How Apple Minimizes its Corporate Tax Burden

Discussion in ' News Discussion' started by MacRumors, Apr 29, 2012.

  1. macrumors bot


    Apr 12, 2001

    In the latest installment of its "iEconomy" series, The New York Times takes a look at how Apple minimizes its corporate tax burden, taking advantage of a number of legal maneuvers and loopholes around the world. Apple's strategies are of course fully legal and used by many other corporations, but with a spotlight on Apple as it has rapidly risen to become the world's most valuable publicly-traded company with record-setting profits, it has obviously attracted much attention about how it handles its money.
    Among the tactics used by Apple:

    - Setting up subsidiaries in low-tax locations such as Nevada, Ireland, Netherlands, Luxembourg, and the British Virgin Islands, routing as much revenue as possible through these locations. By routing much of its U.S. revenue through its Braeburn Capital subsidiary in tax-free Reno, Nevada, Apple is able to avoid California's corporate tax rate of 8.84%, while also reducing its tax burden on money earned in other states.

    - Apple's iTunes S.à r.l. subsidiary in Luxembourg consists mainly of a mailbox and a few dozen employees, but records $1 billion per year in revenue as the entity responsible for all iTunes Store transactions throughout Europe, Africa, and the Middle East. With the iTunes Store offering strictly downloadable goods, Apple is able to take advantage of favorable tax treatment available in Luxembourg as part of the country's efforts to attract businesses.

    - Apple has substantial operations in Ireland, but the report notes that one of the main benefits of locating there is that Apple is able to internally transfer its patent royalty earnings to a subsidiary there, with the money being subjected to a 12.5% tax rate rather than the 35% tax rate found in the United States. More than one-third of Apple's worldwide revenue is booked through its Irish subsidiaries.

    - Apple records 70% of its revenue overseas, even though much of the product value would normally be considered to derive from their design, which occurs in the United States.


    Overall, Apple paid $3.3 billion in corporate taxes in 2011 on earnings of $34.2 billion in profits, an effective tax rate of 9.8%, which is considered low by corporate standards. But with the company's tactics relying on a complex and disjointed system of tax laws throughout the world, it is difficult for the United States to single-handedly require Apple to book more of its revenue in its home country, which currently has the highest corporate tax rates in the world when federal and average state rates are included.

    Apple has provided an official response to The New York Times, highlighting its role in job creation in the United States, the tax payments it does make, and its charitable giving. The company also notes that its business practices are in full compliance with all laws and accounting rules.

    Update: As noted by Forbes, The New York Times is reporting an incorrect calculation of Apple's effective tax rate for 2011 of 9.8%, simply reusing numbers released several weeks earlier by the Greenlining Institute. Forbes points out that Apple's $3.3 billion in taxes paid during 2011 come from its quarterly estimated tax payments made during the year, but that federal tax guidelines instruct taxpayers to base their calculations on the previous year's earnings.

    Consequently, Apple's 2011 quarterly tax payments are actually based on 2010's earnings, with the correct amount of tax for 2011 not being settled until Apple files its final taxes in 2012. And given Apple's strong growth rate, the incorrect assumption that Apple's 2011 tax payments were based on 2011's earnings grossly understates Apple's tax rate.

    As outlined in his previous piece debunking the Greenlining Institute's claim, Tim Worstall notes that Apple reports its effective tax rate in its annual 10-K filings with the Securities and Exchange Commission, and that rate came in at 24.2% for 2011, much more in line with industry norms.

    Article Link: How Apple Minimizes its Corporate Tax Burden
  2. macrumors 6502a

    Poll Smoker

    Jul 20, 2007
    Apple's new tagline: Just another scummy corporation.

    Here's another: Well, at least we're not breaking the law.
  3. macrumors 68020


    Feb 16, 2012
  4. macrumors 6502a

    Sep 4, 2010
    Perfectly legal, but this is the kind of behaviour that should get alot of attention in order to bring badwill to the companies doing it.
  5. macrumors 6502


    May 4, 2006
    Couldn't agree more.

    Taxes are created and collected for good reason, and companies/people who dodge them are cheating that system. This puts pressure on those who do pay taxes, and/or causes governments to have less funds to achieve their goals.

    Bad Apple, bad.
  6. macrumors 65816


    Feb 29, 2008
    Los Angeles
    Don't blame Apple. It's the current tax code that leaves the burden on the individual's. Look it up!
  7. macrumors 603


    Sep 19, 2003
    Canada, eh?

    If store A sells you a product for $20 and store B sells you the same product for $5, you would buy it from store B, right? You don't feel bad about taking business away from store A, you don't feel like you're doing wrong, you just evaluate the options and take the cheapest route. Perhaps to get the cheaper price from store B you need to set up a membership account or jump through a few hoops, but you'd do it if it saved you enough money.
  8. macrumors Penryn


    Jul 11, 2003

    It's the fault of our corrupt Congress who write a corrupt tax code.
  9. macrumors regular

    Mar 1, 2011
    Oregon, USA
    Businesses do not pay taxes, ever.

