The “Double Irish with a Dutch Sandwich” has been getting a
lot more press lately just because of that darned deficit and that Apple uses
this technique to help reduce their Federal taxes. A hundred million here. A hundred million there. Soon, it adds up to billions. Cupertino, California based Apple also routes some
revenue through Nevada, which ultimately saves state income tax they would have
pay in California on investment income.
The link below leads to a graphic showing how this works using a pair of Ireland
subsidiaries. In Apple's case, the subsidiaries are named Apple Operations International and Apple
Sales International. You then route profits through the Netherlands. Store the profits in the Cayman Islands/Caribbean or other friendly tax havens and voila! It
is legal.
A number of US firms do this.
Look at a company's annual report or their web site. If they have offices/sites in these
countries (Luxembourg as well), there’s a good chance that.... It’s
great for software firms. It's worth clicking on the link below just to see the graphic explaining everything.
By managing its investments through a subsidiary in Reno,
Nevada, Apple avoids California’s 8.84% tax rate. In Nevada, there is neither state corporate
income tax nor capital gains tax. Apple did prepare a response for the NY Times, defending
their practices and talking about their job creation in the US.
All of the above is legal. Apple and other companies are just aggressively
making best use of applicable tax laws to help minimize the taxes they
pay. In fact, if you are a proponent of
discounted cash flow models to help determine a firm’s valuation, minimizing
taxes helps increase cash flow, which leads to a higher stock price or a higher valuation for an IPO (Initial Public Offering). .
“The information on 10-Ks is fiction for most companies,”
said Kimberly Clausing, an economist at Reed College who specializes in
multinational taxation. “But for tech
companies it goes from fiction to farcical.”
According to the article, “In 2004, Ireland, a nation of less than 5
million, was home to more than one-third of Apple’s worldwide revenues,
according to company filings." Apple has
not released estimates that are more recent.
Lots of iPods on a per capita basis!
One downside for companies using the above is that when
money is sent overseas, it cannot be returned to the United States without
incurring a new tax bill. That’s why
firms have been urging Congress to have a “repatriation holiday” that would
permit US companies to bring some of their profits offshore back without
owing large taxes.
Below is a link to the complete NY Times article. It’s a great read. You don’t need to be an accountant to
understand it. The link below will
probably even work on an iPad! Read
while drinking an Irish coffee and having a Dutch pastry.
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