How Apple and Other High-Technology Companies Sidestep Paying Taxes?

Dear Commons Community,

The lead article in today’s New York Times describes Apple’s techniques for avoiding paying taxes on profits by establishing offices in low or no-tax countries and states.  For example:

“Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world. ..

Apple was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.

Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan. As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent.“

Even within the United States, Apple avoids paying taxes in high-taxed  states.

Apple’s headquarters are in Cupertino, California where much of its design, customer service and manufacturing are done.  It also has a handful of employees in a small office in Reno, Nevada.  By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains. California’s corporate tax rate is 8.84 percent. Nevada’s Zero.

The article makes the point that what Apple is doing is common especially among high-technology companies but the effects on a state can be devastating.  California especially has seen draconian cuts in social, education and health services.  An example dear to us in higher education:

“A mile and a half from Apple’s Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.”

Anyone for Occupying Cupertino!


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