Apple Avoided Billions In Taxes (Allegedly)
Think of Apple Inc. and you think of Steve Jobs and Steve Wozniak founding the tech giant in a garage in Cupertino, California, the same town that now houses Apple’s main corporate headquarters. This is where the iPhone, iPod, iMac, and iPad are designed and where the world’s eyes turn when looking for the next new something that will revolutionize consumer electronics and personal computing.
However, reports the New York Times, Apple Inc. has in fact placed “an office in Reno [Nevada], just 200 miles away, to collect and invest the company’s profits” in a move by which “Apple sidesteps state income taxes on some of those gains.”
Since Nevada’s corporate tax rate stands at a big fat zero, as opposed to California’s 8.84 percent, Apple is saving billions of dollars in taxes annually. In this current fiscal year, in which the company is projected to bring in $45.6 billion based on the sales of both physical and digital content, that almost 9 percent is a significant savings.
The Times noted that while Apple is not the only company to engage in measures meant to take advantage of loopholes in the tax code to increase corporate profits. However, the paper noted, Apple is emblematic of the ease by which technology companies can skirt tax regulations.
“Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.”
Apple’s tax rates are low even among tax companies, it turns out, and “while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.”
Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. 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. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.
Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan.
As Apple’s accountants have discovered ways in which to allocate over 70 percent of their profits overseas in countries with beneficial tax codes, it seems like the only one paying the famed “Apple Tax” is you, the consumer.