Apple is faced with another not-so-sweet controversy. US Senators Carl Levin and John McCain have alleged that the tech giant used its intricate network of offshore companies, particularly three foreign subsidiaries which the company claims are non-taxable, to escape billions of dollars in income taxes.
According to a US Senate investigation, Apple depends on several accounting tactics including its subsidiaries in Ireland, where it bargained for a tax rate of less than two per cent, to slash its tax bill. Comparatively, the corporate tax rate in the US is 35 per cent.
One of Apple’s Irish units, Apple Operations International (AOI), has no presence or employees in Ireland. In fact, the senators noted that it holds it bank accounts and board meetings in the United States.
AOI posted an income of US$30 billion between 2009 and 2011, although its management structure permitted its parent firm to take advantage of a loophole in US and Irish tax law. As a result, the company did not pay any taxes in either country.
From 2009 to 2012, another Irish subsidiary by the name of Apple Sales International recorded US$74 billion in revenue. However, it only paid taxes based on a minute fraction of that sum.
Apple also evaded taxes on its US$44 billion income by sharing the rights to its intellectual property via cost-sharing contracts with its offshore subsidiaries.
These are big accusations, especially for a firm that has achieved great success in the States. The government is looking into tax reforms that will ensure the company cannot shift its profits to offshore entities to avoid paying taxes.