How Apple Minimizes its Corporate Tax Burden

In the latest installment of its "iEconomy" series, The New York Times takes a look at how Apple minimizes its corporate tax burden, taking advantage of a number of legal maneuvers and loopholes around the world. Apple's strategies are of course fully legal and used by many other corporations, but with a spotlight on Apple as it has rapidly risen to become the world's most valuable publicly-traded company with record-setting profits, it has obviously attracted much attention about how it handles its money.

Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.

Among the tactics used by Apple:

- Setting up subsidiaries in low-tax locations such as Nevada, Ireland, Netherlands, Luxembourg, and the British Virgin Islands, routing as much revenue as possible through these locations. By routing much of its U.S. revenue through its Braeburn Capital subsidiary in tax-free Reno, Nevada, Apple is able to avoid California's corporate tax rate of 8.84%, while also reducing its tax burden on money earned in other states.

- Apple's iTunes S.à r.l. subsidiary in Luxembourg consists mainly of a mailbox and a few dozen employees, but records $1 billion per year in revenue as the entity responsible for all iTunes Store transactions throughout Europe, Africa, and the Middle East. With the iTunes Store offering strictly downloadable goods, Apple is able to take advantage of favorable tax treatment available in Luxembourg as part of the country's efforts to attract businesses.

- Apple has substantial operations in Ireland, but the report notes that one of the main benefits of locating there is that Apple is able to internally transfer its patent royalty earnings to a subsidiary there, with the money being subjected to a 12.5% tax rate rather than the 35% tax rate found in the United States. More than one-third of Apple's worldwide revenue is booked through its Irish subsidiaries.

- Apple records 70% of its revenue overseas, even though much of the product value would normally be considered to derive from their design, which occurs in the United States.

apple taxes profits
Overall, Apple paid $3.3 billion in corporate taxes in 2011 on earnings of $34.2 billion in profits, an effective tax rate of 9.8%, which is considered low by corporate standards. But with the company's tactics relying on a complex and disjointed system of tax laws throughout the world, it is difficult for the United States to single-handedly require Apple to book more of its revenue in its home country, which currently has the highest corporate tax rates in the world when federal and average state rates are included.

Apple has provided an official response to The New York Times, highlighting its role in job creation in the United States, the tax payments it does make, and its charitable giving. The company also notes that its business practices are in full compliance with all laws and accounting rules.

Update: As noted by Forbes, The New York Times is reporting an incorrect calculation of Apple's effective tax rate for 2011 of 9.8%, simply reusing numbers released several weeks earlier by the Greenlining Institute. Forbes points out that Apple's $3.3 billion in taxes paid during 2011 come from its quarterly estimated tax payments made during the year, but that federal tax guidelines instruct taxpayers to base their calculations on the previous year's earnings.

Consequently, Apple's 2011 quarterly tax payments are actually based on 2010's earnings, with the correct amount of tax for 2011 not being settled until Apple files its final taxes in 2012. And given Apple's strong growth rate, the incorrect assumption that Apple's 2011 tax payments were based on 2011's earnings grossly understates Apple's tax rate.

As outlined in his previous piece debunking the Greenlining Institute's claim, Tim Worstall notes that Apple reports its effective tax rate in its annual 10-K filings with the Securities and Exchange Commission, and that rate came in at 24.2% for 2011, much more in line with industry norms.

Top Rated Comments

rdowns Avatar
119 months ago
Perfectly legal, but this is the kind of behaviour that should get alot of attention in order to bring badwill to the companies doing it.


It's the fault of our corrupt Congress who write a corrupt tax code.
Score: 105 Votes (Like | Disagree)
Lennholm Avatar
119 months ago
Perfectly legal, but this is the kind of behaviour that should get alot of attention in order to bring badwill to the companies doing it.
Score: 48 Votes (Like | Disagree)
bartzumbari Avatar
119 months ago
Minimizing taxes is the ethical thing to do

A company is ethically obligated to minimize its own tax burden IMO. I would fault a company that does otherwise. The humans involved in the company (employees, investors) already pay taxes, as well they should since they're the ones who directly benefit from most government services.

Blaming a company for taking advantage of legal tax loopholes is like blaming water for finding leaks in a boat.
Score: 41 Votes (Like | Disagree)
-Ken- Avatar
119 months ago
Businesses do not pay taxes, ever.

The costs are merely added to the prices of goods and services.

Instead, we should be looking at Apple's payroll. How many hundreds of millions of dollars do their employees get paid?

THEY pay taxes.
Score: 40 Votes (Like | Disagree)
StealthGhost Avatar
119 months ago
You can't fault companies and people for taking advantage of legal loopholes but this is a perfect example of why we should eliminate them.
Score: 39 Votes (Like | Disagree)
Mr_Ed Avatar
119 months ago
I don't blame any corporation for using all legal, available means to reduce their tax burden. It's just good business. Perhaps we should be looking at why corporate tax rates in the U.S. are so high that the other, more convoluted options are economically feasible.

