Apple is the world’s most valuable company and yet it paid only $713 million on its $36.8 billion earnings in the last quarter. The company used a complex network of offshore accounts as well as cleverly named subsidiaries.
The amount that Apple paid for taxes was just 1.9 percent of its quarterly earnings. The company managed to decrease its foreign tax rate by 25 percent and at the same time increased its market cap to record levels.
Apple is just one of major companies that keep their taxes low by stashing cash offshore. The company set up subsidiaries and subsidiaries of subsidiaries in countries that have low corporate taxes. It sends funds between them to minimize its liabilities.
Apple directs its profits to two subsidiaries in Ireland, which are Apple Operations International and Apple Sales International. The corporate tax rate in Ireland is just around 12.5 percent, which is lower than the 35 percent rate in the United States. It also sends some of its earnings through Netherlands to tax havens in the Caribbean.
Apple utilizes loopholes in legal system to keep a large portion of its profits out of the hands of the IRS. According to former Treasury Department economist Martin Sullivan, when Apple and other profitable companies in the nation pay less, the general public has to pay more. He added that Apple’s last annual report indicated that only 30 percent of its pretax profits came from the United States. He said that the number should have been at least 50 percent because all of its marketing and products are designed in the US and the patents are made in California.
Apple’s strategy is not new but the company made it better. Most major US technology companies, including Google and Facebook have their European headquarters in Dublin to enjoy tax breaks that come with that.