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Apple Cuts Tax Bill by Billions with Profit Allocation Methods

 

A recently published investigative report claims that Apple Inc. utilizes subsidiaries in Ireland, the Netherlands and other nations that have low taxes in order to cut its global tax bill by billions of dollars each year.

One of the methods used by Apple outlined in the report is the fact that Apple has a tiny office in Reno, Nevada even though it is based in California. The office in Reno is used to help the company collect and invest its profits. In California, the corporate tax rate is 8.84 percent while in Nevada the rate is zero.

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Big companies across the country attempt to reduce their taxes each year but companies such as Google Inc., Apple and Microsoft Corp. have many more options to reduce those bills. The report said that these companies have it easier to reduce their taxes because chunks of their revenues from digital products and royalties on patents. This makes it easier for the companies to move the profits to states or countries that are friendly when it comes to taxes. It is much tougher to shift taxes from the sale of physical products, such as a vehicle or a boat.

There are 71 technology companies in the S&P 500. Those 71 companies claimed they paid global cash taxes for the previous two years at a rate that is one-third less than other companies in the S&P 500. The companies that paid that rate include Yahoo Inc., Google and Apple. Close to 70 percent of Apple’s profits have been allocated legally overseas, where tax rates can be lower than in the United States.

A study by the former Treasury Department economist Martin A. Sullivan estimated that Apple’s tax bill at the federal level might have been $2.4 billion higher in 2011 if they had not allocated the money. Apple has paid $3.3 billion in cash taxes globally on its profits of $34.2 billion in 2011. This accounts for a tax rate of 9.8 percent.

“Apple, like many other multinationals, is using perfectly legal methods to keep a significant portion of their profits out of the hands of the I.R.S.,” Sullivan said. “And when America’s most profitable companies pay less, the general public has to pay more.”

Apple said in a statement that it has complied legally with all of the laws and rules of accounting. Apple also said that its operations in the U.S. generated close to $5 billion in federal and state income taxes for the first half of fiscal year 2012. For the current fiscal year 2012, analysts on Wall Street predict that Apple could earn close to $46.9 billion. This is according to FactSet.

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Posted by on May 1, 2012. Filed under Business News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

 

 

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