The media may be abuzz with Apple CEO Tim Cook’s essay in BusinessWeek yesterday, but they also should be paying attention to the company’s Securities and Exchange Commission filing this week. In its annual 10-K report, Apple reveals that, despite congressional hearings on its offshore tax dodging, the company continues to divert profits to tax havens.
The 10-K reports that Apple increased its offshore profits by $16 billion last year, which brings its total hoard to $137 billion. The company also discloses that it would pay a U.S. tax rate of 33 percent if it repatriates those earnings, down only slightly from prior years. Because the US tax would be reduced by any foreign tax the company has already paid, that means the company has paid almost no tax on the foreign income despite having substantial sales in countries where the corporate tax rate is in the mid-20s.
How does Apple do that? By shifting profits, through the use of tax haven subsidiaries, to countries that have little or no corporate income tax. Apple Operations International (AOI), the subsidiary which heads up the foreign group, was incorporated in Ireland but the company claims it is not resident in Ireland for tax purposes. In fact, the company claims that AOI isn’t “tax resident” anywhere in the world, so AOI files no corporate tax returns and pays no corporate tax. Apple has also negotiated a super-low tax rate for other subsidiaries in Ireland of only 2 percent—an arrangement that is under investigation by the European Commission as illegal state aid.
And speaking of other subsidiaries, the subcommittee memo from the Senate hearing identifies fifteen foreign subsidiaries associated with the company’s European operations (and that’s only Europe), yet Apple’s 10-K lists only four subsidiaries in its annual report. Apparently the company takes the position that the other subsidiaries aren’t “significant” under the SEC rules, not even its big Singapore subsidiary Apple South Asia Pte, Ltd. where it books sales in Asia and the Pacific. The company did list Braeburn Capital in Nevada, which helps Apple avoid state income taxes, but they forgot that Luxembourg subsidiary that helps them avoid income and value-added taxes all over Europe, Africa, and the Middle East by booking its iTunes sales there. Oops.
For goodness sakes, one clear finding of the Senate’s investigation was that Apple’s subs in offshore tax havens are playing a vital role in its tax avoidance. And yet even after this, the company persists in not disclosing the existence of these subs in its 10-K. There needs to be a higher standard for disclosing tax haven subs. Where is the SEC? Where is Congress?
CEO Cook’s very personal essay expresses his wish that he can be an inspiring example to people with similar struggles. We only wish Apple aspired to be an example of a good corporate citizen—one who contributed to the common welfare by paying its share of tax.