Apple has found the secret to not paying taxes. You just avoid taxes by not declaring a tax residency for the company that oversees the entirety of your international income.The baldness of the Apple strategy surprises me more than anything else," said University of Southern California Law Professor Edward Kleinbard. "European member states are going to be very angry with Apple and very angry with Ireland."
Apple Operations International (AOI) is the company's primary offshore holding company. It was registered in Cork, Ireland in 1980, and its purpose is to serve as a cash consolidator for most of Apple's offshore affiliates. It receives dividends from those affiliates and makes contributions as needed. Shockingly, AOI doesn't pay taxes. Anywhere. The holding company had a net income of $30 billion from 2009 to 2012, but has not declared tax residency in any jurisdiction. AOI's income made up 30% of Apple's total world profits from 2009- 2011.
A key quote from the report explains why AOI exists:Apple explained that, although AOI has been incorporated in Ireland since 1980, it has not declared a tax residency in Ireland or any other country and so has not paid any corporate income tax to any national government in the past 5 years. Apple has exploited a difference between Irish and U.S. tax residency rules. Ireland uses a management and control test to determine tax residency, while the United States determines tax residency based upon the entity’s place of formation. Apple explained that, although AOI is incorporated in Ireland, it is not tax resident in Ireland, because AOI is neither managed nor controlled in Ireland. Apple also maintained that, because AOI was not incorporated in the United States, AOI is not a U.S. tax resident under U.S. tax law either.
Read more: http://www.businessinsider.com/how-apple-reduces-what-it-pays-in-taxes-2013-5
http://news.yahoo.com/apple-congress-spar-over-taxes-ahead-tuesday-hearing-114056185.html
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"Apple told the Subcommittee that AOI’s assets are managed by employees at an Apple Inc. subsidiary, Braeburn Capital, which is located in Nevada. Apple indicated that the assets themselves are held in bank accounts in New York. Apple also indicated that AOI’s general ledger – its primary accounting record – is maintained at Apple’s U.S. shared service center in Austin, Texas. Apple indicated that no AOI bank accounts or management personnel are located in Ireland.
For more than thirty years, Apple has taken the position that AOI has no tax residency,and AOI has not filed a corporate tax return in the past 5 years. Although the United States generally determines tax residency based upon the place of incorporation, a shell entity incorporated in a foreign tax jurisdiction could be disregarded for U.S. tax purposes if that entity is controlled by its parent to such a degree that the shell entity is nothing more than an instrumentality of its parent. While the IRS and the courts have shown reluctance to apply that test, disregard the corporate form, and attribute the income of one corporation to another, the facts here warrant examination."
--http://www.scribd.com/doc/142660268/Subcommittee-Memo-on-Offshore-Profit-Shifting-Apple
Our legal system has a preference to respect the corporate form. But the facts here present this issue: Are these offshore corporations so totally controlled by Apple Inc. that their identity as separate companies is a sham and a mere instrumentality of the parent, and if so, whether Apple’s claim that AOI and ASI owe no U.S. taxes is a sham as well.
--http://www.levin.senate.gov/newsroom/speeches/speech/opening-statement-of-sen-carl-levin-offshore-profit-shifting-and-the-us-tax-code-part-2-apple-inc
Busted. This is going to be good. Bring the popcorn!
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