Lobbying group Citizens for Tax Justice has called out Apple, Google and Microsoft and others for what it described as “accounting tricks” in which companies “pretend” to be based overseas for tax purposes. The claims were made in a report entitled Offshore Shell Games 2015.

Many multinational corporations use accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in offshore tax havens, countries with minimal or no taxes where a company’s presence may be as little as a mailbox. Multinational corporations’ use of tax havens allows them to avoid an estimated $90 billion in federal income taxes each year.

The group said that Apple has paid “a miniscule 2.3 percent tax rate on its offshore profits,” many of which have been entered into Apple’s books in Ireland. CTJ says that if Apple paid U.S. tax rates on those profits, it would owe $59.2 billion.

The controversy over the legitimacy of Apple’s overseas tax arrangements is not, of course, anything new … 

A 2013 Senate hearing into Apple’s tax arrangements proceeded uneventfully, while an analysis by Adam Smith Institute Fellow Tim Worstall in Forbes last year explained how Apple is able to pay such a low tax rate on sales within the UK.

What Apple Ireland does, says Worstall, is to buy a licence from Apple in Cupertino, allowing it to manufacture and sell iPhones in the UK. Apple Ireland buys all the components, pays the manufacturing costs and ships the phones to the UK to be sold both through Apple Stores and third-party resellers, aka the carriers.

Because Apple Ireland charges close to retail prices for the phones it sells to UK outlets, most of the profits are made in Ireland, and those profits are taxed at the rates allegedly agreed with the Irish government: around two percent. While the morality of this may be debatable, it is, says Worstall, perfectly legal.

Google and Microsoft both employ similar tactics.

Two academic experts told Ars Technica that these arrangements are perfectly legal, and are unlikely to change anytime soon.

There is, of course, an alternative,” said Omri Marian, a professor at the University of California, “to change the law so Apple actually pays taxes on this income. In [the] current Congressional environment, this will happen immediately after hell freezes over.”

Samuel Brunson, a professor at Loyola University Chicago, put it more succinctly. “Individual taxpayers don’t have a strong incentive to lobby for change,” he said. “Meanwhile, Apple has a $59.2 billion incentive to lobby for the law not to be changed.”

Apple’s own position is that it pays all the taxes it is required to, as Tim Cook stated in 2013:

I can tell you unequivocally Apple does not funnel its domestic profits overseas. We don’t do that. We pay taxes on all the products we sell in the U.S., and we pay every dollar that we owe.

Apple currently holds around $180 billion in cash overseas.

Photo: Stephen Lam/Reuters

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