Apple Legally Avoids Billions in Taxes

A recent report states that Apple Inc. uses subsidiaries in the Netherlands, Ireland and additional low-tax countries as part of a method that allows the technology empire to save billions of dollars’ worth of global tax yearly.

On Sunday, the New York Times laid out the legal strategies used by Apple to prevent paying billions of dollars to the IRS.

One strategy outlined in the report: although the business is based in California, Apple has established a limited office in Reno, Nev. that collects and invests its profits. The corporate tax rate in Nevada is zero. In California, it’s 8.84 percent.

Although quite a few significant organizations attempt to decrease what they owe in taxes, technology companies like Apple, Google Inc., Microsoft Corp. and others are given significantly more options to do so.

The reason behind this is that some of their revenue comes from digital merchandise or commissions on patents, which makes it easier for them to move profits to tax-friendly states or countries, according to the New York Times.

The 71 tech companies in the S&P 500, including Apple, Google, Yahoo Inc. and Dell Inc., confirmed paying out global cash taxes over the past two years at an average rate that is one-third less than other S&P 500 companies, the Times reported.

Apple has legally distributed around 70 percent of its earnings overseas, where tax rates are a lot lower than in the U.S., according to company records.

The New York Times cited a study by former Treasury Department economist Martin A. Sullivan estimating that Apple’s federal tax bill would have been $2.4 billion higher last year without the use of its strategic methods.

The newspaper claims that Apple paid $3.3 billion in cash taxes worldwide on $34.2 billion in earnings last year. That’s a tax rate of 9.8 percent.

In a statement, Apple told the Times that it is in agreeance with all accounting rules and tax laws, and stated that its American business produced roughly $5 billion in federal and state income taxes in the first half of fiscal 2012.

Wall Street analysts forecast that Apple could earn up to $46.9 billion in its current fiscal year, according to FactSet.