Tuesday, May 21, 2013

Sens. Levin, McCain explain how Apple dodged taxes on $44 billion in income; Google, Facebook and Microsoft use similar strategies

The chairman of the Permanent Subcommittee on Investigations, Levin, and the subcommittee's Ranking Minority Member, Senator John McCain, have released a memo explaining how Apple, which already outsources to China most of the jobs required to build its products, also avoids taxes on tens of billions of dollars in sales.

     The hearing will examine how Apple Inc., a U.S. multinational corporation, has used a variety of offshore structures, arrangements, and transactions to shift billions of dollars in profits away from the United States and into Ireland, where Apple has negotiated a special corporate tax rate of less than two percent. One of Apple’s more unusual tactics has been to establish and direct substantial funds to offshore entities in Ireland, while claiming they are not tax residents of any jurisdiction. For example, Apple Inc. established an offshore subsidiary, Apple Operations International, which from 2009 to 2012 reported net income of $30 billion, but declined to declare any tax residence, filed no corporate income tax return, and paid no corporate income taxes to any national government for five years. A second Irish affiliate, Apple Sales International, received $74 billion in sales income over four years, but due in part to its alleged status as a non-tax resident, paid taxes on only a tiny fraction of that income.
      In addition, the hearing will examine how Apple Inc. transferred the economic rights to its intellectual property through a cost sharing agreement with its own offshore affiliates, and was thereby able to shift tens of billions of dollars offshore to alow tax jurisdiction and avoid U.S. tax. Apple Inc. then utilized U.S. tax loopholes, including the so-called “check-the-box” rules, to avoid U.S. taxes on $44 billion in taxable offshore income over the past four years, or about $10 billion in tax avoidance per year.

Google sheltered even more — $60 billion. Facebook and Microsoft also have aggressive tax avoidance strategies.

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