Apple avoids billions in corporate taxes, states all their practices are legal and ethical

How Apple legally avoids billions in corporate taxes each year

Each year Apple -- an many, many other tech companies -- manages to avoid billions in corporate taxes around the world and across the U.S. They do this by setting up offices and funneling money to tax-friendly places like Ireland and Reno, Nevada. Even though Apple's corporate headquarters is in Cupertino, California, having offices to collect profits and invest money in countries and state with little or no corporate tax, they legally hang on to vast amounts of profit each year.

The New York Times, in another one of their Apple headlined exposés, points out that Apple's office in Reno, Nevada, only consists of a handful of employees. Nevada's corporate tax rate is 0%. California's is 8.33%. You can see where the savings add up rather quickly. And this office is one of many that Apple has established across the globe in order to legally cut back on taxes owed.

Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.

A treasury economist, Martin A. Sullivan, estimated that if Apple wouldn't have used tactics such as these, their tax bill last year alone would have been around $2.4 billion higher. Apple paid around $3.3 billion in taxes on a reported $34.2 billion last year.

Apple has responded to the New York Times' assertions that Apple evades taxes:

Apple also pays an enormous amount of taxes which help our local, state and federal governments. In the first half of fiscal year 2012 our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax.

Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules. We are incredibly proud of all of Apple’s contributions.

Although it's not made obvious in the New York Times article, Apple isn't the only company that takes advantage of tax code in this way. Most tax code was written with tangible goods in mind and most tech companies also deal with digital goods and transactions. It's very easy for companies such as Apple, Google, Microsoft, and other tech giants to collect the profits from these sales in low or no tax states and countries. In comparison, a company like Walmart that makes most of their revenue by selling tangible items would have a harder time using some of the same. Walmart recently paid $5.9 billion in taxes on $24.4 billion in revenue.

Although tech companies are lobbying heavily against it, and seeking enormous tax breaks before they repatriate their income, it's probably only a matter of time before tax codes are revised to better reflect the way in which the digital economy nows operates and does business. Until then, Apple and other tech companies alike will probably continue to enjoy the benefits of outdated tax code.

Source: New York Times

Allyson Kazmucha

Editor for iMore, Potter pundit, and the ninja in your iOS

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There are 30 comments. Add yours.

Alin O says:

I'm very sorry, but I'm very sad and I think that I made an mistake :O :(. I want to sell my iphone and someone over the internet told me to give him my Iphone IMEI's and after he will check if my iphone is 100% AUTENTICAL(ORIGINAL), and I gave him my imei and now my safari browser doesn't work :| !!! what should I do :(( .. I'm very sorry for posting this right here but I don't know what to do :(( .. please help again ! Thanks :(

Olsjon says:

u tried to make restore your iphone?

pete says:

Combined with the mistaken belief many people have that purchases on the internet don't require local taxes to be paid, outdated tax codes are starting to be a huge source of lost revenue for governments.
Too many people and corporations do everything they can to weasel their way out of paying taxes, then they complain about government debt, crumbling infrastructure, and failing schools. Can't have it both ways.

pete says:

One more thought on that...
I certainly don't think any worse of Apple for taking advantage of the tax codes like every other major corporation does. I do think worse of them for trying to claim it is ethical.

Watcher says:

You, sir, are THE MAN for posting this!!!
(And I apologize if you're actually a woman)

Al says:

Did you maximize your tax refund this year? If so, you are as "unethical" as Apple.

jasondeno says:

Agreed.
Anyone here with a pre-tax Health Savings Account, take a mortgage deduction or file a joint tax return? These are also examples of legal and ethical deductions. If you don't like what Apple is doing, start the fight at home. Pay everything from your post-tax paycheck and take no deductions!

cardfan says:

Of course we all do what we can to minimize our taxes. Some do more than others. I think that's the problem here. You can choose how aggressive you want to be.
Individuals don't want to risk an audit and so they temper that aggression while others may have a higher tolerance. Companies like Apple can choose to be aggressive, but they also have PR concerns. You and I don't have PR concerns.
I don't think Apple is unethical here but it doesn't matter what I think. Bad PR is bad PR. Alone, this story might not have much life, but it's following up on stories having to do with their insane profit margins and foreign labor practices. Taken together, it starts to paint a picture of Apple that they should want no part of, no matter if they're in the "right" or "wrong."
How should Apple respond? Should apple respond? Let's just say it probably wouldn't hurt to see Apple get serious about being a "good" citizen, starting at home.

pete says:

The difference is I don't set up shell offices around the globe whose sole purpose is to channel money through to avoid taxes that I would otherwise pay where I actually live.
I have an HSA because that is what my company provides for insurance coverage. And it's a heck of a lot worse financially than the traditional coverage I had 3 years ago by the way. I take the child credit because I have kids. I didn't have kids for the sole purpose of getting tax breaks. All my taxes are paid to my community, state, and country. Nobody else's.
If you can't see or understand the difference, you don't understand what they are doing.
Again, I will reiterate that I don't think less of them for playing that game, just for trying to claim it is ethical.

Pat says:

Peter, we don't have a tax problem in this country, we have a spending and government waste problem. The whole problem with, your statement, and people like you is, you all think my money was the government's money to begin with. Well I hate to break the news to you, it's not! It's my money. I earned it. And I'm tired of sending my money to Washington just so they throw it down a bottomless chit hole.
If you're so unhappy with the revenue, or the lack there of, generated by the government, why don't you send more money in? There's a minimum we all have to pay but there's no maximum. Write the federal government a check for a little extra. Then you will sleep better at night knowing you "paid your fair share".

williamsbh76 says:

+1! Why give those jack wagons another penny for them to mismanage when they could run a more effective government on half of what they get now! And while we are at it, has anyone checked the NY times or the writers taxes to see if they ever take a legal shortcut?

