The Apple Corporation wants lawmakers in Washington to once again grant a repatriation tax holiday – this time for up to $1.7 trillion in profits that multinational corporations are holding offshore. Federal law allows corporations to “defer” paying U.S. income taxes on these foreign profits until they are brought back or “repatriated” to the United States.

This tax holiday is being sold to the public as a boon to new investment and job creation as it was sold to Congress in 2004 when the first repatriation holiday was enacted. Under that scheme, corporations were able to bring their profits back and pay a tax rate of no more than 5.25 percent – rather than the statutory rate of 35 percent or a lower effective tax rate.

Numerous reports, including one by the Congressional Research Service,[i] found that “there is no evidence that [the tax holiday] increased U.S. investment or jobs, and it cost taxpayers billions,” according to a senior U.S. Treasury Department official.[ii]

Apple may even be working with many of its multinational colleagues to push for a territorial tax system, another huge giveaway to profitable corporations at the expense of all American taxpayers. A territorial tax system is in effect a permanent repatriation tax holiday. Under it, U.S. corporations would never have to pay U.S. corporate taxes on their overseas profits, thereby encouraging companies to use numerous tax dodges to shift capital to overseas tax havens that assess little or no corporate income tax, risking wages and jobs at home.

It’s time for Apple to start paying its fair share of taxes and for the U.S. Congress to reform the tax system so that companies like Apple can no longer defer paying taxes on their profits no matter where they are earned. If deferral were ended it would not matter which tax loopholes a company used to shift its profits to overseas tax havens – those profits would still be subject to U.S. taxes, minus the taxes paid in the jurisdiction where they were claimed as earned.

Below is a compilation of ways that Apple currently avoids paying its fair share of taxes:

  • Apple’s stated effective federal corporate income tax rate of about 25 percent is well below the statutory rate of 35 percent, which Apple and other large multinational corporations complain so much about. Apple’s SEC filings show effective tax rates of approximately 25.2 percent, 24.2 percent, and 24.4 percent for 2012, 2011, and 2010, respectively.[iii] Apple’s profits those years were $55.8 billion, $34.2 billion and $18.5 billion, respectively.[iv]

But doubts have been raised about the accuracy of Apple’s claimed federal tax bill due to the use of foreign tax dodges and other loopholes:

  • Tax Analysts: “If Apple followed usual reporting practices, its reported worldwide effective tax rate would have been 15 instead of 24 percent,” in 2011.[v]
  • New York Times: “[Apple] paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion [in 2011], a tax rate of 9.8 percent. (Apple does not disclose what portion of those payments was in the United States, or what portion is assigned to previous or future years.) By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.”[vi]
  • Apple had $82.6 billion in offshore profit holdings in 2012, much of it in tax havens, on which the company owes U.S. federal income taxes.
  • Apple increased its profits held offshore by more than 50 percent over 2011, when it had $54.3 billion offshore.[vii]
  • Apple says it would owe $28.5 billion on these profits if it brings them back to the United States – $14.7 billion in deferred tax liabilities overseas and another $13.8 billion in “unrecognized deferred tax liability” from money it intends to keep perpetually out of the U.S.[viii] That’s nearly a 35 percent tax rate, which means nearly all of Apple’s overseas profits are in tax havens that charge little if any corporate income tax.
  • According to The New York Times: “As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.”[ix]
  • Apple pays less than 2 percent tax on its foreign profits. As notes, “During the year to end-September this year, Apple’s effective tax rate was 25.2%; comparable with the 24.2% and 24.4% it paid in 2011 and 2010, respectively. While its foreign earnings have therefore been increasing rapidly, it has maintained effective tax rates on non-US earnings at 1.94%, 2.5% and 1.24% in 2012, 2011 and 2010, respectively.”[x]
  • Apple uses foreign tax havens to claim that just 30 percent of its profits are from the United States. It’s quite likely that much of Apple’s profits were actually earned in the United States but have been artificially shifted to foreign tax havens to avoid U.S. corporate income taxes. According to Tax Analysts:[xi]
  • “Apple does most of its research in the United States. Most of its key employees are in the United States. Fifty-four percent of its long-lived assets, 69 percent of its retail stores, and 39 percent of its sales are in the United States.”
  • “In Apple’s case, can there be any doubt that most of its value is created inside the United States? If we assume, conservatively, that 50 percent of profits should be U.S. sourced, then Apple’s federal taxes would have been $2.4 billion more in 2011.”
  • “Given the pivotal importance to Apple’s success of product design and other functions performed in the United States, one could reasonably expect U.S. profits to be 70 percent of the worldwide total. In this case, payments to the U.S. government would have been $4.8 billion more in 2011.”
  • U.S. taxpayers provided $3.2 billion in tax subsidies for Apple’s rich corporate pay packages that the company never actually pays. Apple enjoyed $3.2 billion in stock option tax breaks from 2010 to 2012 – 12 percent of the $27.3 billion in excess stock option tax benefits granted to 280 Fortune 500 companies studied by Citizens for Tax Justice (CTJ).[xvii] Some argue that this tax break encourages excessive corporate pay packages. Here’s how it works, according to CTJ: “Most big corporations give their executives (and sometimes other employees) options to buy the company’s stock at a favorable price in the future. When those options are exercised, corporations can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages).”
  • Apple’s tax dodging makes other industries pay more. “Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’,” according to The New York Times.[xviii]
  • Most of Apple’s undistributed foreign profits appear to be invested in the U.S. tax free. Apple complains that its foreign profits are sitting offshore and not able to be invested in America because it does not want to pay its effective corporate income tax rate. But a recent U.S. Senate study found that between 76 percent and 100 percent of Apple’s undistributed accumulated foreign earnings in 2010 were either held in U.S. bank accounts or in U.S. investments.[xix]
  • Apple was a member of the WIN America Campaign, a short-lived effort fighting for a corporate repatriation tax holiday in 2011.[xx]
Download Apple Fact Sheet Here

