Apple is also a "tax genius"!

Apple is not only a talent for developing products, a genius for innovative business models, but also a genius for tax avoidance.

Its annual report shows that in fiscal year 2012 ending in September of this year, Apple paid only US$14 billion in taxes for the annual pretax income of US$55.76 billion. Among them, 12.26 billion US dollars to pay the US federal tax, 1.06 billion to pay the U.S. state tax, and only 710 million U.S. dollars to pay overseas taxes; comprehensive calculation, the total tax rate is only 22%, far below the federal tax rate.

According to the provisions of the US tax law, for companies with annual revenues of more than 18,333,300 US dollars, most of the company’s revenues should be subject to a 35% federal tax rate.

The secret is that two-thirds of Apple's pre-tax income is counted in overseas branch accounts. This portion of income does not need to be paid in the United States as long as it does not repatriate to the United States. According to calculations, Apple's overseas income tax rate is only 3.3%, which significantly lowers the overall tax rate.

In order to realize this kind of tax avoidance magic, Apple has used the tax gap between the US tax laws and the differences in tax laws between different countries in the world, so as to “give the corresponding tax at the place where the relevant tax rate is lowest”.

Tax avoidance magic

The First Financial Daily reported that Apple’s brilliant tax avoidance magic is dubbed the “Irish Dutch sandwich” because its approach is mainly between two Irish subsidiaries and a Dutch subsidiary, like two slices of bread sandwiched with cheese. Sandwich.

In order to attract investment to solve employment, corporate income tax in Ireland is very low, only 12.5%, far below the United States and other EU countries. Apple established Apple Sales International (Ireland Sales Company) in Ireland to receive all sales outside the United States and enjoy a low income tax rate in Ireland.

However, compared to some tax havens with extremely low tax rates, Ireland’s income tax is still high. In order to reduce income tax as much as possible, Apple will transfer most of its revenue to tax havens in the cheapest way.

Ireland also provides a unique channel for transferring revenue to tax havens. According to Ireland’s unique tax laws, even companies registered in Ireland are considered foreign companies if their parent company or headquarters is located in a foreign country. As a result, Apple set up another Apple International operation in Ireland (Apple Operations International, hereinafter referred to as "Irish Operating Company"), and its headquarters is set up in the famous Caribbean tax haven - Caribbean Islands. Since the Irish operating company is a foreign company, it does not need to pay tax to Ireland for remitting its revenue to the headquarters, which is almost zero cost.

Cheap cash registers have been set up, and the channels leading to tax havens have also been opened. Now it is necessary to consider how the sales revenue of Irish sales companies can be cheaply transferred to Irish operating companies.

If you go directly to Ireland, you will have to pay Irish income tax. It is fortunate that another country in Europe can provide a springboard for this crucial shift. That is the Netherlands.

Apple has a subsidiary in the Netherlands - Apple Operations Europe ("Operations Netherlands"). Unlike Ireland, the Dutch tax law recognises the company’s nationality with the place of registration of the company, not the headquarters, so Apple’s three subsidiaries in Ireland and the Netherlands are recognized as EU companies in the Netherlands. Both Ireland and the Netherlands require that transactions between companies in EU member states be exempt from income tax.

The bridge has also been erected. The question now is: There is no actual sales activity among the three affiliates. How to realize the transaction?

Analysts say that Apple has chosen a transaction product that is invisible but valuable to serve as a medium for transferring income – intellectual property.

When Apple users outside the U.S. click to purchase a song or software on the iTune market, Apple U.S. companies provide their own intellectual property assets—that is, hardware devices such as iPhones, iPads, and iTune software. Services - Transferred to an Irish operating company, and the cash paid by the user entered the Irish sales company's account. Since the implementation of this sales must use Apple’s intellectual property assets, the Irish sales company “needs” to pay the Irish operating company for intellectual property patent royalties. The Irish sales company transferred the sales revenue to the Irish operating company in the name of patent royalties through the transfer of the Dutch operating company and finally transferred to the headquarters in the Caribbean Islands. Once money enters that tax haven, it can no longer be monitored by any regulatory agency.

In the entire income transfer process, it only needs to pay the Netherlands a low transaction tax and part of Ireland's low income tax.

In addition, Apple's annual report also disclosed that, in addition to the above three European subsidiaries, Apple also has a subsidiary in the United States registered in Bradaburn Capital, Inc., Nevada. Because Nevada does not levy corporate income tax, allowing the subsidiary to sum up company revenues and make investments, it is possible to avoid part of the investment income from paying 8.84% of income tax to California.

Everyone eats sandwiches

In fact, the tax avoidance strategies used by Apple are not uncommon in large United States companies. As early as 2010, some media reported that companies such as Google shifted their revenues to tax havens through Irish Sandwiches in Ireland. Over the past two years, the 71 high-tech companies in the S&P 500 Index - including Apple, Google, Yahoo, Dell, etc. - have paid an average of 30% lower tax rates on a global scale than non-tech companies. one.

Sun Jialin, an assistant professor of accounting at St. John's University in New York, told this newspaper that the above-mentioned international accounting strategies used by US companies are professionally called Transfer Pricing, which refers to the sale of goods and the provision of services between affiliated companies. Ingenious transactions such as transfer of intangible assets are carried out to transfer funds.

An accounting professional told this reporter that in transnational economic activities, the use of transfer pricing among affiliated companies for tax avoidance has become a common method of tax planning. The principle of its realization is to transfer profits to countries with low tax rates through various transactions.

In the specific operations, high-tax companies make low prices when they sell goods, provide labor services, and transfer intangible assets to their affiliates in low-tax countries; companies in low-tax countries sell goods, provide labor services, and transfer intangible assets to affiliates in high-tax countries. High prices. In this way, profits are transferred from high-tax countries to low-tax countries, so as to achieve the goal of minimizing their tax burden.

"Apple conducted most of its research in the United States. The majority of its employees are in the United States. Its 54% of long-term assets, 69% of retail stores, and 39% of sales are also in the United States." American non-profit organization "tax analyst Martin Sullivan, chief economist, pointed out in an analysis article that "the US transfer pricing rule is a sieve (leaving tax revenues)."

Sullivan said that if there is no relevant tax avoidance strategy, Apple may pay a federal tax amount of $2.4 billion in fiscal 2011.

It is more common to use tax-free state registered companies to avoid tax. The famous registered address of 1209 North Orange Street in Wilmington, Delaware, has registered more than 280,000 companies or subsidiaries including Google, General Motors, Ford, and American Airlines. The only thing that attracts these big companies is Delaware’s unique laws and taxes.

Sun Jialin said that in fact, the United States has a long history of tax loopholes, and IRS, the US tax agency, is well aware of this. They had urged Congress to legislate, but members of Congress did not have much motivation to do this. Because even if these companies have low tax rates, they are still big taxpayers in their state, and both the state and the federal government benefit from it. Even if the legislation fills in this loophole, the United States has other relevant tax law restrictions. In the end, the US government does not necessarily receive more taxes.