Dennis says:

+1 Pat. The US has among the highest corporate tax rates in the world. Until that changes, things like this will go on because Tim Cook does not answer to Obama, he answers to Apple shareholders.
And it doesn't matter if the "outdated" tax code is modified to reflect the new digital economy. Apple's army of CPAs and lawyers will find ways around the new tax code too.
What gets lost in these discussions, and what is holding back our economic recovery, is the effect this "pay your fair share" argument has on small and medium businesses. They have to deal with the same regulation and taxes large businesses do, but don't have the army of CPAs and lawyers to protect them.
GE infamously paid no taxes in 2010, but they also had something like 900 CPAs and lawyers working for them. Putting aside for a minute that those people don't work for free, the average small or medium business owner or CEO hears Obama say businesses have to "pay their fair share" and he or she is plugged in enough to realize this will mean him or her too.
Small and medium businesses create something like half the jobs in this country, so it's no wonder the recovery is sluggish or nonexistent. It's what happens when we try to impose morality upon mathematical reality; the math will always win.

pete says:

There are a lot of problems with our government's finances. And I never said all your money belongs to the government, nor did I even imply it. Read what I wrote.

UnBox says:

Did you pay local or state tax on the online purchases you made from E-bay or any other retailer that did not charge you local tax? Did you claim it on your taxes this year? If you didn't you are breaking the tax law. Did you buy a used iphone from a neighbor and not pay tax? Apple is using the law written to save money just like we do when we take our deductions on our taxes, no more no less, they just have a team of lawyers to find the best way to do that.

Al says:

Don't blame businesses for taking advantage of a convoluted tax code. If we had a flat tax without exemptions, credits and loopholes we wouldn't have companies jumping through hoops like this to save millions. We'd also limit the influence corporations have in Washington by taking away their incentive to sway politicians to vote for these exemptions. I don't want to get overly political here but we have a screwed up system in desperate need of simplification.

Mark says:

Maybe if the govt didn't spend every dime and then some people wouldn't have a problem paying their taxes. Maybe if the us didn't charge 35 % corp rate on top of what the other countries charge (double tax) the companies would bring some profits here. Maybe if Cali wasn't so anti business people would want to have a business there. Maybe just maybe the govt should realize its not their money it's ours and stop stealing from us. I'm pretty sure apple has made a few millionaires that pay taxes and a few capital gains which are taxes as well as whatever other gains and sales of their products generate tax revenue. I think apple has paid plenty

mjs416 says:

35% tax rate but what do they actually pay after the loop holes? Not anywhere near 35%.
And news flash - both blue and red states have problems creating business friendly environments.

Mark says:

As for you Pete apple isn't and people aren't weaseling out of paying taxes it's the govt weaseling ways to steal money that doest belong to them. Taxes are ment to fund the necessary function of govt not all these bogus programs. Schools infustructure roads etc are the responsibility of the states not the feds. Your roads are supported with your gas taxes(Feds 18 cents a gallon plus your statetaxes mine 68 cents a gallon in ny) but that money now goes to some bs program. Stop with your lib fair share bs.

Al says:

Yup, and instead of our presidential candidates debating the finer points of their plans to reduce the deficits, we are mired in a pointless debate about which candidate was crueler to a dog several decades ago. Thanks 24-hour news channels.

Common Sense says:

Mark gets the prize. Absolutely correct.
I for one am glad Apple minimizes their tax burden. Just imagine how much our beloved electronic devices would cost us if they didn't.

MRF says:

I couldn't agree more. Can you imagine how inexpensive many of these technological advancements would be if uncle sugar wasn't running all these redistribution schemes and adding layer upon layer of costs.

pete says:

Did you read what I wrote specifically? People routinely do not pay their local taxes on internet purchases. If a retailer does not charge you your local tax, you are still responsible to pay it on your own (actual amounts and responsibilites vary by community and state of course). THAT is not just unethical, it is illegal, and you cannot justify it.
And enough with the "government steals my money" drivel. The idiots in office are elected by the idiots they serve. Only when the idiot voters stop engaging in pointless partisan bickering and start holding all politicians, regardless of party, responsible for their actions will we regain some fiscal stability.

cardfan says:

We all practice tax avoidance and seek to minimize our taxes. Why's this news again?

MRF says:

With an insane 76,000 pages of tax codes I don't blame anyone for doing anything they can to avoid being punished for success.

pete says:

Yeah, my family is just your average middle class dual income no creative investing and even our taxes have become a real PITA. Itemized deductions, energy credits, flex accounts, mortgage, kids, it goes on and on and takes weeks to get the paperwork straight. Last year I used a CPA which cost me $400 to file a 20 some page return. I can't imagine how some people manage. They probably don't. It's ridiculous. Total and complete overhaul is needed.

as400man says:

This is no different than Credit Card companies who bank out certain states...

akmolin says:

Guess what Apple did nothing wrong broke no laws all was LEGAL so guess what they have every right here.

Mark says:

Apple saved 2.4billion in taxes good for them the govt spend 6.4 million a second. That's 348 seconds of spending of apples money. Now I ask u who will do better with this money? Govt or apple? I can't think of 1 thing the govt does well except for waste