Apple's Tax Avoidance Strategy

This video explains Apple's Tax structure in Ireland.
First, I go through basic corporate taxation. A company pays taxes based on where it's located,
where its employees are located and where its profits are made. Also known as tax residency. For example, a US tax resident company is liable for taxes in the United States, while an Irish tax resident company will need to pay taxes in Ireland. What happens if the Irish company is a subsidiary of the US corporation, which effectively means that the US company controls and owns the Irish company? The US should only be able to tax these profits when repatriated (note that this was true until 2017 and prior to the introduction of the Tax Cut and Jobs Act. Today, these offshore profits could also be taxed in the US even where unrepatriated).
Second, I go through the tax advantages of setting up a subsidiary in Ireland. The Irish corporate
tax rate is at 12.5%, and for comparison, the US federal rate is at 21%, and Australia charges corporate tax at 30%. Ireland has a long-standing reputation of heavily favoring corporations. In fact, it was at once called a tax haven by the US Internal Revenue Service (see report published in 1981 by IRS). Over the years, many international companies have decided to set up operations in Ireland due to its highly accommodative corporate tax and economic policies.
Finally, I go through the Apple Irish structure at a very high level. Before 2014, a company could be considered a non-tax resident of Ireland if it is centrally managed and controlled outside of Ireland,
even where the company is legally registered in the country. So instead of designating Irish individuals as directors of the Irish subsidiary, Apple set up the company with US-based directors to meet the definition of "managed and controlled outside of Ireland". This means that earnings from the Irish subsidiary would not be taxed in Ireland.And the US would also not be able to tax these profits until they are ultimately repatriated. The European Commission referred to this entity as “Stateless” for residency purposes. This certainly attracted a lot of attention including that of the US Senate and the European Commission. In fact, starting from 2014, the European Commission initiated a probe into Apple’s arrangement with Ireland. Surprisingly, the residency issue, which arguably the more offensive matter, was not challenged. And this is likely because Apple’s structure was perfectly legal and well within the Irish tax rules. So instead, the European Commission’s focus was on a very specific issue that probably deserves a whole video on its own. In 2020, the European Commission’s tax decision was ultimately struck down by the General Court, ruling in favor of Apple. The European Commission has appealed the decision and the outcome is yet to be determined. But it is not uncommon for multinational companies to take advantage of the hybridity or mismatch between different countries tax law to achieve a lower global effective tax rate. While tax evasion is illegal and could result in jail time, tax avoidance is perfectly legal. And what these multinational companies are doing is simply practicing some form of tax avoidance.
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The following sources were used to compile this video:
1) EC Press Release: ec.europa.eu/c...
2) EC Decision Letter: ec.europa.eu/c...
3) Seamus' amazing blogs, including the graphic at 3:29. economic-incent...
4) PricewaterhouseCoopers and KPMG publications on the Apple tax decision in 2016 and 2020.
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How to contact me:
👨 IG: @therealcpa_ey
🎥 TikTok: @therealcpa_ey
📝 email: [e-mail]
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Disclaimer:
Note that this video oversimplifies the complexity of the different tax regimes. This is not tax and financial advice as this video was made for entertainment and informational purposes only. Please consult with your tax and financial advisors before undertaking any corporate planning.
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Credits:
All icons in this video are downloaded from www.flaticon.com. Authors of those icons include "Freepik", "amonrat rungreangfangsai", "Smashicons", "Eucalyp".

[@ElonMusk-FanZone]

Great vid!

[@therealcpa_ey]

Thanks so much for the kind comment!

[@rgkh1503]

thank you for the video. did you make a whole new one on the european union focus after the case, that you were mentioning?

[@khalidzihar]

Why does Apple store all their money without spending in Ireland? Will they be taxed if they spend it on non us stuff? Like setting up a research center in UK for example

[@therealcpa_ey]

Good point! Cash spending is typically driven by business needs. In Apple's case, they are generating so much revenue in excess of their expenses that they are accumulating excess cash. I'm sure they are already spending everything they can / need to outside of the US but they are just THAT profitable.

[@khalidzihar]

@@therealcpa_ey Thanks a lot for the answer

[@therealcpa_ey]

@@khalidzihar np! Appreciate you 👍

[@Medic8808]

Why is it legal for a company worth $2192 Billion, that avoided $9 Billion in taxes in 2012 alone, who has off shore holdings worth $102 Billion, be allowed to receive 35% city sales tax revenue from the sale of their products to area business, while also ignoring various subscription renewal dates on their platform in order to bundle bill their users in an effort to circumvent processing costs?

[@davidgarcia32323]

They have something you don’t, actual power and friends in high places.

[@Medic8808]

@@davidgarcia32323 so does ji xiping and hunter biden…

[@dadaradabada6928]

is this why orange man bad?

[@gsxr600rafii]

That was way before bad orange man even announced running.

[@Americansikkunt]

Lol