Apple Wizardry Lowers Tax Bill

5/9/2012

For 20 years now, Apple has maintained a reputation for stylish design and innovative products, creating a near–cult following among fans. Their products have helped change how the world listens to music, accesses online content, and communicates with friends, family, and colleagues.  

Many may consider Apple to be the most successful company on Earth. At one point last year, they had more cash on hand ($76.2 billion) than the United States government ($73.8 billion). In fact, Apple’s current market cap (total value of tradable shares) is more than the gross domestic products of Iraq, North Korea, Vietnam, Puerto Rico, and New Zealand – combined.  

But Apple’s most recent annual report reveals the company’s genius for creating successful marketing strategies also extends to legal and successful tax strategies. One such strategy enables Apple to earn billions and pay less than 10% of their taxable income in tax.  

Apple does this by keeping the money they earn outside the United States. Apple owns subsidiaries in tax havens like Ireland, the Netherlands, Luxembourg, and the British Virgin Islands. They helped pioneer the “Double Irish with a Dutch Sandwich” strategy that hundreds of other multinational companies have imitated, and even maintain a subsidiary in tax–free Nevada to manage an enormous cash haul without paying state tax in its home state of California. For 2011, the company paid a worldwide tax of $3.3 billion on $34.2 billion of profit. One study concludes that Apple would have paid $2.4 billion more without these rules.  

Now Apple has become part of the political debate with Democrats concerned about lost tax revenue and Republicans arguing that it allows Apple to grow the economy faster. Both President Obama and Republican nominee Mitt Romney have called for eliminating corporate tax loopholes in order to pay for lower rates.  

Taxes always play a part in Presidential races. But this time, with the economy still struggling and the Bush tax cuts scheduled to expire in a few short months, taxes will play an even more important role than usual in the political discussions ahead.  

Whatever the outcome of the Presidential race, tax experts across the country will be watching to see what happens to the Bush–era tax cuts and other tax loopholes to make sure taxpayers and corporations understand their obligations when Tax Day rolls around once again.