Jesse Drucker New York
US SENATE scrutiny of Apple’s tax strategies has turned the spotlight on a unit with $30 billion (R285bn) in profit since 2009 that is incorporated in Ireland, controlled by a board in California, and does not pay taxes in either place.
Apple officials acknowledged on Tuesday at a congressional hearing that the entity, a key subsidiary in Apple’s offshore tax strategy, was managed and controlled in the US, yet it still was not paying US federal income taxes.
The shifting of profits by multinational companies was costing the US and Europe at least $100bn a year in lost tax revenue, Reed University economics professor Kimberly Clausing said.
Retired international tax attorney Michael Durst said: “Over the decades, Congress and governments around the world have allowed a system to develop, which allows multinational companies to earn income tax-free by using contracts to shift the income, on paper, to companies in low- and zero-tax countries.” The result “is eroding public confidence in the fairness of tax systems in the US and around the world”.
Similar practices by an assortment of companies, from Google to Forest Laboratories, are drawing increased scrutiny from regulators in the US and elsewhere, particularly as European nations face a backlash against austerity measures.
Corporate tax avoidance is now being targeted on several fronts. The Organisation for Economic Co-operation and Development is scheduled to release an “action plan” in July to deal with tax revenue lost to profit shifting. The plan came in response to a request by the Group of 20 nations.
The European Commission is targeting key rules that enable corporate profit shifting.
Last month, the US Treasury Department released a list of global tax loopholes to close, many of which it has targeted unsuccessfully in the past.
Meanwhile, the US Senate permanent subcommittee on investigations found that Apple avoided paying income taxes on $74bn of profit during the past four years in part by moving patent rights to a web of offshore subsidiaries that pay virtually no income taxes.
Apple chief executive Tim Cook maintained on Tuesday that the company had done nothing wrong and said it was paying “all the taxes we owe: every single dollar”.
The company is also not alone in moving profits to such offshore units. Google, for example, has used a pair of tax shelters known by tax attorneys as the “Double Irish” and “Dutch Sandwich” that move foreign profits through Ireland and the Netherlands to Bermuda to avoid about $2bn in income taxes a year, the company’s US filings show.
Like Apple, Google shifts profits into an Irish subsidiary that does not pay taxes in Ireland. In Google’s case, it says that the unit is managed in Bermuda, which has no corporate income tax.
Google has been questioned by the UK Parliament twice since November last year over its tax affairs and the firm is in dispute with French tax authorities over sums totalling more than $1bn.
Yahoo has funnelled hundreds of millions of dollars in profits through a Dutch bookkeeper’s suburban home office en route to subsidiaries in Mauritius and Switzerland. – Bloomberg