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SEC review clears Apple of dodgy tax dealings

When Irish eyes are smiling

Funnel of cash. Credit: via SXC – http://www.sxc.hu/profile/Leonardini

The US Securities and Exchange Commission has given Apple's finances a clean bill of health after a review of the company's use of an Irish subsidiary to dodge corporate taxes be more tax efficient.

In May Apple's CEO Tim Cook was quizzed by a congressional committee about how it managed to pay such a relatively small amount of tax, despite being one of the most valuable companies on the planet. A congressional report claimed Apple has managed to avoid paying $79bn in US taxes between 2009 and 2012.

"Apple complies fully with both the laws and spirit of the laws," Cook told Congress at the time. "And Apple pays all its required taxes, both in this country and abroad."

The following month the SEC asked Apple for more details about its tax affairs, particularly where it was stashing its overseas earnings. Apple responded by giving more information about its system and revealed that it was using an Irish subsidiary to handle most of its overseas earnings because of the very low tax rate there.

Last year, Apple funneled over $40bn in revenues through its Irish subsidiary, enabling it to avoid paying nearly $6bn in US taxes. Apple said it had no plans to repatriate the earnings to the US and will use the money for investment in new retail stores and services.

Apple is not alone in using Ireland's generous corporate tax regime to dodge paying tax in other countries. Google is also a user of the so-called "double Irish," as is Microsoft. And while it's perfectly legal, the SEC wanted Apple to make it clear that the company faced a level of risk if the Irish government, currently in the midst of a crippling austerity push, decided to jack up its tax rates.

Cook said that the company has no plans to repatriate earnings to the US unless it receives a tax break for doing so. The company is one of many tech companies pushing for a tax break to repatriate foreign earnings and argues that such a move would spur jobs growth in the US by allowing the money to be used for investment.

The problem with that is that it has been tried before and it doesn’t work. The 2004 Homeland Investment Act was signed off by President Bush as a one-off deal that would allow firms to repatriate funds with a tiny tax bite, again with the argument that it would stimulate employment, but the vast majority of the $362bn that came into the country was used to pay off shareholders and provide bonuses for management.

After discussions with the SEC, Apple has agreed to amend the language of its SEC filings to reflect the risks of using its Irish subsidiary and the agency has now given Cupertino a clean bill of tax health. ®

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