updated 06:45 pm EDT, Tue April 10, 2012
Offices in Ireland, Virgin Islands for lower rates
British tabloid newspaper The Daily Mail has accused several leading technology companies, including Apple, of dodging their fair share of UK taxes by setting up operations only in parts of that nation that offer lower-than-average tax rates. The charges were triggered by an investigation of online retailer Amazon, which switched its European headquarters to Luxembourg and ended up not paying a penny in British corporation tax for the past two years.
The corporate rate in the UK is 24 percent, but companies like Apple and Google have set up shop in Ireland instead, where the tax rate is half as much, or 12.5 percent. Apple also has offices in the British Virgin Islands, where it sends a lot of its foreign-made money. Google also bases its headquarters in Ireland, and is said to funnel UK money through the Netherlands and Bermuda in an effort to lower taxes.
None of the companies have yet been accused of anything illegal, but are taking maximum advantage of existing tax loopholes in order to minimize their tax liability. Apple pays around a 25 percent tax rate in the US, according to financial records listed by the company. The rate is below the top rate of 35 percent, but few large corporations actually pay the full rate. Many (most notably Exxon and GE) have paid far less, sometimes going as far as paying no federal taxes at all, or a negative tax rate when government subsidies are factored in.
Apple Retail U.K. Ltd., which is based in London, managed to pay only a 0.75 percent tax rate on sales of 500 million pounds ($793 million), paying only £3.79 million ($6 million). Apple's other primary UK business Apple (U.K.) Ltd., paid an effective 9.5 percent rate on income of about $109.5 million in sales.
All told, the Mac maker is estimated to have made about $6 billion in sales from the UK region, or about 10 percent of its revenues in 2010, and only paid around $15.9 million in taxes, an effective rate of 0.1 percent. The outcry from the public over corporations having the resources to dodge taxes and escape liabilities for losses has sparked protests worldwide, particularly in Ireland, Iceland, Spain and Greece where the government has been forced into austerity measures due to financial crises seen by the people there as having been caused by corporations.
In the US, similar sentiments have been the impetus for the "Occupy Wall Street" movement, which blames the top one percent of earners and corporations for wielding influence to pass legislation favorable to themselves and harmful to the middle class and poor, or "the 99 percent." Even well-regarded companies such as Apple have taken criticism for lobbying the deficit-ridden US government for "repatriation" tax incentives that corporations want for bringing in foreign earnings into the US at a lower-than-normal tax rate.
Apple's recent dividend and stock buyback plans were carefully constructed to use only money earned in the US so as to avoid repatriation, which CFO Peter Oppenheimer told investors was currently saddled with a strong "disincentive" to bring the money into the US, where it would be taxed at the current corporate rate of around 35 percent. The Obama administration and Congress have been resistant to the calls from corporations, including Apple, to allow a repatriation "tax holiday" of around five percent, instead proposing to lower the corporate tax rate overall to around 25 percent, but with fewer loopholes and more penalties for businesses that stash profits offshore.