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Apple: The Largest Tax Payer In The US

Freemont Group
05 June, 2013

The American company Apple, currently considered the most valuable company in the world, uses a network of subsidiaries located in Ireland, in order to avoid paying U.S. income taxes on billions of dollars. Thus the conclusion of a report prepared by the Permanent Investigation Subcommittee of the U.S. Senate.

The way Apple is structured is perfectly legal and is being used by many other multinational companies, the legislatures were yet ‘surprised’ that for this purpose, Apple has created a ‘too complex network of companies.’

Apple chief executive Tim Cook will be explaining it to the Senate next week [May 28]. Cook will be accompanied by the CFO of Apple and they will attempt to explain the tax strategy of the company. Apple has already stated that no tax tricks are being used, but a network of companies that the company has created to reduce its tax liability. This led the legislators to question the effectiveness of the U.S. tax system.

According to the said report, out of Apple’s total cash of $ 145 billion, about $ 102 billion is held overseas. In 2011, the Irish subsidiary of Apple earned $ 22 billion, but the taxes paid amounted only ten million U.S. dollars. In that context, Senator John McCain pointed out that although Apple is the largest taxpayer in the U.S., it also belongs to the largest tax avoiders.

The tax strategy of Apple is the center of attention, especially at the time of feverish debate about whether and how to increase the revenues of the state budget. Many U.S. Democrats believe that the government is failing to collect billions, as many U.S. companies are hiding profits overseas and avoid paying taxes. Republicans demand reduction of the corporation tax rate to 35 percent and reduction of the tax burden on money that U.S. companies earn abroad. According to them, such measures would stimulate firms to invest at home.

Apple has made it clear that, given the current tax policy in the United States, it has no interest to transferring profits to the USA from abroad. The report stated that due to its strategy, Apple did not pay at least $ 3.5 billion in 2011 and nine billion dollars in the US last year. In 2011, the company paid in the U.S. $ 2.5 billion on taxes and last year six billion.

For its fiscal strategy Apple uses five companies in Ireland. These firms have the same address in Cork and the same board members. In Ireland, all five are entered in the Commercial Register but only two of them are subject to tax in Ireland.

Just like other multinationals (Microsoft, Hewlett-Packard,…) , Apple uses the difference between the tax laws in the USA and Ireland. In Ireland, the company pays tax in case the management and control is located there while under the U.S. law, the company is a taxpayer in the country where it was established. So Apple is not a tax resident in Ireland nor in the USA.

For that reason, a holding company of the Apple retail stores in Europe, did not pay corporate tax for at least five years.



About the Author

Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com


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