Apple Inc. (NASDAQ:AAPL) claims to worship at the altar of simplicity. Its minimalistic designs have turned millions of heads and brought billions of dollars into the company’s coffers. Billions of dollars will buy a lot of accountants, however, and simplicity is the antithesis of accountancy. If tax and financial systems were simple, accountants would begin to disappear.
Apple Inc. (NASDAQ:AAPL) managed to hire one of the most creative and ingenious accounting teams out there, allowing the company to pay an incredibly small amount in taxes, while maintaining an entirely legal tax operation. Over at TechCrunch today, Gregory Ferenstein took a look at three of the methods the company’s accountants used to avoid paying up.
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Ireland is the home of a large amount of multinationals, serving as a European base for many of the world’s largest firm’s. Apple Inc. (NASDAQ:AAPL) passes a large amount of its revenue through the country, and the Senate report found that the company’s effective tax rate since 2009 was around 0.6 percent. Apple Inc. (NASDAQ:AAPL) doesn’t even have a brick and mortar retail outfit on the emerald isle.
Apple Inc. (NASDAQ:AAPL) passes its money through it’s base in Ireland’s County Cork using a fairy tale called transfer pricing. Using this method, Apple charges its retail outfit obscene amounts for products, which the retailers sell on at low margin. This allows Apple Inc. (NASDAQ:AAPL) to take advantage of the 0.6 percent take in Ireland. The company paid around 10 million pounds in taxes to the British government in 2011, on 6 billion in sales.
The IRS allows large companies to decide which of their subsidiaries they want to pay taxes on. This allows Apple Inc. (NASDAQ:AAPL) to transfer most of its tax to Ireland, avoiding paying up in International markets. The company has a different policy in the United States, however, which appears to be an attempt to relax lawmakers and revenue officials.
Apple Inc. (NASDAQ:AAPL) pays a much higher rate of tax in the United States than it does anywhere else in the world. According to the testimony Tim Cook gave before the Senate today, Apple Inc. (NASDAQ:AAPL) paid $6 billion in corporate income tax in 2012, an effective rate of around 30 percent.
Apple Inc. (NASDAQ:AAPL) and other companies like it are experienced at using tax laws to suit themselves. They have not broken the law, but they are avoiding taxes around the world. If the Senate wants the to pay more, comprehensive reform is necessary.