The Secrets Behind Apple's Super-Low Tax Rate

Tech giant highlights government's tax problems in information age
By Mark Russell,  Newser Staff
Posted Apr 29, 2012 7:06 AM CDT
The Secrets Behind Apple's Super-Low Tax Rate
A prospective buyer compares the new iPad tablet computer, left, with the older version at an Apple store in Bangalore, India, Friday, April 27, 2012.   (AP Photo/Aijaz Rahi)

Apple is one of the most profitable companies in the world—and also one of the most aggressive and creative at avoiding taxes, reports the New York Times, which outlines a number of the company's tax-avoidance strategies. Among them:

  • Despite its well-known Cupertino, California, headquarters, Apple partly avoids the state's 8.84% corporate tax rate by directing some of its profits to a subsidiary in Nevada, where there are no corporate state taxes. (Almost poetically, that subsidiary is named Braeburn Capital, after a tart yet sweet type of apple.)
  • Apple's sales teams in high-tax countries sell on behalf of subsidiaries in low-tax countries, avoiding income taxes.
  • It employs a handful of employees in Luxembourg, where sales of items downloaded by customers in Europe and Africa are recorded—and taxed at a discounted rate.
  • It created the “Double Irish With a Dutch Sandwich," a much-emulated tax-avoidance strategy of routing profits through the Netherlands to Ireland and then through the Caribbean.

Apple says it is only following the law, but last year Apple paid $3.3 billion in cash taxes on $34.2 billion in profits worldwide—its US tax bill would have been about $2.4 billion higher without its tax-avoidance moves, according to one study. That gave Apple a tax rate of 9.8%, low even for a tech company, and much lower than Walmart's 24%, which the Times describes as par for the course for non-tech companies. Apple's situation illustrates a growing problem for governments around the world in the information age, as many technology companies sell digital items that can be sold from anywhere, and reap royalties from intellectual property like patents. To wit, the S&P 500's 71 tech companies over the last two years paid a cash tax rate one-third lower than its fellow S&P firms. Click to read the lengthy piece. (More Apple stories.)

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