Apple ‘Sidesteps’ Billions in Corporate Taxes, NY Times Reports

The New York Times accused Apple of "sidestepping" billions of dollars in taxes by setting up subsidiary companies in tax-free or low-tax states and countries.

Apple, based in Cupertino, Calif., uses a small office in state-tax-free Nevada to manage and invest its profits, allowing it to bypass California's 8.84% corporate tax rate. Apple's Nevada-based subsidiary asset management company is called Braeburn Capital.

Apple has taken its Reno approach worldwide, and the company's ability to find legal tax loopholes around the world is functioning as a template for many transnational corporations. The tech giant reduces the amount of taxes it pays by routing its profits to offices in low-tax countries such as the British Virgin Islands, Ireland, Luxembourg and the Netherlands.

Citing government and corporate data, The New York Times reported that technology companies are often the least taxed. Corporate tax dodging is nothing new, but Apple's low-profile offices raise discussion about who is picking up the slack for Apple's lack of tax payments. Is the liability shifting to everyday taxpayers?

In a statement responding to the allegations, Apple told The New York Times it "pays an enormous amount of taxes, which help our local, state and federal governments. In the first half of fiscal year 2012, our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax."

The New York Times findings are significant because it shows how Apple increases its already sky-high profit in its quest to become the most profitable company in the world — without paying the total amount of taxes the company is expected to pay based on its California location. It's difficult to measure how much Apple and other corporations shell out in taxes because corporations are not required to publically disclose amount of taxes paid.

Although Apple didn't disclose its amount of U.S. federal and state taxes paid, it did reveal in its last annual report that it paid $8.3 billion in worldwide taxes. That equals an 9% tax rate, compared with, for example, the 24% tax rate Walmart pays.

Apple contends it has not done anything illegal or unethical, telling the Times it "has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules." Then Apple used language it usually reserves for product hype, adding, "We are incredibly proud of all of Apple's contributions."

While Apple declined to comment to Mashable about its taxing practices, Robert Hatta, a former Apple employee who oversaw Apple's iTunes retail marketing and sales in Europe, gave The New York Times an example of how Apple pays lower taxes in Luxembourg instead of paying taxes to the U.S. Britain, France and many other countries.

"We set up in Luxembourg because of the favorable taxes," Hatta told The New York Times. "Downloads are different from tractors or steel because there's nothing you can touch, so it doesn't matter if your computer is in France or England. If you're buying from Luxembourg, it's a relationship with Luxembourg."

Meanwhile, Apple continues to net increasing profits. Last year the company raked in $34.2 billion. Most recently, Apple reported quarterly revenue of $39.2 billion ending March 31. iPhone and iPad sales dominated the company's profits and showed huge growth from one year ago. In the second quarter of 2012, Apple sold 35.1 million iPhones and 11.8 million iPads. Apple's tablet device sales soared high reaching an "151 percent unit increase over the year-ago quarter" and iPhones sales increase by 88% compared to the year-ago quarter.

Is Apple doing the right thing?

Editor's Note: We originally used the term "evade" when referencing the New York Times accusations against Apple, but the newspaper actually used the term "sidestepping." The headline and text has been changed to reflect that, and we regret the error.