Senate report: Apple claims subsidiaries with no taxing jurisdiction

Apple avoids paying billions of dollars in taxes a year through a 'complex web' of offshore entities, the report says

By , IDG News Service |  IT Management

Apple has set up three foreign subsidiaries that the company claims are not resident in any nation for taxing purposes, in an effort to avoid paying tens of billions of dollars in taxes to the U.S. and other countries, according to a new report from a U.S. Senate subcommittee.

Apple has set up a "complex web" of offshore entities to avoid paying taxes, with some subsidiaries set up in low-tax Ireland, according to a report released Monday by the investigations subcommittee of the Senate Homeland Security and Governmental Affairs Committee.

One of the subsidiaries set up by Apple has paid no corporate income tax to any nation for the past five years, although it reported US$30 billion in net income from 2009 to 2012, the report said. Another subsidiary has paid a tax rate to Ireland of one-tenth of 1 percent or less in 2009, 2010 and 2011, far below the normal Irish corporate income tax rate of 12 percent, according to the subcommittee report.

Apple has negotiated an income tax rate of less than 2 percent with the Irish government, but in some cases, avoids paying even that rate, staffers said.

Subcommittee staffers did not accuse Apple of illegal actions during a briefing Monday, but said they have never seen another corporate tax-avoidance setup like Apple's offshore efforts. Apple's use of "invisible" offshore companies was surprising to the subcommittee staff, they said.

Apple avoids paying taxes by shifting intellectual property largely developed in the U.S. to Irish subsidiaries, which pay far less than it's worth, said Senator Carl Levin, the subcommittee chairman and a Michigan Democrat.

"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven," Levin said Monday. "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."

Apple is one of the largest corporate tax avoiders in the U.S., added Senator John McCain, an Arizona Republican. He called Apple's offshore effects an "egregious and really outrageous scheme."

Apple, in subcommittee testimony posted online Monday, said it does not use "tax gimmicks" to avoid paying taxes.

"Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the U.S. in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands," the company said. "Apple has substantial foreign cash because it sells the majority of its products outside the U.S."

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