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Despite suggestions to the contrary raised by The New York Times this weekend, Apple pays “an enormous amount of taxes,” the company argued in a letter published by The Times on Saturday. The highly-profitable electronics company also referenced its controversial data released in March on the number of jobs it “creates or supports” in the United States, as well as its charitable giving, as evidence of the company’s positive economic impact in areas other than direct tax payments.
“Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules. We are incredibly proud of all of Apple’s contributions,” the company said in its statement.
The company added, “In the first half of fiscal year 2012 our U.S. operations have generated almost US$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.”
Apple’s response came in the wake of an in-depth New York Times examination of how the company uses multiple legal and financial loopholes to avoid paying billions in taxes every year. Examples include creating subsidiary entities in low-tax jurisdictions such as Nevada, Ireland, the Netherlands, Luxembourg, and the British Virgin Islands, and funneling as much revenue as possible through them.
Perhaps most notorious is Apple’s creation of Braeburn Capital, a Reno, Nevada holding company created by Apple in 2006 with the primary purpose of avoiding California state corporate taxes. By routing and managing revenue through Braeburn, Apple avoids paying its home state’s 8.84% corporate tax rate, saving the company billions of dollars over the years since its formation.
The cumulative effect of Apple’s maneuvering results in over 70% of the company’s revenue being recorded in tax-friendly oversea jurisdictions, greatly minimizing its corporate tax burden.
Apple’s 2011 tax numbers from The New York Times are incomplete.
However, as noted by Forbes, the specific numbers for Apple’s 2011 effective tax rate referenced by The New York Times, resulting in a surprisingly low 9.8 percent, were incomplete. Apple’s $3.3 billion tax payment thus far for the 2011 tax year was, in accordance with IRS practices, prepaid based on 2010 revenue.
As revenue nearly doubled for 2011, the initial payment as it relates to effective tax rate, as interpreted by The New York Times, is significantly understated when compared to what will be a higher tax payment once the final number is settled when Apple files its 2012 taxes next year.
For its part, Apple’s complex financial and accounting methods, as they exist currently, do not break any laws, something the company was quick to point out in its statement. The company is also not alone: many other tech companies, including Google and Cisco, engage in similar practices to keep as much revenue as possible recorded in low-tax jurisdictions overseas.
In fact, Apple, Google, and Cisco have been lobbying since last year for a U.S. “tax holiday,” allowing them to repatriate their international income at drastically lower tax rates with the argument that doing so will enable the companies to spend and hire more domestically, spurring local economies.
In today’s highly charged political climate, The New York Times examination of Apple’s actions to minimize its tax burden will undoubtedly divide politicians and consumers alike, with many praising Apple for its tax prowess and others vilifying it for its perceived lack of fairness.