2012 April 30
Letterbox in Luxembourg: Apple’s Strategy Avoids Billions In Tax
Stephen: The fact that stories like this – where many of the world’s biggest brand names and multinationals are being shown up for their non-altruistic ways – keep coming, even through the mainstream media, is proof that things are indeed a-changing.
Letterbox in Luxembourgh One way Apple Avoids Paying Billions in Worldwide Tax
ByCharles Duhigg, David Kocieniewski, New York Times – April 30, 2012
RENO, Nevada: Apple, the world’s most profitable technology company, doesn’t design iPhones in Nevada. It doesn’t run AppleCare customer service from Reno. And it doesn’t manufacture MacBooks or iPads anywhere nearby.
Yet, with a handful of employees in a small Reno office in a company subsidiary named Braeburn Capital, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other US states.
Apple’s headquarters are in Cupertino, California. By putting an office to collect and invest the company’s profits in Reno, just 350 kilometres away, Apple sidesteps state income taxes on some of those gains.
California’s corporate tax rate is 8.84 per cent. Nevada’s, zero.
Setting up an office in Reno is one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars a year.
As it has in Nevada, Apple has created subsidiaries in low-tax countries such as Ireland, the Netherlands, Luxembourg and the British Virgin Islands – some little more than a letterbox in Luxembourg or an anonymous office in Nevada – that help cut the taxes it pays.
Almost every large corporation tries to minimise taxes. For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $US45.6 billion ($43.5 billion) this fiscal year – a record for a United States business.
Braeburn is a variety of apple that is simultaneously sweet and tart. When someone in the US buys an iPhone, iPad or other Apple product, a portion of the profits from that sale is often deposited into accounts controlled by Braeburn, and then invested in stocks, bonds or other financial instruments, company executives say. Some profits from those investments are shielded from California tax authorities by virtue of Braeburn’s Nevada address.
Since founding Braeburn in 2006, Apple has earned more than $US2.5 billion in interest and dividend income on its cash reserves and investments around the globe. What’s more, Braeburn allows Apple to lower its taxes in other states because many of those jurisdictions use formulas that reduce what is owed when a company’s financial management occurs elsewhere.
While Apple’s Reno office helps the company avoid state taxes, its international subsidiaries – particularly the company’s assignment of sales and patent royalties to other nations – help reduce taxes owed to the US and other governments.
The Luxembourg subsidiary, named iTunes S.ar.l., has just a few dozen employees, according to corporate documents filed in that nation and an executive. But when customers across Europe, Africa or the Middle East – and potentially elsewhere – download a song, television show or app, the sale is recorded in this small country, present and former executives say.
In 2011, iTunes S.ar.l.’s revenue exceeded $US1 billion, an Apple executive said, representing about 20 per cent of iTunes’ worldwide sales.
Apple, say former executives, has been particularly talented at identifying legal tax loopholes.
Apple was a pioneer of an accounting technique known as the ”Double Irish with a Dutch Sandwich”, which reduced taxes by routing profits through two Irish subsidiaries – Apple Operations International and Apple Sales International – and the Netherlands and the Caribbean.
Without such tactics, Apple’s federal tax bill in the US would have been $US2.4 billion higher last year, a recent study by a former Treasury Department economist, Martin Sullivan, said. As it stands, the company paid cash taxes of $US3.3 billion around the world on its reported profits of $US34.2 billion last year, a tax rate of 9.8 per cent.
Apple, in a statement, said it ”pays an enormous amount of taxes which help our local, state and federal governments. In the first half of fiscal year 2012, our US operations have generated almost $US5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of US income tax”.