The report of the U.S. Senate Permanent Subcommittee on Investigations on Apple Inc.’s international tax strategy sheds light on how the company has exploited to maximum effect a number of gaps in the web of national tax jurisdictions. Subcommittee Memo on Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.) (May 21, 2013). Among other things, Apple incorporated two major subsidiaries in Ireland. It transferred certain economic rights to its intellectual property to one of those subsidiaries, enabling that entity to pay a corporate income tax rate of 2% or less. According to the report, Apple’s other Irish subsidiary “has no declared tax residency anywhere in the world and, as a consequence, has not paid corporate income tax to any national government for the past 5 years.” The report states that, through these and other maneuvers, between 2009-2012 Apple succeeded in avoiding US$44 billion in U.S. taxes on otherwise taxable offshore income.
For a lawyer with an interest in international taxation, the report evokes a sense of awe at the skill with which Apple appears to have gamed the system. However, that sensation quickly fades when, as a taxpayer in a nation becoming increasingly mired in debt, one considers the long-term effects on the public fisc of the loss of those revenues.