Paradise Papers: Apple's secret tax bolthole revealed
Paradise Papers: Apple's secret tax bolthole revealed
By Paradise Papers reporting team BBC Panorama November
6, 2017
The world's most profitable firm has a secretive new
structure that would enable it to continue avoiding billions in taxes, the
Paradise Papers show.
They reveal how Apple sidestepped a 2013 crackdown on its
controversial Irish tax practices by actively shopping around for a tax haven.
It then moved the firm holding most of its untaxed
offshore cash, now $252bn, to the Channel Island of Jersey.
Apple said the new structure had not lowered its taxes.
It said it remained the world's largest taxpayer, paying
about $35bn (£26bn) in corporation tax over the past three years, that it had
followed the law and its changes "did not reduce our tax payments in any
country".
The Paradise Papers is the name for a huge leak of
financial documents that is throwing light on the world of offshore finance.
Up until 2014, the tech company had been exploiting a
loophole in tax laws in the US and the Republic of Ireland known as the
"double Irish".
This allowed Apple to funnel all its sales outside of the
Americas - currently about 55% of its revenue - through Irish subsidiaries that
were effectively stateless for taxation purposes, and so incurred hardly any
tax.
Instead of paying Irish corporation tax of 12.5%, or the
US rate of 35%, Apple's avoidance structure helped it reduce its tax rate on
profits outside of the US to the extent that its foreign tax payments rarely amounted
to more than 5% of its foreign profits, and in some years dipped below 2%.
The European Commission calculated the rate of tax for
one of Apple's Irish companies for one year had been just 0.005%.
Apple came under pressure in 2013 in the US Senate, when
CEO Tim Cook was forced to defend its tax system.
Angry that the US was missing out on a huge amount of
tax, then-Senator Carl Levin told him: "You shifted that golden goose to
Ireland. You shifted it to three companies that do not pay taxes in Ireland.
These are the crown jewels of Apple Inc. Folks, it's not right."
Mr Cook responded defiantly: "We pay all the taxes
we owe, every single dollar. We do not depend on tax gimmicks... We do not
stash money on some Caribbean island."
After the EU announced in 2013 that it was investigating
Apple's Irish arrangement, the Irish government decided that firms incorporated
there could no longer be stateless for tax purposes.
In order to keep its tax rates low, Apple needed to find
an offshore financial centre that would serve as the tax residency for its
Irish subsidiaries.
In March 2014, Apple's legal advisers sent a
questionnaire to Appleby, a leading offshore finance law firm and source of
much of the Paradise Papers leak.
It asked what benefits different offshore jurisdictions -
the British Virgin Islands, Bermuda, the Cayman Islands, Mauritius, the Isle of
Man, Jersey and Guernsey - could offer Apple.
The document asked key questions such as was it possible
to "obtain an official assurance of tax exemption" and could it be
confirmed that an Irish company might "conduct management activities…
without being subject to taxation in your jurisdiction".
They also asked whether a change of government was
likely, what information would be visible to the public and how easy it would
be to exit the jurisdiction.
Leaked emails also make it clear that Apple wanted to
keep the move secret.
One email sent between senior partners at Appleby says:
"For those of you who are not aware, Apple [officials] are extremely
sensitive concerning publicity. They also expect the work that is being done
for them only to be discussed amongst personnel who need to know."
Apple chose Jersey, a UK Crown dependency that makes its
own tax laws and which has a 0% corporate tax rate for foreign companies.
Paradise Papers documents show Apple's two key Irish
subsidiaries, Apple Operations International (AOI), believed to hold most of Apple's
massive $252bn overseas cash hoard, and Apple Sales International (ASI), were
managed from Appleby's office in Jersey from the start of 2015 until early
2016.
This would have enabled Apple to continue avoiding
billions in tax around the world.
·
Apple's 2017 accounts showed they made $44.7bn
outside the US and paid just $1.65bn in taxes to foreign governments, a rate of
around 3.7%. That is less than a sixth of the average rate of corporation tax
in the world.
·
In August 2016, after a three-year
investigation, the European Commission finds that Ireland gave an illegal tax
benefit to Apple.
·
The EC says Apple must repay Ireland taxes for
the period within its remit of investigation, 2003-2013, a total of €13bn
(£11.6bn) plus interest of €1bn.
·
Ireland and Apple launch an appeal.
·
Apple's Tim Cook calls the EC ruling "total
political crap", with "no reason for it in fact or in law".
Ireland says the EU is encroaching on sovereign taxation. It fears
multinationals will go elsewhere.
·
Ireland agrees to collect the €13bn, to be held
in a managed escrow account pending the appeal verdict.
·
In October 2017, the EU says it will take
Ireland to court as it has not yet collected the money. Ireland says it is
complicated and it needs time.
Massive GDP spike
When the "double-Irish" loophole was shut down,
Ireland also created new tax regulations that companies like Apple could take
advantage of.
One of the companies that Apple moved to Jersey, ASI, had
rights to some of Apple Inc's hugely valuable intellectual property.
If ASI sold the intellectual property back to an Irish
company, the Irish company would be able to offset the enormous cost against
any future profits. And since the IP holder, ASI, was registered in Jersey, the
profits of the sale would not be taxed.
It appears Apple has done just that. There was an
extraordinary 26% spike in Ireland's GDP in 2015 which media reports put down
to intellectual property assets moving into Ireland. Intangible assets rose a
massive €250bn in Ireland that year.
Ireland's department of finance denied that the new
regulations had been brought in to benefit multinationals.
It said Ireland was "not unique in allowing
companies to claim capital allowances on intangible assets" and had
followed "the international norm".
Apple declined to answer questions about its two
subsidiaries moving their tax residency to Jersey.
It also declined to comment when asked whether one of
those companies had helped create a huge tax write-off by selling intellectual
property.
Apple said: "When Ireland changed its tax laws in
2015, we complied by changing the residency of our Irish subsidiaries and we
informed Ireland, the European Commission and the United States.
"The changes we made did not reduce our tax payments
in any country. In fact, our payments to Ireland increased significantly and
over the last three years we've paid $1.5bn in tax there."
Paradise Papers explainer box
The papers are a huge batch of leaked documents mostly
from offshore law firm Appleby, along with corporate registries in 19 tax
jurisdictions, which reveal the financial dealings of politicians, celebrities,
corporate giants and business leaders.
The 13.4 million records were passed to German newspaper
Sueddeutsche Zeitung and then shared with the International Consortium of
Investigative Journalists (ICIJ). Panorama has led research for the BBC as part
of a global investigation involving nearly 100 other media organisations,
including the Guardian, in 67 countries. The BBC does not know the identity of
the source.
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