, commute to work etc. Corporations and companies don't get taxed at the same rates and tiers as individuals.

Everything you replied was wrong, and you didn't even read the very article you linked. Way to go, douche.

"Vista runs on Atom ... It's just no one uses it". -- Intel CEO Paul Otellini

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki