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U.S. Senate: Apple Avoiding Billions In Taxes Through Offshore Shelters

Rob Wright

A U.S. Senate subcommittee Monday claimed Apple is avoiding paying billions of dollars in income taxes through the use of offshore tax shelters.

The Senate Permanent Subcommittee on Investigations said Apple uses "a complex web of offshore entities," including three foreign subsidiaries that are not tax resident in any nation, to lower its income tax payments.

The subcommittee's report claims that one of Apple's Irish subsidiaries has paid no income taxes to any country for the past five years.

The report said Apple's practices are legal, but the subcommittee's chairman, Sen. John McCain, took the technology giant to task for exploiting tax loopholes.

[Related: Apple Reports Strong Q2 Results Behind iPhone, iPad Growth ]

"Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America's largest tax avoiders," said Sen. McCain in a press statement. "A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue. It is important to understand Apple's byzantine tax structure so that we can effectively close the loopholes utilized by many U.S. multinational companies, particularly in this era of sequestration."

The Senate subcommittee is holding a hearing Tuesday morning. Apple CEO Tim Cook, CFO Peter Oppenheimer, and Apple's tax operations head, Phillip Bullock, are scheduled to speak at the hearing, which will review the report's findings.

Specifically, the subcommittee claims Apple uses an offshore holding company called Apple Operations International that is not a tax resident of any nation. While the holding company was established in Ireland in 1980, it has no employees and no physical presence. Ireland only claims tax jurisdiction over companies that are managed and controlled in the country, while the U.S. bases tax residency on where the company is actually located.

The subcommittee's report claims Apple Operations International has not filed an income tax return for the past five years, despite the fact that it reported income totaling $30 billion from 2009 to 2012.

In addition, the subcommittee said a second Irish subsidiary, Apple Sales International, had sales totaling $74 billion during that same four-year period yet paid an effective 2011 tax rate of only five hundredths of 1 percent. According to the report, the subcommittee estimates that Apple has used these tax loopholes and offshore entities to avoid taxes on $44 billion in otherwise taxable income over the past four years, or about $10 billion in tax avoidance a year.

Apple currently has $145 billion in cash reserves, but more than $100 billion of that is held outside the U.S.

Apple Tuesday released its testimony for the Senate Permanent Subcommittee on Investigations, in which the Cupertino, Calif., company stated that it "complies fully with both the laws and spirit of the laws" and "pays all its required taxes" both in the U.S. and abroad.

The company said it pays "an extraordinary amount in U.S. taxes" and is likely the largest income tax payer in the U.S., claiming it paid $6 billion in taxes in the U.S. for its fiscal 2012 year.

"Apple welcomes an objective examination of the U.S. corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy," the statement read, adding that the company supports "comprehensive tax reform."


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