Apple pioneered tax avoidance tactics, report claims

A new report claims Apple pioneered ways to pay as little tax as possible, thanks to outmoded tax regulations.

An in-depth report in the New York Times claims that Apple pioneered ways to pay as little tax as possible. It also says that technology companies are uniquely placed to take advantage of outmoded tax laws that haven't kept up with today's digital products.

Apple, for example, set up a small office in Reno -- just 200 miles from its Cupertino headquarters -- to collect and invest its profits. Why? Well it wasn't just because Tim Cook loved the biggest little city in the world. It's because Nevada's corporate tax rate is zero, compared to California's 8.84 per cent.

Indeed, the report claims Apple would have paid $2.4bn more in federal taxes in the US last year, had it not used these strategies. Just think of all the MacBooks you could buy with that.

The company allocates about 70 per cent of its profits overseas, according to the report. This is through use of techniques such as the "Double Irish With a Dutch Sandwich." And no, it's nothing rude.

Basically, it involves reducing tax by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Hundreds of companies now use it, apparently. Apple also designates overseas salespeople in high-tax countries, letting them sell on behalf of low-tax subsidiaries on other continents, handily side-stepping income taxes.

Of course there's nothing new about companies wanting to reduce their tax bills. But tech companies are uniquely placed, thanks to selling digital products like MP3s.

An Apple subsidiary in Luxembourg means anything downloaded from iTunes by people in Africa, Europe and the Middle East is recorded as being sold in Luxembourg. And Luxembourg has promised discounted taxes to Apple and other tech companies for setting up there, so both parties win.

"We set up in Luxembourg because of the favourable taxes," said Robert Hatta, who oversaw iTunes retail marketing and sales in Europe until 2007. "Downloads are different from tractors or steel because there's nothing you can touch, so it doesn't matter if your computer is in France or England. If you're buying from Luxembourg, it's a relationship with Luxembourg."

Ker-ching.

It's an interesting read. Obviously not everyone is in favour of Apple's tax techniques, but there's not much they can do. As Brian Murphy, the De Anza college president says: "When it comes time for all these companies -- Google and Apple and Facebook and the rest -- to pay their fair share, there's a knee-jerk resistance. They're philosophically antitax, and it's decimating the state.

"Not that I'm complaining," he added. "We can't afford to upset these guys. We need every dollar we can get." 

You can read the whole report here.

If you're wondering about Apple's response, it's issued a statement saying its "international growth is creating jobs domestically, since we oversee most of our operations from California." It also pointed out that the vast majority of its workforce remains in the US, with more than 47,000 employees, and that it donates to charities without seeking publicity for doing so. 

Do you think the rules should be changed for tech companies? Let me know in the comments, or on our Facebook page.

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About the author

    Joe has been writing about consumer tech for nearly seven years now, but his liking for all things shiny goes back to the Gameboy he received aged eight (and that he still plays on at family gatherings, much to the annoyance of his parents). His pride and joy is an Infocus projector, whose 80-inch picture elevates movie nights to a whole new level.

     

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