Here’s How Apple’s Australian Profits Ended Up in Ireland

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Apple (NASDAQ:AAPL) has shifted approximately $8.9 billion in untaxed profits from its Australian operations to a subsidiary in Ireland over the past ten years, according to financial records obtained by the Australian Financial Review. 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. One of the subsidiaries that Apple transferred its overseas profits to was Apple Sales International. Apple Sales International acquires the bulk of Apple’s overseas profits through payments that it collects for intellectual property licensing and other intangibles.

As noted by the Australian Financial Review, many of the financial details of Apple Sales International’s operations were kept secret during the U.S. Senate Permanent Subcommittee on Investigations hearing. However, under Australian law, Apple Sales International was required to file financial statements with the country’s regulatory commission.

According to the financial records obtained by the Australian Financial Review, about $8.9 billion in tax-free profits from Australia have been diverted to Apple’s Ireland-based subsidiary, Apple Sales International, from 2002 to 2013. Approximately $2 billion in untaxed profits were shifted to Apple Sales International last year and $2.3 billion was moved in 2012.

Due to Ireland’s unique territorial tax system, Apple pays very little to no tax on the income diverted to the company’s subsidiaries in those countries. As noted by the Australian Financial Review, Apple’s subsidiaries pay no tax in Ireland because they are not considered tax residents of the country.  

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. Under U.S. tax laws, a company is taxed based on where it is registered. This essentially makes Apple Sales International and Apple Operations International “stateless” entities for tax purposes.

Michael Noonan, Ireland’s Minister for Finance, told UK’s Telegraph in December that Ireland was closing the so-called “stateless” company loophole. “We have addressed the ‘stateless’ company issue in the budget,” said Noonan. However, Apple will still be able to take advantage of Ireland’s tax loopholes by simply moving its subsidiaries’ tax residences to a location with zero corporate tax. According to the Australian Financial Review, Apple began shifting its Australian profits through Apple South Asia Pte Ltd., a Singapore-based subsidiary, in 2010. It should be noted that Singapore has no corporate tax.

Although Apple’s tax avoidance strategies have been criticized in the U.S., Europe, and Australia, the loopholes that the company is taking advantage of are perfectly legal under existing international tax laws. Many other large tech companies, including Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG), also manage their overseas income in a similar fashion.

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