RENO,
Nevada: Apple, the world's most profitable technology company, doesn't design
iPhones in Nevada. It doesn't run AppleCare customer service from Reno. And it
doesn't manufacture MacBooks or iPads anywhere nearby.
Yet, with a
handful of employees in a small Reno office in a company subsidiary named
Braeburn Capital, Apple has done something central to its corporate strategy:
it has avoided millions of dollars in taxes in California and 20 other US
states.
Apple's
headquarters are in Cupertino, California. By putting an office to collect and
invest the company's profits in Reno, just 350 kilometres away, Apple sidesteps
state income taxes on some of those gains.
California's
corporate tax rate is 8.84 per cent. Nevada's, zero.
Setting up
an office in Reno is one of many legal methods Apple uses to reduce its
worldwide tax bill by billions of dollars a year.
As it has
in Nevada, Apple has created subsidiaries in low-tax countries such as Ireland,
the Netherlands, Luxembourg and the British Virgin Islands - some little more
than a letterbox in Luxembourg or an anonymous office in Nevada - that help cut
the taxes it pays.
Almost
every large corporation tries to minimise taxes. For Apple, the savings are
especially alluring because the company's profits are so high. Wall Street
analysts predict Apple could earn up to $US45.6 billion ($43.5 billion) this
fiscal year - a record for a United States business.
Braeburn is
a variety of apple that is simultaneously sweet and tart. When someone in the
US buys an iPhone, iPad or other Apple product, a portion of the profits from
that sale is often deposited into accounts controlled by Braeburn, and then
invested in stocks, bonds or other financial instruments, company executives
say. Some profits from those investments are shielded from California tax
authorities by virtue of Braeburn's Nevada address.
Since
founding Braeburn in 2006, Apple has earned more than $US2.5 billion in
interest and dividend income on its cash reserves and investments around the
globe. What's more, Braeburn allows Apple to lower its taxes in other states
because many of those jurisdictions use formulas that reduce what is owed when
a company's financial management occurs elsewhere.
While
Apple's Reno office helps the company avoid state taxes, its international
subsidiaries - particularly the company's assignment of sales and patent
royalties to other nations - help reduce taxes owed to the US and other
governments.
The
Luxembourg subsidiary, named iTunes S.ar.l., has just a few dozen employees,
according to corporate documents filed in that nation and an executive. But
when customers across Europe, Africa or the Middle East - and potentially
elsewhere - download a song, television show or app, the sale is recorded in
this small country, present and former executives say.
In 2011,
iTunes S.ar.l.'s revenue exceeded $US1 billion, an Apple executive said,
representing about 20 per cent of iTunes' worldwide sales.
Apple, say
former executives, has been particularly talented at identifying legal tax
loopholes.
Apple was a
pioneer of an accounting technique known as the ''Double Irish with a Dutch
Sandwich'', which reduced taxes by routing profits through two Irish
subsidiaries - Apple Operations International and Apple Sales International -
and the Netherlands and the Caribbean.
Without
such tactics, Apple's federal tax bill in the US would have been $US2.4 billion
higher last year, a recent study by a former Treasury Department economist,
Martin Sullivan, said. As it stands, the company paid cash taxes of $US3.3
billion around the world on its reported profits of $US34.2 billion last year,
a tax rate of 9.8 per cent.
Apple, in a
statement, said it ''pays an enormous amount of taxes which help our local,
state and federal governments. In the first half of fiscal year 2012, our US operations
have generated almost $US5 billion in federal and state income taxes, including
income taxes withheld on employee stock gains, making us among the top payers
of US income tax''.
The New York Times
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