Apple has been operating practically tax-free in Ireland since 1980, a former exec has claimed.
The ex-Cupertino veep spoke out as the fruity firm was accused of being a "tax resident nowhere in the world" by Senator John McCain (R-AZ) during a hearing of the US Senate's Permanent Subcommittee on Investigations. The iPhone maker was also accused of routing sales through overseas subsidiaries purely to minimise its tax bills back at home.
Chief exec Tim Cook, who was summoned to the Senate proceedings, denied those charges, saying that Apple's Irish business was a company "set up to provide an efficient way to manage Apple's cash from income that's already been taxed" elsewhere.
Subcommittee chairman Senator Carl Levin (D-MI) said during the hearing that, between 2009 and 2012, Apple declared profits of $38bn in the US, while its Irish subsidiaries trousered $74bn. In 2011 alone, he said, 64 per cent of Apple's global pretax income was recorded in Ireland, despite just four per cent of Apple employees and one per cent of Apple customers being located there.
Apple said it paid $6bn in US taxes in 2012. The company's chief financial officer Peter Oppenheimer added that if two-thirds of the firm's profits happened to be in Irish companies, that was "because of the way we set ourselves up 30 years ago".
Meanwhile, Ireland's finance minister Michael Noonan has said that his country is not to blame for Apple's tax avoidance because Apple isn't resident there.
“I do not want to be the whipping boy for some misunderstanding in a hearing in the US Congress,” he said during a parliamentary committee meeting on Wednesday.
Responding to a question on Apple's apparently magical tax rate in Ireland, Noonan said: "Maybe there was a magician, but the magician wasn’t living down in Cork [where Apple is based in Ireland]. Because [Apple] is not tax resident in Ireland, [it is] not liable to Irish tax."
But Del Yocam, veep of manufacturing at Apple in the early 1980s, told Reuters that the firm did get a favourable tax rate back then, one that was offered to many companies, which is openly admitted by the Irish government.
From 1956 to 1980, the country attracted foreign companies by offering them a zero rate of tax and from 1980, any multinational that was exporting its products got a tax holiday until 1990. As part of the deal to join the European Economic Community, before it became the European Union, the country had to stop offering tax holidays to exporters, but it could still give a low ten per cent rate to firms, providing they qualified as manufacturers.
Phillip Bullock, Apple's head of tax operations, claimed that since the 1990s, Ireland and Apple have continued this arrangement, despite the fact that much of the Mac maker's manufacturing has been outsourced to Asia.
"Since the early 1990s, the government of Ireland has calculated Apple's taxable income in such a way as to produce an effective rate in the low single digits," he told the Senate subcommittee.
However, Ireland continues to insist that Apple gets the same 12.5 per cent corporation tax rate as everyone else - already a much lower rate than the UK's 23 per cent main rate or the up to 35 per cent paid in the US - it's just that Apple isn't paying in the country.
Cupertino apparently manages this feat by having its main Cork-based business Apple Sales International, earning the profits but two other Cork-based firms Apple Operations Europe and Apple Operations International own the firm's intellectual property rights and all three firms are registered in the US. This structure seems to result in the curious state of affairs of the profits not really being tax resident anywhere. ®