Apple’s Irish Tax Troubles Are Nothing New
Apple’s (NASDAQ:AAPL) tax practices have recently come under scrutiny again in the U.S. media after senior vice president and CFO Peter Oppenheimer announced his retirement earlier this month. Besides helping to orchestrate Apple’s convoluted overseas tax strategies, Oppenheimer also oversaw Apple’s unprecedented $17 billion bond sale last year, reports Bloomberg Businessweek. By funding Apple’s expanded shareholder capital return plan with a bond sale, Oppenheimer helped the company avoid a significant amount of taxes that it would have had to pay if it had repatriated its offshore cash. According to Moody’s Investment Services data cited by Bloomberg, Apple avoided $9.2 billion in U.S. taxes.
Apple’s overseas tax avoidance strategies previously came under scrutiny in the U.S. when CEO Tim Cook made an appearance before the Senate Permanent Subcommittee on Investigations in 2013. The Senate hearing revealed that Apple avoided income taxes on $74 billion in profit made between 2009 and 2012 by using multiple subsidiaries based in low-tax countries such as Ireland. Although the Senate hearing concluded that Apple had not broken any laws, the Australian Financial Review recently reignited interest in Apple’s Irish tax strategies when it obtained financial records from Australia’s regulatory commission.
The records showed that the iPhone maker diverted approximately $8.9 billion in tax-free profits from Australia to Apple’s Ireland-based subsidiary, Apple Sales International, from 2002 to 2013. Around $2 billion in profits made in Australia were moved to Ireland just last year. However, despite all the recent hoopla over Apple’s tax strategies, ZDNet’s David Morgenstern recently noted that Apple’s tax troubles in Ireland have been going on for over thirty years.
According to a 1993 MacWEEK business report cited by ZDNet, the Internal Revenue Service was seeking $290 million from Apple for back taxes that it claimed that the company owed from 1987. According to the report, “The dispute centers mainly on ‘transfer prices’ Apple’s offshore affiliates charged for goods and services provided to the parent company. The IRS contends that the prices were artificially high, thereby reducing Apple’s U.S. profits and, thus, its tax liability.”
According to the records obtained by the Australian Financial Review, this is the same tax strategy that Apple uses in Ireland today. One of the Ireland-based subsidiaries that Apple transferred its overseas profits to was Apple Sales International. Apple Sales International was able to acquire the bulk of Apple’s overseas profits through payments that it collected for intellectual property licensing and other intangibles.
Based on the reports cited by ZDNet, Apple has been taking advantage of Ireland’s unique territorial tax system since at least 1987. Under Irish law, Apple’s subsidiaries are considered U.S. tax residents, because they are managed by Apple’s California-based headquarters. On the other hand, the subsidiaries are also not taxed by the U.S., because the companies are registered in Ireland and under U.S. tax laws, a company is taxed based on where it is registered.
Although Ireland recently closed the so-called “stateless” tax loophole, Apple is still able to take advantage of Ireland’s tax laws after moving its subsidiaries’ tax residences to countries with no corporate tax, such as Singapore. Despite all the handwringing in the media, it should be noted that the tax loopholes used by Apple are legal under existing international tax laws and are widely used by other tech companies, including Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG). In other words, not only are Apple’s overseas tax practices nothing new, it is also not unique to Apple.
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