Apple shifted profits to ‘ghost companies’ in Ireland

Computer giant avoided paying tens of billions of dollars, US Congressional panel says

Apple CEO Tim Cook (centre) appears before a US Senate homeland security and governmental affairs investigations subcommittee hearing on offshore profit shifting and the US tax code, on Capitol Hill in Washingto today. Reuters/Jason Reed.

Apple CEO Tim Cook (centre) appears before a US Senate homeland security and governmental affairs investigations subcommittee hearing on offshore profit shifting and the US tax code, on Capitol Hill in Washingto today. Reuters/Jason Reed.

Tue, May 21, 2013, 15:42

Computer giant Apple “quietly negotiated” an income tax rate of less than 2 per cent with the Irish Government and shifted the lion’s share of the company’s worldwide profits to “ghost companies” in Ireland to avoid paying taxes in the United States, a US Congressional panel has said.

The Senate permanent subcommittee on investigations maintains that Apple has shifted tens of billions of dollars in income through its Irish companies to avoid paying tens of billions of dollars of taxes in the United States.

The high-profile Congressional hearing has shone a spotlight on the tax regime of Ireland - described by subcommittee as a “tax haven” - and the use of Irish companies by major American corporations to minimize their tax bills in the US.

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Today’s hearing was held to examine how US-based multinational corporations “use loopholes in the tax code to move profits to offshore tax havens and avoid paying US taxes.”

The panel said that Apple’s Irish subsidiary, Apple Operations International, which was incorporated in 1980, sat at the “apex” of the company’s offshore tax avoidance strategy.

“Apple has quietly negotiated with the Irish Government an income tax rate of less than 2 per cent, well under the Irish statutory rate of 12 per cent as well as the tax rates of other European countries and the United States,” said Senator Carl Levin, a Democrat from Michigan and the subcommittee’s chairman.

“And as we’ve seen, in practice Apple is able to pay a rate far below even that low figure.”

Last year alone, Apple Sales International, one of Apple’s Irish subsidiaries, received $36 billion in income in a nation where it pays almost no income tax and paid no US income taxes.

The subcommittee says that Apple has arranged matters “so it can claim that these ghost companies, for tax purposes, exist nowhere.”

One Irish company paid no corporate income tax to any nation over the last five years; another pays tax to Ireland equal to one twentieth of 1 per cent of its total income.

A third Irish company is also not tax resident in any country, Senator Levin said.

Apple’s claim that its two Irish companies owe no US taxes is “a sham,” he said.

Apple Operations International was a “shell entity” and nothing more than “instrumentality” of its parent, “a sham that should be treated as the parent itself rather than as a separate legal entity.”

The panel described how the Irish-registered Apple Operations International had no physical presence at any address, has never had any employees in its 30 years of existence, its accounting records are held in Apple’s offices in Texas, and that its assets are held in a bank account in New York.

The Irish company’s board consist of two Apple employees who live in California and an Irish employee of Apple Distribution International, an Irish company that AOI owns.

“Over the last six years, from May 2006 through the end of 2012, AOI held 33 board meetings, 32 of which took place in Cupertino, California,” said Senator Levin.

“AOI’s lone Irish-resident director participated in just seven of those meetings, six by telephone, and in none of the 18 board meetings between September 2006 and August 2012.”

The subcommittee says that Apple has shifted income away from the United States by moving profits generated from intellectual property rights to Ireland, a low tax country, through what’s called “transfer pricing.”

Apple’s “cost-sharing agreement” with its Irish companies has essentially shifted profits from all the company’s sales outside of the Americas to Ireland, the subcommittee said.

Senator Levin said that the fact that Irish subsidiaries pay a share of the company’s research and development costs is “irrelevant to the main goal: concentrating profits offshore.”

“Even if the Irish subsidiaries paid 100 per cent of R&D costs, this arrangement would still result in massive profit concentration in a tax haven, and therefore massive tax avoidance,” said Levin.

Apple, which makes iPhones, iPads and computers, employs almost 4,000 staff in Ireland.