Apple CEO Tim Cook has been in the press a lot lately about the organization’s aggressive stance on taxes. In front of a somewhat hostile Senate panel in Washington, he said, “We pay all the taxes we owe, every single dollar,” Cook told the Senate Permanent Subcommittee on Investigations, noting that Apple may now be the largest U.S. corporate taxpayer. “We not only comply with the laws, but we comply with the spirit of the laws. We don’t depend on tax gimmicks. We don’t move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don’t stash money on some Caribbean island. We don’t move our money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.” In all discussions, you have to enjoy how Apple has focused on taxes paid while the other side has focused on potential other taxes owed.
One
claim made in numerous papers is that Apple negotiated a special 2% tax rate
from Ireland. Both Apple and Ireland
dispute these claims.
With
respect to the above, the operative part of Tim Cook’s quote is, “We pay all the taxes, and
we owe, every single dollar.” His
general tenet is that Apple isn’t breaking any tax laws. They are being aggressive in minimizing,
legally, the amount of taxes they pay.
In a
May Mercury News editorial, “Apple
showing a blatant lack of respect for the law”, Santa Clara University professor of law had a different interpretation. In the article he states, “While the tax law permits
businesses and individuals to arrange their actual affairs to minimize tax, it does
not respect agreements that have no independent economic significance apart
from purported tax reduction." The
article states that in 2011 Apple did pay $10 million total tax on $22 billion
of income of one of its subsidiaries. This
equates to a tax rate of .05%. Not 5%. .05%.
The
above about Apple minimizing US taxes is not news! The New York Times
wrote an article “Double Irish with a Dutch Sandwich” about tax avoidance
strategies and Apple (other companies as well) in April 2012.
Domestically, Apple manages much of its
investments to minimize state taxes by doing these through its Apple's Braeburn Capital subsidiary in Reno, Nevada. This
way, they avoid California 9% state
income tax.
Apple’s 2012 “Project Jonathan”, will
enable Apple to save millions in Nevada taxes.
They are building a data center
outside of Reno and putting in almost $1 billion in servers. The state will waive all but 2 percent of
the sales tax rate for the server equipment Apple purchases for the data center. “But by opening a second location in a
special tourism improvement district in downtown Reno — an office meant simply
to receive shipment of those servers — Apple is eligible to be reimbursed 75
percent of the 2 percent sales tax it still owes.” This means that the overall sales tax Apple
pays will be 0.5% rather than 7.5%. Quite impressive and good negotiating on Apple’s
part. That part about the second office
that will do little more than receive the servers? A bit dicey.
Once
again, minimizing taxes isn’t illegal.
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