Apple Inc. (NASDAQ:AAPL) used some reserved accounting practices that has helped it to pay tax at a rate of about 15 percent, well below the 25.2 per cent it reported. The accounting trick has the helped the iPhone maker to escape the keen eyes of authorities at a time when tax saving measures of other big tech companies, like Google Inc (NASDAQ:GOOG), are under scan from public and authorities.
However, the tricks may be unearthed on Tuesday when chief executive Tim Cook will pay a visit to US Senate’s permanent investigations subcommittee. Executives of other big organizations like from Microsoft Corporation (NASDAQ:MSFT) and Hewlett-Packard, have already been questioned by the same committee over transferring profits to tax heavens to avoid US taxes.
At the end of October, the value investor Mohnish Pabrai gave a presentation and took part in a Q&A session at Boston College and Harvard Business School on the Uber Cannibal Investor Framework, which he has developed over the past decade. Uber Cannibals are the businesses “eating themselves by buying back their stock,” the value Read More
Apple Inc. (NASDAQ:AAPL) like other firms discloses little of the process it follows for accounting the transactions between subsidiaries in different countries, which makes it all the more harder for tax authorities to pin point source of income.
Apple Inc. (AAPL) defending itself
Apple Inc. (NASDAQ:AAPL) CEO have been saying that his company pays all taxes and follows no such corrupt practices of transferring profit overseas. The 25.2 per cent tax reported in the company’s accounts include billions of dollars set aside to cover future tax liabilities that may arise if it repatriated part of its $102.3 billion of overseas cash holdings, says a report from FT. Last year, the same provisions amounted to $5.8 billion, which helped to increased the tax rate, and reduce the reported profits. Such provisions have no impact on actual cash outflow but are just are an accounting tricks.
Apple Inc. (NASDAQ:AAPL) told in a statement that last year, it paid $6bn in federal taxes, the highest by the company. The company also told that it created “hundreds of thousands of jobs” by keeping its research and development in California and creating a market for app developers.
Mr Cook told last week that in the upcoming hearing he will lend support to make the tax rules more simplified by adopting a so-called territorial tax system, which would exempt the profits earned abroad from US taxes.
What experts have to say?
An analyst from Moody’s the rating agency, says “It’s impossible to tell how the funds flow from the product idea to development, how it goes from the suppliers to the retail stores.”
Martin Sullivan, chief economist at Tax Analysts, a non-profit tax research group questions the practices followed by Apple Inc. (NASDAQ:AAPL) saying since the company’s product design, marketing and other critical activities are done in US, it should report a higher share of profits here, but that is not the case, instead the iPhone maker reports a lower share of profits than the share of its sales.
Last month, Apple Inc. (NASDAQ:AAPL) gained mass criticism when it announced to borrow $17 billion to save as much as $9 billion in US taxes.