How Apple Saved Billions of Dollars by Avoiding Taxes: An Interesting Tale

Damini Bhandary Damini Bhandary
Sep 15, 2021 5 min read
How Apple Saved Billions of Dollars by Avoiding Taxes: An Interesting Tale

The power of a Human Mind is astonishing. Just by looking at the past few inventions, one can understand, what a human mind is capable of. In the present age, everything is possible with just a simple click, from shopping to dating. In fact, it wouldnโ€™t be wrong to say that we are carrying the whole world in our pockets, thanks to technological advancement. One of the biggest contributors in carrying the world in our pockets is Apple Inc. Now, you can just wear them on your wrist as well.

The worldโ€™s biggest technology company that deals with electronics and computer software first started its journey in 1976. It was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne. Till 2011 Steve Jobs was the CEO of the technology giant. Later in that year, after the death of Steve Jobs, Tim Cook took the charge of Apple. These are just basic facts that almost everyone knows about Apple. Letโ€™s come to the point that makes this article interesting.

โ€œPlay by the rules, but be ferociousโ€

โ€“ Phil Knight

Bending Rules
What Is Tax Haven (Heaven)?
The Tactics Apple Uses For Tax Avoidance
Challenges Faced By Apple for Avoiding Tax
Present Condition of Apple and Taxes
FAQ

Bending Rules

With great powers, comes great responsibility. Every human being has to pay taxes, if they have an income, to the Government of the country they live in. Apple being the biggest tech company is not an exception. It is bound to pay a large sum of amount to the Government in the form of tax.

Just like other businesses, Apple is also not that fond of paying billions of bucks as taxes but has no choice but to be responsible to the country. Somehow, Apple used a tactic to avoid paying billions to the Government. Well, the secret is, not so secret. Apple transfers most of its profit to tax haven countries and thus taking advantage of a loophole, the US Government has in its tax-paying system.

As part of its tax avoidance strategy, Apple uses its โ€˜subsidiariesโ€™ in Tax haven. Now, to understand this more deeply, first letโ€™s try with the term, Tax Haven.


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What is Tax Haven (Heaven)?

True to its name, the term โ€˜Tax Havenโ€™ is used for all those countries that offer, foreign investors to pay minimal and sometimes even no taxes for their businesses. This is basically a good scheme for the investors to avoid paying taxes to the actual country the individual or business belongs to. Another attractive part of this โ€˜heavenโ€™ is that they occasionally offer financial secrecy to the investors.

Some of the top Tax havens are:

  • Ireland
  • Netherlands
  • Switzerland
  • Panama
  • Bermuda
  • The Cayman Islands
  • Luxembourg

The Tactics Apple Uses For Tax Avoidance

Every time Apple has stated that it has always played by the rules and has paid taxes to the Government as per the laws. In fact, it considers itself the largest taxpayer in the world. This is somewhat true, in 2017, Apple stated that it had paid over $35 billion dollars in the last three years. However, that amount wasnโ€™t able to make even a small dent in the revenue of Cookโ€™s led multinational company. How?

Well, the strategy is to transfer their profit, obtain domestically to Tax Haven countries. Apple uses Ireland and Luxembourg as its โ€˜Havenโ€™ to get away from paying the lump sum.

The US tax system doesnโ€™t put taxes on the profit obtained from the multinational companyโ€™s foreign subsidiaries unless they are transferred to the parent company as dividends. Which is, while comparing with the foreign country taxes, is way much higher.

There is a term called โ€˜Deferred Taxโ€™, which means the income tax that a company will pay in the near future instead of paying immediately, which might be a big shock to the bank balance.

Apple has taken that advantage by transferring over 70% of its domestically obtained profit to the tax haven, thus putting those profits in the deferred tax category of the company.

As per a report from 2017, Apple was avoiding paying almost $78 billion dollars of taxes at that. In Ireland, Apple had three subsidiaries, which played a significant role in the game of Tax Avoidance.

Apple Foreign Tax Payments
Apple Foreign Tax Payments

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Challenges Faced By Apple for Avoiding Tax

Unfortunately, this game has not been a smooth ride for the technology giant. It has to face some consequences for its tax avoidance strategy.

In 2013 an investigation revealed that two of the subsidiaries of Apple in Ireland are formed in a way that has helped them in avoiding paying taxes to both the country, U.S. and Ireland.

  • On 29 August 2016 European Commission declared that Apple has used Ireland, and has received illegal tax benefits from the country.
  • The European Commission instructs Apple to pay almost $15 billion dollars along with interest to Ireland for not confiding with the rules and not paying proper taxes.
  • The Irish Government although took the side of the tech giant and stated that no tax law has been violated.
  • In the month of November of the same year, Tim Cook appealed against the instruction.
  • In 2018, Apple paid around โ‚ฌ14.3 billion in back taxes and interest that was due to Ireland. The money was held in Escrow fund.

Present Condition of Apple and Taxes

After a long battle with the European Commission, in July 2020, the European General Court gave the decision in favour of Apple and the Irish Government.

This automatically became good news for the Technology giant as it does not have to pay the huge amount. At present, the European Commission has decided to appeal again, and this time in front of the highest court, the Court of Justice of the European Union (CJEU).

Conclusion

The bigger the business, the bigger will be the risk. Apple Inc. is not an exception here. As stated before, the human mind is amazing. Companies like Apple will always find a way to deal with complicated matters in legal and sharp ways.

FAQ

What is the revenue of Apple?

As of 2020, the revenue of Apple is $274.515 billion.

Who Is The CEO Of Apple?

Tom Cook is the CEO of Apple.

Which is the best Tax Haven?

Cayman Island is considered as the best country as Tax Haven.

How Much Does Apple Save On Taxes?

Apple saved $40 billion in Taxes.

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