Apple Inc. (NASDAQ:AAPL) has amassed a huge cash pile legally, but most of those profits haven’t been taxed. That’s why the iPhone maker came under close scrutiny by the U.S. regulators. It seems that Apple Inc. (NASDAQ:AAPL) owes its phenomenal success to one Irish accountant named Cathy Kearney.
Apple’s Satellite Companies
Cathy Kearny is the director of Apple Inc. (NASDAQ:AAPL)’s satellite companies based in the Irish city of Cork. One satellite company, Apple Operations International, reportedly earned a profit of $22 billion in 2011, but paid a meager $10 million in taxes. The Tim Cook-led company has formed five such satellite companies, all having same registered address in Cork, Ireland, to execute its tax strategy.
This strategy has allowed Apple Inc. (NASDAQ:AAPL) to pay just 1.9 percent tax on the company’s overseas profits of $37 billion in 2012. The US Senate Permanent Subcommittee on Investigations said that the iPad maker has avoided $9 billion in US taxes in 2012 and $3.5 billion in 2011. Tim Cook once praised Kearny’s “shrewd direction” for generating so much profit for the company. Cook defended his company saying that Apple Inc. (NASDAQ:AAPL) hasn’t breached any tax law in any country.
Cathy asked Apple Inc. (NASDAQ:AAPL) to transfer the development rights to many of the company’s products to the satellite companies in Cork. Apple Inc. (NASDAQ:AAPL) Operations International is the largest of the five holding companies in Cork offices. As the sole director of AOI, Kearny is required to attend board meetings. But Senate officials found that she attended only 7 of 33 AOI board meeting over the past seven years, for that six times by telephone.
Since AOI and other holding companies have no physical presence on the planet, a Senate official joked that these were iCompanies – i for invisible, imaginary. In 1997, Kearny’s formal job title was financial controller. Today, she is the vice president – Europe of another Satellite company Apple Distribution International. But her directorship of the satellite companies came under scrutiny by the U.S. officials.
All the holding companies meet the incorporation law requirements in Ireland, and many have staff in Cork. All of them share their board members as well. For example, Apple Operations International has just on director, Cathy Kearny herself. Only two of the five companies have tax residency in Ireland.
So, the other three companies aren’t legally required to pay taxes in Ireland, because they are neither controlled nor managed in that country, says Simon Bowers of the British newspaper Guardian. Since these satellite companies are incorporated at an Irish address, they are not the tax resident of the United States under the US law. Magically, it’s neither here not there.
Apple Inc. (NASDAQ:AAPL) shares were up 0.46 percent to $447.01 at 11:07 AM EDT.