A hearing will take place in the US Senate today to examine the strategies employed by multinational corporations to shift profits offshore in order to avoid taxes. Specifically, Apple and its Irish subsidiaries will be in the hot seat, as a report claims the tech giant is using Ireland as a “tax haven”.
The 40-page memo from Senator Carl Levin, chair of the Permanent Subcommittee on Investigations, and Senator John McCain explores how Apple has side-stepped the US tax code with offshore profit-shifting.
The subcommittee’s investigation found that Apple has avoided paying billions of dollars in US income taxes through what it deems to be a complex web of offshore entities, including three subsidiaries based in Ireland.
No taxman’s land
Though incorporated in Ireland, these offshore companies are not taxed in the country, nor are they taxed in the US. One subsidiary in particular, the report says, has not paid taxes to any national authority for the past five years, despite reporting an income of US$30bn from 2009 to 2012.
The report claims this subsidiary, Apple Operations International (AOI), which was established in 1980, has no employees or physical presence in Ireland and that its bank accounts and board meetings are held in the US.
In the US, tax residency is based on where a company is incorporated. However, Ireland only exerts tax jurisdiction over companies that are managed and controlled in the country. This gap in the two countries’ legislation has apparently allowed Apple to establish a subsidiary in a tax no man’s land.
However, Apple’s prepared testimony refutes claims that AOI is a shell company, stating that this and its two other Irish subsidiaries play an important role in the company’s international business activities. “AOI is a holding company that performs centralised cash and investment management of Apple’s foreign, post-tax income,” claims Apple.
The senators’ memo also notes that Apple has negotiated a lower rate of tax with the Irish Government, paying less than 2pc. “Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said Levin. “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.”
While Apple cites its contribution to the US economy, job creation and the billions it pays annually to the US Treasury in its defence, the senators are not won over by this. “Apple claims to be the largest US corporate taxpayer but, by sheer size and scale, it is also among America’s largest tax avoiders,” said McCain.
One thing both parties agree on, however, is that a comprehensive overhaul of the US tax code is necessary.
This will be the second time the subcommittee has investigated tax avoidance among multinational corporations. In September 2012, Microsoft and Hewlett-Packard were under scrutiny for avoiding payment of billions of dollars’ worth in US taxes.
Witnesses to be called at the hearing include representatives from the US Department of the Treasury and the Internal Revenue Service, tax experts from Harvard Law School and Villanova University School of Law, and Apple’s CEO Tim Cook, senior vice-president and CFO Peter Oppenheimer and head of tax operations Phillip Bullock.
Tax investigation image via Palto/Shutterstock