[i]Donald J. Maples and Jane G. Gravelle, “Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis,” Congressional Research Service (May 27, 2011).

[ii]Michael Mundaca, Assistant Treasury Secretary for Tax Policy, “Just the Facts: The Costs of a Repatriation Tax Holiday” (March 23, 2011).

[iii], “Apple Form 10-K Fiscal Year Ending September 30th 2012 (Nov. 2, 2012).

[iv] Apple, Inc. Form 10-K filing with the U.S. Securities and Exchange Commission (accessed May 20, 2013).

[v] Marty Sullivan, “Apple Reports High Rate But Saves Billions on Taxes,” Tax Analysts (Feb. 13, 2012).

[vi] Charles Duhigg and David Kocieniewski, “How Apple Sidesteps Billions in Taxes,” The New York Times (NYT) (April 28, 2012).

[vii] Citizens for Tax Justice (CTJ), “Apple, Microsoft and Eight Other Corporations Each Increased Their Offshore Profit Holdings by $5 Billion or More in 2012” (March 11, 2013).

[viii] Ryan Tate, “In Apple’s War on Taxes, Surrender Costs $28 Billion,” Wired (January 7, 2013).

[ix] Op cit, NYT.

[x] Mike Godfrey, “Apple Pays Less Than 2% Tax On Non-US Earnings,” (November 7, 2012).

[xi] Op cit, Tax Analysts.

[xii] Richard Rubin, “Offshore Cash Hoard Expands by $183 Billion at Companies,” Bloomberg News (March 8, 2013).

[xiii] Kimberly A. Clausing, “A Challenging Time for International Tax Policy,” Tax Notes (July 16, 2012).$file/clausing.pdf.

[xiv] U.S. Senator Bernie Sanders, “Fact Sheet on the Sanders/Schakowsky Corporate Tax Fairness Act” (accessed May 20, 2013).

[xv] Op cit, Tax Notes.

[xvi] The President’s Economic Advisory Board, Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation (August 2010), pp. 89-91.

[xvii] CTJ, “Executive-Pay Tax Break Saved Fortune 500 Corporations $27 Billion Over the Past Three Years” (April 24, 2013).

[xviii] Op cit, NYT.

[xix] U.S. Senate Permanent Subcommittee on Investigations, “Offshore Funds Located Onshore, Majority Staff Report Addendum, December 14, 2011, to Repatriating Offshore Funds: 2004 Tax Windfall For Select Multinationals Majority Staff Report, October 11, 2011,” pp. 4-5. Apple had $29 billion in undistributed accumulated foreign earnings as of FY2010.

[xx] Reuters, “Factbox: WIN America members include Microsoft, others” (August 24, 2011).