Daily Management Review

Bloomberg: Apple is the greatest taxdodger in the US


Apple topped Bloomberg’s ranking of the largest US corporations that manage to optimize payment of taxes in the United States with the maximum yield. The scheme involves purchase of US government debt instead of capital repatriation and profit tax of 35%.

DavidSandoz via flickr
DavidSandoz via flickr
Apple and other US corporations use a loophole in US law, which them allows to move away from 35% - income tax during repatriation of capital from abroad in the US, writes Bloomberg referring to its own study of financial statements of large corporations and comments of experts on taxes.

According to the agency, corporations are buying US treasuries on foreign earnings. This scheme allows not only avoid the 35% tax, but also to make a profit at the expense of income from bonds.

At the same time, these companies are the largest corporations - holders of treasuries. According to Bloomberg estimates, Apple owns $ 41.7 billion in American treasuries, Cisco - $ 26.5 billion, Google - $ 20.9 billion, Johnson & Johnson - $ 14.6 billion, Gilead - $ 4,4 billion, Amgen - $ 4.3 billion.

Over the past five years, ten international American companies, which own 20% of all foreign funds of US corporations, increased investment in treasury bonds. Overall sum almost doubled from $ 67 billion in 2012 to $ 113 billion at the end of 2016. Most of these companies have subsidiaries in Ireland, which is considered a tax haven.

Apple’s scheme

Apple reported more than 90% of cash funds as foreign. Most of them belong to Irish subsidiaries of the iPhone maker. In fact, these money is kept in accounts at the major US banks, such as JPMorgan Chase and State Street, in the form of bonds, Bloomberg writes.

Using funds like BlackRock and Pimco, Apple buys bonds at auctions and on the secondary market. These purchases are orchestrated by the iPhone maker’s "subsidiary" investment company Braeburn Capital, located in Nevada with preferential tax treatment.

Irish subsidiaries and their role in the overall scheme of buying up treasuries in the debt market explains a paradox, formed in the last few years. The fact is that Ireland, the country with a population of less than 5 million people, was able to gain US government bonds to $ 271 billion, thus having become the first US creditor. The European country has surpased China and Japan, follows from the US Treasury’s statement.

"Most of Apple's revenue abroad is in possession of its subsidiaries in Ireland, which is a popular tax haven for many companies. In practice, Apple’s own investment company, Braeburn Capital, spends the money on treasury bonds. These investments are kept in accounts in the New York banks. As a result, American taxpayers are paying Apple and other corporations, because they invest in treasuries. It's about $ 6 from each taxpayer for the last five years. Apple sends gains, derived from ownership of bonds, back to Ireland. The US Treasury has already paid about $ 600 million to the compan", - concludes Bloomberg. 

source: bloomberg.com