Apple, the top U.S. computer and smart phone manufacturer, used a complex web of offshore entities to avoid billions in taxes, a Senate panel has alleged.

The electronics giant’s rootless subsidiaries had just one purpose: to funnel much of the company’s global profits and dodge billions of dollars in U.S. tax obligations, according to the report by the Permanent Subcommittee on Investigations.

One of Apple’s Irish affiliates reported profits of $30 billion between 2009 and 2012, but because it did not technically belong to any country, it paid no taxes to any government. Another paid a tax rate of 0.05 per cent in 2011 on $22 billion in earnings, according to the report.

The panel said that Apple exploited the gap between the two nations, the U.S. and Ireland, through three of its subsidiaries the company claims are not tax resident in any nation, to avoid paying taxes.

“Exploiting the gap between the two nations’ tax laws, Apple Operations International has not filed an income tax return in either country, or any other country, for the past five years. From 2009 to 2012, it reported income totalling $30 billion,” the Senate panel said.

The report found Apple’s three subsidiaries had no official tax residence, which made them pay little or no taxes.

Key offshore companies

“Apple’s claim that three key offshore companies are not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies. One of those Irish subsidiaries has paid no income taxes to any national tax authority for the past five years,” it said.

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven. Apple sought the Holy Grail of tax avoidance,” Senator Carl Levin said.

“It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere,” he alleged.

The bipartisan Senate panel alleged in its report that Apple was using a so-called cost sharing agreement to transfer valuable intellectual property assets offshore and shift the resulting profits to a tax haven jurisdiction.

It alleged that Apple was taking advantage of weaknesses and loopholes in tax law and regulations to ‘disregard’ offshore subsidiaries for tax purposes, shielding billions of dollars in income that could otherwise be taxable in the U.S. The Senate Panel alleged that Apple was negotiating a tax rate of less than 2 per cent with the government of Ireland — significantly lower than that nation’s 12 per cent statutory rate — and using Ireland as the base for its extensive network of offshore subsidiaries.

“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 John McCain said.

“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,” Mr. McCain alleged.

Multinational tactics

The Senate panel alleged that in addition to standard multi-national tactics, Apple established at the apex of its offshore network an offshore holding company that it said was not tax resident in any nation.

Tim Cook faces Senate questions

Apple CEO Tim Cook is disputing assertions by a Senate panel that the company avoids billions of dollars in U.S. taxes by shifting profits to foreign affiliates. Mr. Cook testified at a hearing on Tuesday by the Senate Permanent Subcommittee on Investigations, which released a damning report Monday on Apple’s tax practices.

“We pay all the taxes we owe every single dollar,” Mr. Cook said. “We don’t depend on tax gimmicks.” Mr. Cook, who is more accustomed to commanding a stage in front of investors and techies than facing a congressional committee, took a defensive tone with his opening statement.

He punched out words when stressing the 600,000 jobs that the company supports and noting that Apple is the nation’s largest corporate taxpayer. Cook said he advocates an overhaul of the U.S. tax code.

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