Tech by VICE

Apple Avoids $60 Billion in Taxes by Keeping Money Overseas, Report Says

A new study explains how Apple, Microsoft, Google and others avoid billions in taxes.

by Sam Gustin
Oct 7 2015, 11:00am

Tim Cook. Image: Valery Marchive/Flickr

Apple, Microsoft, Google and other corporate giants avoid paying hundreds of billions in US taxes every year by stashing mountains of cash in offshore tax shelters, according to the latest study to document widespread tax avoidance by corporate America.

The 500 largest US companies are sitting on more than $2.1 trillion in overseas cash hoards, allowing them to avoid paying an estimated $620 billion in US taxes if the funds were repatriated, according to a new report by the progressive Center for Tax Justice and the US Public Interest Research Group Education Fund.

"US-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to the tax code," wrote the study's authors, Robert S. McIntyre, Richard Phillips, and Phineas Baxandall.

The use of legal offshore tax havens by the largest US companies has been a source of controversy and debate for years, but the new study, which relies on Securities and Exchange Commission filings, is one of the most detailed accounts yet of the systematic effort by corporate America to avoid paying US taxes.

Apple, an iconic American firm, has the dubious honor of holding more money overseas—$181.1 billion—than any other US company, and would owe $59.2 billion in US taxes if those funds were brought back, according to the study. Microsoft has parked $108.3 billion offshore, while Google is holding $47.4 billion overseas, the study found.

The study reports that Apple has thus far paid a "miniscule 2.3 percent tax rate on its offshore profits"

A 2012 New York Times investigation revealed that Apple has developed methods of routing offshore profits through subsidiaries in Ireland and the Netherlands, and then on to the Caribbean. Scores of other companies have developed similar tax avoidance strategies.

The newly released study reports that Apple has thus far paid a "miniscule 2.3 percent tax rate on its offshore profits." (The Times investigation found that Apple's overall 2011 tax rate was 9.8 percent, well below the the US federal corporate rate of 35 percent. This discrepancy highlights the advantages of overseas tax shelters.)

Apple is not alone in paying a pittance in taxes. A recent USA Today analysis of data from research firm S&P Capital IQ found that 20 companies in the Standard & Poor's 500 index paid no taxes or effective tax rates of zero percent in the second quarter of 2014.

Representatives for Apple, Microsoft, and Google were not immediately available for comment on the new study.

In 2013 testimony before Congress, Apple CEO Tim Cook explained that the company's huge overseas cash hoard is due to the tech giant's rapid international growth, and he insisted that the tech giant pays "all the taxes we owe, every single dollar."

But Cook also acknowledged that "under the current US corporate tax system, it would be very expensive to bring that cash back to the United States."

The increasing scrutiny on corporate tax avoidance schemes comes as regulators in Europe and elsewhere are moving to crack down on such tax minimization strategies.

On Monday, the Organization for Economic Cooperation and Development issued a package of proposed rules designed to close "gaps in existing international rules that allow corporate profits to 'disappear' or be artificially shifted to low/no tax environments." The proposal will be discussed this week in Peru by finance ministers for the Group of 20 major economies.

Earlier this year, Sen. Bernie Sanders, the Vermont Independent who is seeking the Democratic presidential nomination, introduced the "Corporate Tax Dodging Prevention Act," which aims to ban the legal tactics and loopholes that allow corporations to avoid billions in US taxes by stashing their profits overseas.

"At a time when corporate profits are at an all-time high, it is past time for corporate America to pay their fair share in taxes so that we can create the millions of jobs this country needs," Sanders said in a statement.

Of course, the US Congress has for years been debating ways to repatriate and tax the massive amounts of corporate cash currently parked overseas, but lawmakers—who can barely agree on a federal budget to keep the government open—have yet to agree on a course of action. And major corporate tax reform is extremely unlikely during a presidential election cycle.

"Congress, by failing to take action to end to this tax avoidance, forces ordinary Americans to make up the difference," the study's authors wrote. "Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt."

Silicon Valley
tim cook
tax havens
motherboard show
Center for Tax Justice
Organization for Economic Cooperation and Development
US Public Interest Research Group Education Fund