As the saying goes, the only certain things in life are death and taxes. For Apple, Inc., though, it has been able to sidestep these certainties: having circumvented corporate death in the 1980s, now it is doing the same with corporate taxes.
It has recently been revealed that the company uses a tricky but legal method to eschew the payment of billions of dollars in tax every year. A report was published by the New York Times that stated that the company uses subsidiaries in Ireland, the Netherlands and other low-tax nations to cut back on its global tax bill.
Apple is based in Cupertino, California, and the corporate tax rate in California is 8.84%. According to the report, Apple has set up a small office in Reno, Nevada, to collect and invest its profits. The corporate tax rate in Nevada is zero. In fact, 70% of profit allocation of Apple has been shifted legally to states overseas where the tax rates are much lower than in the US.
Had Apple not used this relocation trick, it would have had to pay $2.4 billion more last year (2011) in federal taxes as was estimated by former Treasury Department economist Martin A. Sullivan.
Additionally, Apple paid $3.3b in cash taxes globally on $34.2b in profits last year. This amounts to a tax rate of 9.8%. As the report noted, "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."
On top of that, Apple claimed that is it "among the top payers of US income tax" and also that it is among the top creators of American jobs.
The report in the Times also revealed that the 71 technology companies in the S&P 500 pay about one-third the average tax paid by the rest of the companies. The 71 tech companies that feature in the S&P 500 are Apple, Google, Yahoo Inc. and Dell Inc.
So, when you are itching to go and fork out your hard earned €600 for a shiny new iPhone, just remember that Apple will be paying the least amount of taxes that could go to helping out your community through government programmes and investments.