NYT Accuses Apple of Dodging Billions in Taxes, Apple Denies Claims
April 30, 2012 9:14 AM
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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.
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
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
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
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
targeted Apple in its reports. Back in January,
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
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.
The New York Times
The New York Times
This article is over a month old, voting and posting comments is disabled
Where's the sharholder outrage?
5/1/2012 2:31:13 PM
Apple rakes in billions in profits and hordes it overseas in various accounts so it avoids paying taxes. OK, that's legal and I understand why they do it. But why do the shareholders put up with it? It's not Apple's money, it's the
money. If I were an Apple shareholder, I'd rather have 65 cents of a dollar dividend (the other 35 cents going to taxes) than zero cents of a dollar sitting in the Cayman Islands.
"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer
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