After Working To Avoid Taxes, What Could New Legislation Mean For Apple?

Alicia Farmer
November 12, 2017

Rather than pay taxes in the United States, the company, headquartered in Cupertino, California was domiciled in Ireland.

The recent release of the "Paradise Papers" has brought to light the way in which companies have been using offshore tax havens to reduce their tax bills. We're proud of the economic contributions we make to the countries and communities where we do business.

But in preparation for a change to Ireland's tax policy, Apple recruited a Bermuda-based law firm, Appleby, for advice on where to next move its offshore tax residency.

Apple's effective tax rate on foreign earnings is 21 percent - a figure easily calculated from public filings. US corporations have for years complained that the 35 percent rate, the highest among economically advanced countries, puts them at a competitive disadvantage.

Global tax experts said that Apple's use of new structures may not lower its tax bill further but they will help preserve its already low rate by shielding its overseas cash and intellectual property.

Jersey is commonly used by corporations as a tax haven as it doesn't usually charge any tax on corporate income.

Under the current worldwide tax system, profits are taxed based on where the value is created. This head office wasn't based in any country on earth. "A coordinated legislative effort internationally will remove the current tug of war between countries over tax payments and ensure certainty of law for taxpayers". The following year, Ireland took steps to phase out the "Double Irish," a strategy that had allowed Apple to funnel all its sales outside of the Americas through Ireland, where the tax bite was low.

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Since then many countries have followed suit, with a bank information-sharing system known as the Common Reporting Standard born in the process.

Throughout its history, Apple has designed new products - and established entirely new industries - by focusing on innovation.

The Paradise Papers are the result of a year-long investigation by the International Consortium of Investigative Journalists, which studied some 13.4 million leaked documents revealing the scale of offshore tax avoidance schemes employed by large multinationals and the rich and famous. Apple pays taxes in every country where we sell our products. First, it was using a tax strategy in Ireland, and then in an English Channel island called Jersey. Additional tax is then also due in the USA when the earnings are repatriated.

The typical US multinational pays far less, however, about 20 percent of its profit in federal corporate taxes. In part, this is the message sent from tech firms in Paradise Papers list, according to the leaked documents.

The hearing nonetheless led to an European Union investigation and stoked public pressure on Ireland to close the loopholes commonly used by Apple and other USA companies. Under the current tax system, post-tax earnings from foreign sales are subject to U.S. tax. The commission estimated Ireland failed to collect at least 15 billion euros (about $17.4 billion) from the tech giant. Apple's innovation and investment supports a further 12,000 jobs across Ireland.

The report indicated that Apple moved two of its three Irish subsidies to Jersey but kept the third in Ireland, where it is leveraging new tax structures proposed by the government there that reduce taxes on intangible property.

The fresh details about Apple's tax strategies come as Congress is considering a House bill that would cut the top US corporate rate from 35 percent to 20 percent.

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