    The costs are merely added to the prices of goods and services.

    Instead, we should be looking at Apple's payroll. How many hundreds of millions of dollars do their employees get paid?

    THEY pay taxes.
  10. macrumors regular


    Feb 18, 2005

    There is legality and then there are ethics...:rolleyes:
  11. chatfan, Apr 29, 2012
    Last edited: Apr 29, 2012

    macrumors regular


    Nov 2, 2006
    in mah cribb yo
    Paying taxes is part of being green and good for the environment.
  12. macrumors 6502

    Jun 15, 2011
    Good for Apple. Businesses help society by providing great products and giving jobs to members of that society so that they in turn may buy from other businesses.

    If Apple saves money from not paying a lot of taxes, then Apple has more incentives to offer top engineering/management/marketing talent to make their products even better and to make their employees/customers even happier.

    Apple pays its "fair share" to society simply by existing.
  13. macrumors 68000


    Jun 8, 2009
    Not just Congress and the federal tax code are to blame. Apple seems to negotiate deals on local taxes almost everywhere in the US when they build a new facility. They simply pack up and move to another location if the local government holds its ground. Personally I'd like to see Apple engage in a little less tax avoidance, for whether it is legal or not is irrelevant. It is immoral.

    As for the rich getting richer, I'd love to see a scatterplot showing net worth of individuals and corporations in the US on the x-axis and taxes paid on the y-axis.... I'd like to see the same in the UK, where I reside.
  14. macrumors 6502a

    Sep 4, 2010
    Because even if it's legal it's still unethical. If store A has a higher price because they take their moral responsibility while store B does not, allowing them to reduce the price, I would feel bad for buying from store B instead of store A, and that's why consumers should be made aware.
    I don't see how your example is even relevant.
  15. macrumors 6502

    Mar 10, 2004
    North and east of Mickeyland
    I don't blame any corporation for using all legal, available means to reduce their tax burden. It's just good business. Perhaps we should be looking at why corporate tax rates in the U.S. are so high that the other, more convoluted options are economically feasible.

    The one thing I will say about this article is that you just know there will be many Apple bashers out there that will grab on to this and continue to single out Apple and paint it in a bad light as a result even though they are not the only ones doing this. Like the whole Foxconn labor issue, where a cursory look at what the media reported made it sound like Apple was the only beneficiary of whatever Foxconn does with regard to labor.
  16. macrumors regular

    Mar 1, 2011
    Oregon, USA
    Do you have that much money to buy a product that is four times more expensive?

    Not everyone is rich enough to be that 'ethical'
  17. macrumors demi-god


    Oct 20, 2011
    Austin, TX
    The clever getting richer. If US taxes weren't total garbage, this wouldn't be a problem.


    What does ethics have to do with it? Apple clearly pays everyone it owes money to by operating overseas...
  18. macrumors regular

    Oct 13, 2010
    You can't fault companies and people for taking advantage of legal loopholes but this is a perfect example of why we should eliminate them.
  19. macrumors 604


    Feb 7, 2002
    Good for Apple. The more US companies that expose the idiocracy of our tax code the quicker things might change.

    The US government has nobody to blame but themselves.
  20. macrumors 6502a

    Sep 4, 2010
    The point is consumers should be made aware so that they can decide for themselves what their priorities are.
    We the consumers collectively have the power to control how companies practice their business.


    Do you even grasp the concept of ethics as opposed to legal obligation?
  21. macrumors regular

    G.I. Joe

    Jan 3, 2008
    Every company that can, does this. These "schemes", offshores and so on are helping to implode the world economy. To fight this, countries either lower their own taxes on businesses which then they have to get from individuals or somekind of global legislation (UN stuff) is put in place to stop this from happening. I believe the second will never happen so...
  22. macrumors newbie

    Jan 29, 2009
    Minimizing taxes is the ethical thing to do

    A company is ethically obligated to minimize its own tax burden IMO. I would fault a company that does otherwise. The humans involved in the company (employees, investors) already pay taxes, as well they should since they're the ones who directly benefit from most government services.

    Blaming a company for taking advantage of legal tax loopholes is like blaming water for finding leaks in a boat.
  23. macrumors demi-god


    Oct 20, 2011
    Austin, TX
    And the intelligent consumer should buy from Apple because the intelligent consumer knows the price of products would increase if subjected to higher taxes.
  24. JAT
    macrumors 603

    Dec 31, 2001
    Mpls, MN
    3.3b tax paid? Where is that from? Their last full year financial claims 8.3b income tax, which may not be paid, yet. But it would be their expected liability.
  25. macrumors Penryn


    Jul 11, 2003

    Apple treats opening new offices the same as any other company. Apple didn't invent local tax breaks, they are simply playing the game. And please show me where Apple has up and moved when not getting a local tax break.

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