Apple’s ability to shelter billions of dollars of income from tax has hinged on an unusual loophole in the Irish tax code that helps the country compete with other countries for investment and jobs.
A US Senate investigation revealed that Apple, maker of iPhones, iPads and Mac computers, had channelled profits into Irish subsidiaries that had “no declared tax residency anywhere in the world”.
Over the past three years, it paid a tax rate of 2% on $74bn in (€57bn) overseas income, its annual reports show.
Apple Operations International, Apple Sales International and Apple Operations Europe, through which much of the group’s overseas income flows, are all incorporated in Ireland but are not deemed to be tax resident there, the Senate’s Permanent Subcommittee on Investigations said.
Apple designated the entities as unlimited companies, and does not have to publish annual accounts, so the subcommittee report was the first time the structure has been publicly revealed.
Peter Vale, tax partner at accountants Grant Thornton in Dublin, said it was unusual for companies incorporated in Ireland not to be tax resident there, but legal.
It relies for its tax benefits on different approaches to determining tax residence in Ireland and the US.
Vale said that if a group has at least one trading Irish subsidiary — as Apple does, in the form of units that employ 4,000 staff — it can establish a corporation that will not be deemed tax resident providing this unit’s “central management control” is outside the country.
The subcommittee said Apple Operations International and Apple Sales International held board meetings in the United States and most board members were based there. That means the units would not be deemed to have Irish management control, accountants said.
Ireland didn’t change its rules, likely because there was not the same concern about the loss of tax revenues, said Professor Eamonn Walsh, Professor of Accounting at the University College Dublin’s Graduate School of Business.
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