Apple Saves Billions in Taxes Through Creative Accounting, Report Claims

Following the year’s earlier reports on Foxconn and on Apple’s practice of sending manufacturing overseas, The New York Times publishes an article that claims Apple has been a pioneer in developing ways to sidestep taxes.

Charles Duhigg of the New York Times has written another extraordinary article about Apple, this time focused on the heroic lengths Apple has gone to to avoid paying taxes to governments around the world. Photo: Trioptikmal/Flickr

Gadget giant Apple is avoiding billions of dollars in taxes by setting up small offices around the world to collect and invest the company’s profits, according to The New York Times. The reports claims that Apple has avoided millions of dollars in taxes in California and 20 other states.

Yahoo! says that an office in Reno, Nevada, where thecorporate tax rate is zero, was one of many that the California-based technology giant uses to legally sidestep state income taxes on some of its gains. Meanwhile, California’s corporate tax rate is 8.84 percent.

According to The New York Times, Apple has also created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.

The reports says that the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent.

At the same time, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

“Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean,” says the NYT’s Charles Duhigg and David Kocieniewski.

“Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.”

The report claims, Apple has been able to “allocate about 70 percent of its profits overseas,” though “the majority of Apple’s executives, product designers, marketers, employees, research and development, and retail stores are in the U.S.”

Robert Hatta, who used to oversee Apple’s iTunes retail marketing and sales for European markets until 2007, said routing transactions through Luxembourg allowed them to be taxed at low rates.

“We set up in Luxembourg because of the favorable taxes,” Hatta told the Times.

“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.”

In response to the New York Times report, according to the Venture Beat, Apple Inc. issued the following statement to the paper:

“Over the past several years, we have created an incredible number of jobs in the United States. 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,” the statement says.

“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,” Apple said in the statement.

CNN writes that this is the third time the New York Times has used Apple Inc. as a lens to examine the inner workings of what it calls the iEconomy.

The first dealt with the exportation of manufacturing jobs from the U.S. to Asia. The second focused on working conditions in the Chinese factories that assemble most of the world’s electronic devices.

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