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Apple does not count foreign tax savings in its reported profits

Whether you're voting for Romney or Obama tomorrow, neither candidate comes close to offering a tax rate sweet enough to sate the appetite of Apple, Inc. (AAPL), the world's most profitable technology company, and most valuable firm in terms of present market capitalization.

In 2011, Apple made a fortune on foreign earnings, paying a lowly 2.5 percent on the $25B USD it earned outside the U.S.  Financial documents filed last week indicate that the company's fiscal year, which concluded in September, saw an even bigger revenue boom outside the U.S.

Apple in calendar Q4 2011-Q3 2012 paid a mere 1.9 percent in foreign taxes, while ballooning foreign earnings to $36.8B USD.  That's a pretty hefty sum considering Apple's full-year reported earnings were $41.7B USD on revenue of $156.5B USD.

Here's where things get a little confusing.  The $41.7B USD is a post-tax figure that assumes Apple's effective U.S. tax rate extends to its foreign earnings.  Apple is currently hoarding that cash overseas -- an estimated $82.6B USD, but it breaks from some in not reporting all of it as earnings.  

It also has avoided spending the massive profits, gained by using tax shelters like the Cayman Islands, Ireland, and small European tax-haven nation states.  It is estimated that Apple's decision not to include the tax-sheltered earnings in its bottom line cost it an extra $10.5B USD of profits (on paper, at least) over the last three years).

Apple money
Apple paid less than 2 percent in taxes on its overseas earnings.
[Image Source: SomanyMP3s]

Apple's decision to not report the gains as profits is interesting, and perhaps a reflection that Apple believes that the U.S. government will eventually force technology companies to "pay up" amid growing scrutiny of corporate tax sheltering practices.

Apple, which almost exclusively manufacturers its products in China, is not alone in its smart-sourcing of profits to tax shelters and manufacturing to cheap Asian labor sources.  Google Inc. (GOOG), Apple's perennial smartphone foe has engaged in similar practices, although not to such a massive extent.

The on-paper general corporate tax rate in the U.S. is 35-percent, however, that figure is misleading as the complex U.S. tax code typically leaves a wealth of loopholes available for big businesses to lower their rates.  With loopholes considered, the average for Fortune500 tech companies is around 16 percent [source].

Apple does indirectly contribute a great deal to the U.S. economy, directly and indirectly creating 304,000 U.S. jobs, plus an additional 210,000 U.S. iOS developer jobs.

Source: Daily Mail



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Real tax rate
By melgross on 11/5/2012 12:16:22 PM , Rating: 0
Apple reported a US tax rate of over 25% for the year. As over 60% of its sales are out of the country, those profits are as well. We can look to every company whose sales are not in the US as doing the very same thing, such as Microsoft. Most of these companies would love to bring much of that money back to the US, but tax policy makes it very expensive.

Business and the Republican Party want corporate rates to drop to 25% from the nominal 35% of today, as 25% is the typical rate for most foreign countries. But they don't want the loopholes that exist today to be closed at the same time. Foreign countries (those that aren't much more corrupt than the US) have few loopholes. As Apple pays that 25% here now, I see no real problem. What they do elsewhere, if legal, can't be complained about.

After all, the nominee of the Republican Party has most of his money in foreign country tax shelters.




RE: Real tax rate
By JohnThacker on 11/5/2012 4:04:48 PM , Rating: 2
Except that individuals *do* owe taxes on foreign held income, unlike corporations (as long as it's reported to the IRS). Romney pays taxes on all the foreign held assets that we know about. The only ones he's not paying taxes on are any that we don't about it, if they exist.

Some corporations do pay the high tax rate. Among those are retaliers, like WalMart, and insurance companies (since insurance companies are charted and regulated state-by-state, they can't move cash around like tech companies.) Exxon pays fairly high taxes as well.

It's not all corporations; tech companies are actually the worst on this.


RE: Real tax rate
By Ringold on 11/5/12, Rating: -1
"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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