Apple Tactics to Minimize its Corporate Tax Burden through Legal Maneuvers
Apple is world’s largest smartphone vendor and a tech giant globally known and re cognized. With its wonderful products line, its share price is touching the skies and it has been gathering ever increasing huge profit year by year as shown by its own financial results. With such a massive profit, how Apple managed to keep its corporate tax burden within the reasonable limits. The New York Times answers this thorny question with the latest issue of its ”iEconomy” series, and reveals how Apple minimizes its tax burden by playing some useful tactics and with the help of a number of legal maneuvers and loopholes found in tax laws around the world.
No doubt, Apple’s tactics are fully legal and lawful and many other large corporations are already taking advantages of these maneuvering ticks, but due to Apple’s unbelievable progress in stock markets by becoming the world’s most valuable publicly-traded company within a few years with incredibly huge profits, majority of people wants to know how Apple handles its massive piles of pretty bucks and how it succeeds to minimize the tax burden to a minimum level.
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.
Some of the major tactics practiced by Apple to avoid from heavy loads of taxes are as follows;
- Setting up subsidiaries in low-tax locations such as Nevada, Ireland, Netherlands, Luxembourg, and the British Virgin Islands, routing as much revenue as possible through these locations. By routing much of its U.S. revenue through its Braeburn Capital subsidiary in tax-free Reno, Nevada, Apple is able to avoid California’s corporate tax rate of 8.84%, while also reducing its tax burden on money earned in other states.
- Apple’s iTunes S.à r.l. subsidiary in Luxembourg consists mainly of a mailbox and a few dozen employees, but records $1 billion per year in revenue as the entity responsible for all iTunes Store transactions throughout Europe, Africa, and the Middle East. With the iTunes Store offering strictly downloadable goods, Apple is able to take advantage of favorable tax treatment available in Luxembourg as part of the country’s efforts to attract businesses.
- Apple has substantial operations in Ireland, but the report notes that one of the main benefits of locating there is that Apple is able to internally transfer its patent royalty earnings to a subsidiary there, with the money being subjected to a 12.5% tax rate rather than the 35% tax rate found in the United States. More than one-third of Apple’s worldwide revenue is booked through its Irish subsidiaries.
- Apple records 70% of its revenue overseas, even though much of the product value would normally be considered to derive from their design, which occurs in the United States.
If we have a look onto Apple’s recent tax responsibilities, the company paid $3.3 billion in corporate taxes in 2011 on earnings of $34.2 billion in profits, an effectual tax rate of 9.8%, quite minimum as compared to corporate standards.
Apple’s strategy is based on taking advantages of the loopholes found in tax laws, by playing with intricate and incoherent system of tax laws throughout the world, is evident and obvious but legally the United States can’t do nothing to compel Apple for stabling its more units within the country and to stop outsourcing; moreover, the U.S. currently has the highest corporate tax rates in the world when federal and average state rates are incorporated.
Apple just provided a sound response to The New York Times by emphasizing its significant role in boosting economy and job creation in the United States. Apple also disclosed its tax payments along with the massive amounts the company spends for charity. Moreover, the company fully defended its practices in saving money by saying that it does nothing against the tax laws and its business practices are quite aligned compliance with all tax laws and accounting rules.
We think if Apple is obeying all tax rules and regulations for running its global business, then it shouldn’t be criticized for opting the ways to take advantages within the game rules…every corporate would logically invest in the sectors where its tax burdens shout hit to a minimum level.