APPLE IS A BAD APPLE WHEN IT COMES TO PAYING ITS TAXES
The Apple Corporation wants lawmakers in Washington to once again grant a repatriation tax
holiday – this time for up to $1.7 trillion in profits that multinational corporations are holding
offshore. Federal law allows corporations to “defer” paying U.S. income taxes on these foreign
profits until they are brought back or “repatriated” to the United States.
This tax holiday is being sold to the public as a boon to new investment and job creation as it
was sold to Congress in 2004 when the first repatriation holiday was enacted. Under that
scheme, corporations were able to bring their profits back and pay a tax rate of no more than
5.25 percent – rather than the statutory rate of 35 percent or a lower effective tax rate.
Numerous reports, including one by the Congressional Research Service,1 found that “there is
no evidence that [the tax holiday] increased U.S. investment or jobs, and it cost taxpayers
billions,” according to a senior U.S. Treasury Department official.2
Apple may even be working with many of its multinational colleagues to push for a territorial
tax system, another huge giveaway to profitable corporations at the expense of all American
taxpayers. A territorial tax system is in effect a permanent repatriation tax holiday. Under it,
U.S. corporations would never have to pay U.S. corporate taxes on their overseas profits,
thereby encouraging companies to use numerous tax dodges to shift capital to overseas tax
havens that assess little or no corporate income tax, risking wages and jobs at home.
It’s time for Apple to start paying its fair share of taxes and for the U.S. Congress to reform the
tax system so that companies like Apple can no longer defer paying taxes on their profits no
matter where they are earned. If deferral were ended it would not matter which tax loopholes
a company used to shift its profits to overseas tax havens – those profits would still be subject
to U.S. taxes, minus the taxes paid in the jurisdiction where they were claimed as earned.
Below is a compilation of ways that Apple currently avoids paying its fair share of taxes:

Apple’s stated effective federal corporate income tax rate of about 25 percent is well
below the statutory rate of 35 percent, which Apple and other large multinational
corporations complain so much about. Apple’s SEC filings show effective tax rates of
approximately 25.2 percent, 24.2 percent, and 24.4 percent for 2012, 2011, and 2010,
respectively.3 Apple’s profits those years were $55.8 billion, $34.2 billion and $18.5 billion,
respectively.4
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But doubts have been raised about the accuracy of Apple’s claimed federal tax bill due to
the use of foreign tax dodges and other loopholes:


Tax Analysts: “If Apple followed usual reporting practices, its reported worldwide
effective tax rate would have been 15 instead of 24 percent,” in 2011.5
New York Times: “[Apple] paid cash taxes of $3.3 billion around the world on its
reported profits of $34.2 billion [in 2011], a tax rate of 9.8 percent. (Apple does not
disclose what portion of those payments was in the United States, or what portion is
assigned to previous or future years.) By comparison, Wal-Mart last year paid worldwide
cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24 percent,
which is about average for non-tech companies.”6

Apple had $82.6 billion in offshore profit holdings in 2012, much of it in tax havens, on
which the company owes U.S. federal income taxes.
 Apple increased its profits held offshore by more than 50 percent over 2011, when it
had $54.3 billion offshore.7
 Apple says it would owe $28.5 billion on these profits if it brings them back to the
United States – $14.7 billion in deferred tax liabilities overseas and another $13.8 billion
in “unrecognized deferred tax liability” from money it intends to keep perpetually out of
the U.S.8 That’s nearly a 35 percent tax rate, which means nearly all of Apple’s overseas
profits are in tax havens that charge little if any corporate income tax.
 According to The New York Times: “As it has in Nevada, Apple has created subsidiaries in
low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands
— some little more than a letterbox or an anonymous office — that help cut the taxes it
pays around the world.”9