The one thing I will say about this article is that you just know there will be many Apple bashers out there that will grab on to this and continue to single out Apple and paint it in a bad light as a result even though they are not the only ones doing this. Like the whole Foxconn labor issue, where a cursory look at what the media reported made it sound like Apple was the only beneficiary of whatever Foxconn does with regard to labor.
Score: 36 Votes (Like | Disagree)

Top Stories

macbook air orange

Apple Developing a Whole New Kind of MacBook Air

Monday June 21, 2021 2:15 am PDT by
Apple is believed to be working on a completely new, high-end version of the MacBook Air, according to recent reports. Bloomberg's Mark Gurman, who often reveals accurate insights into Apple's plans, has repeatedly discussed the company's work on a high-end MacBook Air. Apple analyst Ming-Chi Kuo and leaker Jon Prosser have also referred to a similar MacBook Air model. The high-end...
ios wifi settings

iOS Bug Causes Specific Network Name to Disable Wi-Fi on iPhones

Sunday June 20, 2021 4:15 am PDT by
A wireless network naming bug has been discovered in iOS that effectively disables an iPhone's ability to connect to Wi-Fi. Security researcher Carl Schou found that after joining a Wi-Fi network with the name "%p%s%s%s%s%n" his iPhone's Wi-Fi functionality was left "permanently disabled." Changing a hotspot's SSID did nothing to correct the problem, with even a reboot failing to make a...
purple iphone 12 and 12 mini

iPhone 12 Mini Production Reportedly Ended Earlier Than Expected Due to Relatively Low Sales

Monday June 21, 2021 7:07 am PDT by
Following widespread reports that the iPhone 12 mini has experienced poor sales performance, at least relative to other iPhone 12 models, Taiwanese research firm TrendForce today claimed that production of the device has already ended. According to TrendForce, the iPhone 12 mini "reached End-of-Life ahead of time" during the second quarter of 2021, suggesting that Apple will focus on selling ...
iOS 15 Users Underwhelmed Feature

Users Underwhelmed by iOS 15 and iPadOS 15, Survey Suggests

Monday June 21, 2021 7:17 am PDT by
Users appear to be underwhelmed by Apple's upcoming iOS 15 and iPadOS 15 updates, according to the findings of a new survey by SellCell. The survey asked 3,000 iPhone and iPad users, evenly split between men and women, aged 18 or over in the United States, what they thought of iOS 15, iPadOS 15, and the naming of the upcoming iPhone 13 lineup. Over 50 percent of all of the survey's...
Top Stories 63 Feature

Top Stories: Beats Studio Buds Announced, Apple Watch Series 7 Rumors, and More

Saturday June 19, 2021 6:00 am PDT by
The Apple news cycle started to move beyond WWDC this week, but that doesn't mean there still wasn't a lot to talk about, led by the official debut of the much-leaked Beats Studio Buds that might give us a hint of what to expect for the second-generation AirPods Pro. With no hardware announcements at WWDC, we also took a look at when we might finally see the long-rumored redesigned MacBook...
primeday2020 feature3

Amazon Prime Day: The Best Apple Deals

Monday June 21, 2021 6:15 am PDT by
Amazon's annual Prime Day event has officially kicked off today, beginning 48 hours of discounts, offers, and tons of savings across Amazon's storefront. This includes everything from home electronics to clothing, jewelry, video games, movies, and much more. Note: MacRumors is an affiliate partner with these vendors. When you click a link and make a purchase, we may receive a small payment,...
iOS Spam Calendar Feature

iCloud Users Continue to Be Plagued by Calendar Spam

Monday June 21, 2021 8:51 am PDT by
Despite previous attempts to put the situation at rest, some iCloud users continue to experience spam calendar invitations, causing their calendars to be filled with random events. The situation received widespread coverage in 2016, where Apple said that it was "actively working to address this issue" by "identifying and blocking suspicious senders." Victims are targeted in various ways. The ...
iphone 13 yellow

TrendForce: iPhone 13 Lineup Will Remain Limited to Maximum 512GB of Storage

Monday June 21, 2021 6:33 am PDT by
Apple will likely unveil its next-generation "iPhone 12s" or "iPhone 13" lineup in around two and a half months from now, and ahead of time, Taiwanese research firm TrendForce has outlined its expectations for the devices. A summary of TrendForce's expectations:Apple will unveil four new iPhones in September, including a mini model, a standard model, and two Pro models. September is the...
16 inch macbook pro m2 render

When Can We Expect the Redesigned MacBook Pros Now?

Wednesday June 16, 2021 7:11 am PDT by
With no sign of redesigned MacBook Pro models at this year's WWDC, when can customers expect the much-anticipated new models to launch? A number of reports, including investor notes from Morgan Stanley and Wedbush analysts, claimed that new MacBook Pro models would be coming during this year's WWDC. This did not happen, much to the disappointment of MacBook Pro fans, who have been...
maxresdefault

Video: 20 Annoyances Apple Fixed in iOS 15 and macOS Monterey

Friday June 18, 2021 11:36 am PDT by
With iOS 15 and macOS Monterey, Apple is adding several quality of life improvements, which are designed to address some of the complaints that people have had with these operating systems for years now. Subscribe to the MacRumors YouTube channel for more videos. In our latest YouTube video, we're highlighting some of our favorite "fix" features that address long-running problems in iOS and...