Is the Shine Coming Off Apple?

A report released this week by members of the Senate says Apple "has used a complex web of offshore entities, including three foreign subsidiaries the company claims are not tax resident in any nation, to avoid paying billions of dollars in U.S. income taxes." 

Apple has a number of highly unusual accounting strategies and a handful of subsidiaries in Ireland, where it negotiated a tax rate of less than 2%, to reduce its tax bill. The U.S. corporate tax rate is 35%. Apple avoided paying $9 billion in U.S. taxes in 2012 alone.

One Irish subsidiary, Apple Operations International, or AOI, has no employees or physical presence in Ireland. AOI reported $30 billion in income from 2009 to 2012, but its management structure allowed Apple to exploit a gap between U.S. and Irish law to avoid paying taxes in either country.

 Another Apple subsidiary in Ireland, Apple Sales International, had an effective 2011 tax rate of just five hundredths of one percent. Apple also ducked taxes on $44 billion in income by transferring the rights to its intellectual property though cost-sharing agreements with its subsidiaries. 

The California-based company holds more than $102 billion offshore, allowing it to avoid the 35% tax it would pay upon returning the money to the U.S. Apple recently borrowed $17 billion to buy its own stock from shareholders rather than draw on its sizable overseas cash, avoiding U.S. taxes as a result.

"A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue," Senator John McCain said in a statement Monday. 

Apple CEO Tim Cook made no apology on Tuesday for saving billions of dollars in U.S. taxes through Irish subsidiaries and told lawmakers that his company backs corporate tax reform, even though it may end up paying more. Apple is not the first tech company to be investigated for these tactics, as HP and Microsoft had previously been investigated. 

The US has a budget deficit of over $15 trillion, yet Apple has chosen to spend I’m sure considerable time and money on ways not to pay taxes.  While not apparently breaking any laws does this make you question the ethics of America’s most cash rich company?  Lastly Apple backs corporate tax reform, yet it looks they have been doing everything possible to work the loopholes and not pay taxes.  Seems like Cook is talking out of both sides of his mouth.