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Apple's 'Complex Web' Helped It Avoid Taxes, Panel Finds

by Krishnadev Calamur
May 20, 2013

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Krishnadev Calamur

Tech giant Apple used a "complex web of offshore entities" to avoid paying billions of dollars in taxes in the U.S., a congressional investigation has found.

In a statement Monday, the Senate Permanent Subcommittee on Investigations said:

"Apple's claim[ed] ... three key offshore companies are not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies. One of those Irish subsidiaries has paid no income taxes to any national tax authority for the past five years."

"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven," said Sen. Carl Levin, D-Mich., who chairs the panel. "Apple sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere."

The Senate subcommittee holds a hearing Tuesday on the company's practices.

Sen. John McCain, the panel's ranking member, called Apple "among America's largest tax avoiders."

The subcommittee's statement detailed some of Apple's practices:

"Apple established at the apex of its offshore network an offshore holding company that it says is not tax resident in any nation. That subsidiary, Apple Operations International, has no employees and no physical presence, but keeps its bank accounts and records in the United States and holds its board meetings in California. It was incorporated in Ireland in 1980, and is owned and controlled by the U.S. parent company, Apple Inc. Ireland asserts tax jurisdiction only over companies that are managed and controlled in Ireland, but the United States bases tax residency on where a company is incorporated. Exploiting the gap between the two nations' tax laws, Apple Operations International has not filed an income tax return in either country, or any other country, for the past five years. From 2009 to 2012, it reported income totaling $30 billion."

Another example offered by the panel:

"A second Irish subsidiary claiming not to be a tax resident anywhere is Apple Sales International which, from 2009 to 2012, had sales revenue totaling $74 billion. The company appears to have paid taxes on only a tiny fraction of that income, resulting, for example, in an effective 2011 tax rate of only five hundreds of one percent. The third Irish subsidiary is Apple Operations Europe. In addition to creating non-tax resident affiliates, Apple Inc. has utilized U.S. tax loopholes to avoid U.S. taxes on $44 billion in otherwise taxable offshore income over the past four years, or about $10 billion in tax avoidance per year."

Levin and McCain plan to issue a 40-page memorandum with findings and recommendations Tuesday. Among those testifying at the hearing are Apple CEO Tim Cook and other top executives at the company.

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