How does Apple avoid paying taxes?
Apple Inc. has been accused of not paying U.S. taxes on over $44 billion in income over the past three years. During that period, the $415 billion company used a sophisticated tax avoidance scheme that revolved around three offshore subsidiaries to hide income from the U.S. government – and ended up paying less than 2% to Uncle Sam.(i)
Corporate tax evasion is not new. A recent study by the research firm Audit Analytics estimated that U.S.-based multinational corporations have greater than $1.9 trillion hidden in offshore tax havens, and profits offshore have grown by 70% over the past five years.(ii) These legal tax evasion tactics are a considerable reason that corporate income tax now makes up only roughly 9% of federal revenue.(iii)
A recent study performed by Citizens for Tax Justice and the Institute on Taxation and Economic Policy found that U.S. corporations pay approximately 18.5% in income tax, barely more than half of the 35% they should be paying. The study also found that 30 of the largest U.S. corporations with an estimated $160 billion in income paid nothing in U.S. income taxes,(iv) but Apple is one of the worst offenders.
According to another report conducted by Citizens for Tax Justice, Apple has over two-thirds of its profits (roughly $102 billion) in three offshore subsidiaries that claim to be residents of no country.(v) In fact, based on a report by the U.S. Public Interest Research Group, Apple has the second largest amount of income hidden offshore.(vi)
At a recent U.S. Senate Subcommittee on Investigations hearing that focused on Apple’s tax evasions practices, the members stopped short of saying Apple has done anything illegal, but scolded Apple’s CEO Tim Cook for his company’s shady tax avoidance practices.
Apple’s tax evasion scheme involves subsidiaries that are incorporated in Ireland. The company claims that these three ghost companies, for tax purposes, exist nowhere. Apple shifts large portions of its income into these subsidiaries to ensure the company will not have to pay its fair share in U.S. income tax. This well-thought out charade saves Apple in the range of $10 billion a year in U.S. income taxes.(vii)
Apple and their executives claimed they do pay taxes, even though comparatively small, but both the subcommittee chair Senator Carl Levin (D-Mich) and the subcommittee’s highest-ranking Republican Senator John McCain (R-Ariz) painted a picture of what Levin described as a “highly-developed tax avoidance system.”(viii)
Senator Levin pointed out the estimated $9 billion in income tax that Apple avoided paying in 2012, and claimed that Apple “sought the holy grail of tax avoidance.”(ix)
Senator McCain discussed two of Apple’s three offshore subsidiaries, Apple Operations International (AOI) and Apple Sales International (ASI), which included the following facts:
- AOI received $30 billion in dividends from other Apple subsidiaries around the world between 2009 and 2012, but paid no income tax anywhere in the world and has never had any employees.
- ASI had $22 billion of income in 2011, but paid only one-twentieth-of-one-percent of Irish taxes and had never had an employee through 2011.(x)
Apple contends that its offshore subsidiaries do not alter its U.S. tax liability by one percent, which Senator McCain and Senator Levin disagreed with. Tim Cook candidly told the Subcommittee in a pre-hearing statement that Apple had no immediate plans to repatriate the corporation’s foreign cash and that “Apple complies fully with both the laws and spirit of the laws. And Apple pays all its required taxes, both in this country and abroad.”(xi)
Apple pays under 2% of what is owed. It is quite clear that Apple has no interest in paying its fair share, but would rather continue to take advantage of the American tax system’s loopholes, while outsourcing a considerable amount of jobs.
Until Apple and the other corporations that hide income from Uncle Sam pay the income tax that is actually required by law, more pressure will continue to be placed on the backs of consumers to make up the difference.
Also see:
• Apple: A rotten core under a polished brand image
• Apple: Enemy of consumer privacy
• Apple’s disregard for consumer privacy – a consistent policy
• Why are we supporting Apple’s sweatshops?
• Poverty-level wages for Apple store employees
• Apple’s ebook price fixing
• Apple: Using secret police as personal patent enforcers
• Apple and the NSA: Violating American citizens’ privacy
• Apple earned the title of “least green” tech company
• When will the golden Apple fall?
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(i) “Memorandum: Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.).” Senate Permanent SubCommittee on Investigations. May 21st, 2013. www.levin.senate.gov/download/exhibit1a_profitshiftingmemo_apple
(ii) “U.S. Companies’ Offshore Earnings Hit Record $1.9 Trillion: Study.” Huffington Post. May 8th, 2013. https://www.huffingtonpost.com/2013/05/08/us-offshore-earnings-hit-record_n_3239556.html
(iii) Statement of Senator Carl Levin (D-Mich) Before U.S. Senate Permanent Subcommittee on Investigations Hearing on Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.). May 21st, 2013. https://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-and-the-us-tax-code_-part-2
(iv) “Report: 280 Most Profitable U.S. Corporations Shelter Half Their Profits from Taxes; Thirty Companies Paid Less Than Zero in Taxes In The Last Three Years.” Citizens for Tax Justice and the Institute on Taxation and Economic Policy. November 3rd, 2011. https://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersPR.pdf
(v) “Apple Holds Billions of Dollars in Foreign Tax Havens.” Citizens for Tax Justice. May 20th, 2013. https://ctj.org/ctjreports/2013/05/apple_holds_billions_of_dollars_in_foreign_tax_havens.php#.UfrWSazdeHe
(vi) “Offshore Shell Games: The Use of Offshore Tax Havens by the Top 100 Publicly Traded Companies.” USPIRG. July 31st, 2013. https://www.uspirg.org/reports/usp/offshore-shell-games
(vii) “Memorandum: Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.).” Senate Permanent SubCommittee on Investigations. May 21st, 2013. www.levin.senate.gov/download/exhibit1a_profitshiftingmemo_apple
(viii) Statement of Senator Carl Levin (D-Mich) Before U.S. Senate Permanent Subcommittee on Investigations Hearing on Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.). May 21st, 2013. https://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-and-the-us-tax-code_-part-2
(ix) Ibid.
(x) Statement of Senator John McCain (R-Ariz) Before U.S. Senate Permanent Subcommittee on Investigations Hearing on Offshore Profit Sharing and the U.S. Tax Code – Part 2 (Apple Inc.). May 21st, 2013. https://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-and-the-us-tax-code_-part-2
(xi) Statement of Apple CEO Tim Cook at U.S. Senate Permanent Subcommittee on Investigations Hearing on Offshore Profit Sharing and the U.S. Tax Code – Part 2 (Apple Inc.). May 21st, 2013. https://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-and-the-us-tax-code_-part-2