Tax Inversion, Continued

Business Insider (June 11, 2014) provided more information on Tax Inversion, by sharing with us how much money Apple avoids paying in taxes by pretending it’s based in Ireland.  Remember, the U.S. corporate tax rate can be as high as 35% of income; Ireland’s is 12.5%. Further, by using various complicated international accounting maneuvers — some of which have cute names like “the Dutch Sandwich” and “the Double Irish,” which Apple is credited with pioneering — Apple has lowered its tax rate on some of its income to as little as 3.7% last year, according to Reuters. (Apple says it has not received any selective tax treatment from Ireland.)

How does it do so?  Apple places certain corporate assets in Ireland and uses them as a pivot for international transfers that lower its taxes. For instance, an Irish Apple entity named “ASI” was, in fact, the company that actually sold iPhones internationally. ASI purchased finished Apple goods manufactured in China and immediately resold them to ADI or Apple Singapore which, in turn, sold the goods around the world. ASI did not conduct any of the manufacturing – and added nothing – in Ireland to the finished Apple products it bought, yet booked a substantial profit in Ireland when it resold those products to related parties such as ADI or Apple Singapore

But how much tax does Apple actually avoid when it does this? In 2012, Apple’s “foreign base sales income” was about $25 billion, according to the Senate report, and it avoided paying $9 billion in taxes on that income:

Interestingly, Apple’s report of its U.S. taxes accurately also raised questions for the US Senate subcommittee which is studying this matter. In its annual report to investors, Apple said it paid $6.9 billion in U.S. taxes in 2011. But it actually only paid the IRS $2.5 billion, according to its tax return.

I’ll let others address this last issue. I’m more concerned about the US government finding a way of closing the  loophole.   Your thoughts?

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