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How Apple (Legally) Avoids Billions in Corporate Taxes

How Apple (Legally) Avoids Billions in Corporate Taxes

Every year Apple, just like most other major tech corporations, does its best to avoid billions in corporate taxes in the U.S. and around the world. By routing money, and setting up offices in tax-friendly countries, they hang on to vast amounts of profits each year. And it’s all legal.

The New York Times, in the continuing efforts to reveal something bad, anything bad, about Apple, points out that Apple’s office in Reno, Nevada only consists of a handful of employees. Nevada’s corporate tax rate happens to be 0%. California’s is 8.33%. Savings like that add up quickly. The Reno office is one of several that Apple has established around the world to legally cut back on their yearly tax bill.

Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, 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.

A treasury economist, Martin A. Sullivan, estimates that if Apple didn’t use tactics such as these, their tax bill last year alone would have been around $2.4 billion higher. Apple paid around $3.3 billion in taxes on a reported $34.2 billion last year.

Apple has responded to the New York Times‘ assertions that Apple evades taxes:

Apple also pays an enormous amount of taxes which help our local, state and federal governments. In the first half of fiscal year 2012 our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax.

Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules. We are incredibly proud of all of Apple’s contributions.

As would be expected from the New York Times and their apparent campaign against Apple, they barely mention that Apple isn’t the only company that takes advantage of how the tax codes are written. Tax codes were written with physical goods in mind. Most tech companies also deal with digital goods and transactions. It’s easier for tech companies such as Microsoft, Google, and yes, Apple, to collect profits from sales of digital goods in places where they are little or no taxes. A company like Walmart, who sells hard goods, has a harder time doing the same. Recently, Walmart paid $5.9 billion in taxes on $24.4 billion in revenue.

There is talk of tax codes being rewritten to better reflect the new digital economy. Tech companies are lobbying against it heavily, as is their right. If the tax code is revised, it’s almost certain the companies will lobby for other tax breaks if they are required to claim their income here in the U.S.

Note: There have been reports that The Times used incorrect numbers in their report. While some basic math and data about Apple’s taxes were wrong, the primary message, that Apple and other multinational companies are stashing huge amounts of profits abroad, was correct. It should also be noted that under current U.S. tax laws, it is perfectly legal for these companies to do so.