Apple (AAPL) is famously innovative on the product side, but what of the corporate accounting team? Not a discipline known for its “Think Different” ethos, right? Well, judging from this New York Times piece outlining in excruciating detail how the company reduces its tax liability, the accountants may be the most creative people on the payroll.
The numbers: Last year Apple reported $34.2 billion in profits and paid $3.3 billion in cash taxes globally, which works out to a tax rate around 9.8 percent. (Wal-Mart paid something more like 24 percent.) That stands out even among other technology companies on the S&P 500, who report something like a third less taxes than non-tech companies.
The difference, in large part, is due to creative maneuvers like the old “Double Irish with a Dutch Sandwich,” which involves patent fees, multiple Irish subsidiaries, and a loop-de-loop through the Netherlands. The company helped engineer the strategy back in the 1980s, though due to a 2006 reorganization its not clear whether they’re still using it.
More current techniques involve things like Braeburn Capital, a Reno-based subsidiary that invests company revenue into stocks, bonds, and the like. Nevada, of course, has rather more generous tax policies than California. On a global scale, Apple also runs many of its iTunes transactions — as much as 20 percent of worldwide sales — through Luxembourg, which offers a more lenient rate.
Apple provided the Times with a statement claiming that the company “pays an enormous amount of taxes, which help our local, state and federal governments,” and insisting that it “has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules.” Anonymous executives also made the case that paying more would be unfair to shareholders.
Betabeat wonders whether it would perhaps be possible to hire an Apple accountant for some long-term personal financial planning? Asking for a friend.
