Apple Inc. has managed to keep billions of dollars in profit in Irish subsidiaries due to a special global tax structure. This structure helped the company to cut down tax payment and even to avoid any payment to any government, a Senate report on the company’s offshore tax structure said on Monday.
Now the Apple chief executive is to be asked to justify why his company reports a 25.2 per cent tax rate, yet pays 15 per cent to the US authorities and then sets aside additional cash for possible future tax liabilities.
The Apple chief executive is likely to use his appearance to call for a “dramatic simplification” of America’s tax laws.
He is expected to petition Senators for a reduction in the levy when he is due be grilled by about the way Apple has moved profits overseas.
The Senate investigation, results of which were disclosed Monday, found Apple employs a group of affiliate companies outside the United States to avoid paying taxes.
The maker of iPhones and iPads used at least three foreign subsidiaries that it claims are not “tax resident in any nation” to help it avoid paying billions in “otherwise taxable offshore income,” the Senate Permanent Subcommittee on Investigations said in a statement today.
The main subsidiary, a holding company that includes Apple’s retail stores throughout Europe, has not paid any corporate income tax in the last five years.
The subsidiary, which has a Cork, Ireland, mailing address, received $29.9 billion in dividends from lower-tiered offshore Apple affiliates from 2009 to 2012, comprising 30 percent of Apple’s total worldwide net profits, the report said.
“Apple has exploited a difference between Irish and U.S. tax residency rules,” the report said.
The iPhone-maker has $102.3billion in cash outside the US. To pay a dividend, Apple is borrowing $17billion at home rather than risk huge tax bills, which could be up to $9billion, by bringing its foreign money into the USA.
Jobs, who the company said never testified on Capitol Hill, kept Apple’s annual lobbying spending below $2 million most years and its influence more behind the scenes, reports Bloomberg.
Under Cook, Apple recently hired as a lobbyist Jack Krumholtz, who founded Microsoft Corp. (MSFT)’s Washington office in 1995.
Apple’s lobbying bill rose in the first quarter of 2013 to $720,000 from $500,000 in the same period of 2012, according to filings. That’s still less than the $2.5 million Facebook Inc. (FB) spent in the quarter or Google Inc. (GOOG)’s $3.4 million.
According to Time, the strategies Apple uses are legal, and many other multinational corporations use similar tax techniques to avoid paying U.S. income taxes on profits they reap overseas. But Apple uses a unique twist, the report found. The company’s tactics raise questions about loopholes in the U.S. tax code, lawmakers say.
“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” Senator Carl Levin said in today’s statement.
“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.”
He continued: “We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed.”
Tuesday’s hearing is the second to be held by Senator Carl Levin, a Michigan Democrat and chairman of the subcommittee, to shed light on the weaknesses of the U.S. corporate tax code. Levin has sought to overhaul the code in Congress.
However, Apple said in a comment posted online on Monday it does not use “tax gimmicks.” It said the existence of its subsidiary “Apple Operations International” in Ireland does not reduce Apple’s U.S. tax liability and the company will pay more than $7 billion in U.S. taxes in fiscal 2013, informs Reuters.