Wednesday, October 16, 2013

Proposed Irish budget could slam door on Apple tax-avoidance loophole

In April of 2012, the New York Times exposed the tax avoidance strategies that Apple uses to save itself billions annually. That loophole (or rather, set of loopholes) may be closing, as on Tuesday the Irish government (via The Street) proposed a budget that would eliminate the technique that not just Apple, but many companies use.

To be specific, Ireland is considering an elimination of "stateless" tax in its upcoming finance bill.

This and other tax-avoidance schemes are not illegal. That doesn't mean, though, that the Times' report didn't raise the ire of U.S. taxpayers. While Apple isn't the only company doing this, it was a pioneer, and the first to take advantage of the complex scheme now called the "Double Irish With a Dutch Sandwich."

That technique is now practiced by hundreds of other corporations. It reduces taxes by routing profits first through Irish subsidiaries and the Netherlands and then the Caribbean. Some of the other companies that use this technique admit that they have directly imitated Apple's methods.

In a press release issued Tuesday, Ireland said:
The second measure to be included in the Finance Bill is a change to our company residence rules aimed at eliminating mismatches -- that can exist between tax treaty partners in certain circumstances -- being used to allow companies to be "stateless" in terms of their place of tax residence.
As a result of its machinations, Apple's 2012 Irish tax rate was below 2 percent, far lower than Ireland's 12.5 percent corporate tax rate.

In May, a 40-page report issued a Senate subcommittee chaired by Sen. Carl Levin (D-Mich.) and Sen. John McCain (R-Ariz.) accused Apple of owning Irish subsidiaries that "paid no income taxes to any national tax authority for the past five years."

The report claimed Apple avoided taxes on about $44 billion in foreign profits. Levin said,
Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere (using the loophole, above).

Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America's largest tax avoiders.
As noted above, Apple is not the only corporation using Ireland -- and other countries -- as a tax haven. Apple's ranking as the most valuable company by market capitalization has made it a big target, though.

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