Apple pays less than 2 percent tax on its foreign profits. As Tax-News.com notes, “During
the year to end-September this year, Apple’s effective tax rate was 25.2%; comparable with
the 24.2% and 24.4% it paid in 2011 and 2010, respectively. While its foreign earnings have
therefore been increasing rapidly, it has maintained effective tax rates on non-US earnings
at 1.94%, 2.5% and 1.24% in 2012, 2011 and 2010, respectively.”10

Apple uses foreign tax havens to claim that just 30 percent of its profits are from the
United States. It’s quite likely that much of Apple’s profits were actually earned in the
United States but have been artificially shifted to foreign tax havens to avoid U.S. corporate
income taxes. According to Tax Analysts:11
 “Apple does most of its research in the United States. Most of its key employees are in
the United States. Fifty-four percent of its long-lived assets, 69 percent of its retail
stores, and 39 percent of its sales are in the United States.”
 “In Apple’s case, can there be any doubt that most of its value is created inside the
United States? If we assume, conservatively, that 50 percent of profits should be U.S.
sourced, then Apple’s federal taxes would have been $2.4 billion more in 2011.”
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
“Given the pivotal importance to Apple’s success of product design and other functions
performed in the United States, one could reasonably expect U.S. profits to be 70
percent of the worldwide total. In this case, payments to the U.S. government would
have been $4.8 billion more in 2011.”

Foreign corporate profits are not subject to U.S. tax unless and until they are brought
back (or “repatriated”) to the United States, which encourages U.S. companies to ship
profits and jobs overseas.
 At least $1.7 trillion in U.S. corporate taxes are being held offshore today.12
 This gaping loophole costs the U.S. Treasury $90 billion a year by letting corporations
ship profits and jobs overseas.13
 Ending the current practice of deferral, which allows corporations to avoid U.S. income
taxes on offshore profits until they are brought back to the United States, would raise
$590 billion over ten years according to the Congressional Joint Committee on
Taxation.14 Ending deferral would result in taxing the global profits of U.S. corporations
minus the taxes those companies pay to foreign governments (the “foreign tax credit”).
 Adopting a “territorial tax system” would make the current problems worse by
eliminating all U.S. taxation on overseas corporate income. It is estimated that such a
system would encourage U.S. corporations to create 800,000 jobs in low-tax countries
rather than here at home,15 and would increase the deficit by $130 billion over 10 years,
according to the President’s Economic Advisory Board.16

U.S. taxpayers provided $3.2 billion in tax subsidies for Apple’s rich corporate pay
packages that the company never actually pays. Apple enjoyed $3.2 billion in stock option
tax breaks from 2010 to 2012 – 12 percent of the $27.3 billion in excess stock option tax
benefits granted to 280 Fortune 500 companies studied by Citizens for Tax Justice (CTJ).17
Some argue that this tax break encourages excessive corporate pay packages. Here’s how it
works, according to CTJ: “Most big corporations give their executives (and sometimes other
employees) options to buy the company’s stock at a favorable price in the future. When
those options are exercised, corporations can take a tax deduction for the difference
between what the employees pay for the stock and what it’s worth (while employees report
this difference as taxable wages).”

Apple’s tax dodging makes other industries pay more. “Over the last two years, the 71
technology companies in the Standard & Poor’s 500-stock index — including Apple, Google,
Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a
third less than other S.& P. companies’,” according to The New York Times.18

Most of Apple’s undistributed foreign profits appear to be invested in the U.S. tax free.
Apple complains that its foreign profits are sitting offshore and not able to be invested in
America because it does not want to pay its effective corporate income tax rate. But a
recent U.S. Senate study found that between 76 percent and 100 percent of Apple’s
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undistributed accumulated foreign earnings in 2010 were either held in U.S. bank accounts
or in U.S. investments.19

Apple was a member of the WIN America Campaign, a short-lived effort fighting for a
corporate repatriation tax holiday in 2011.20
1
Donald J. Maples and Jane G. Gravelle, “Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic
Analysis,” Congressional Research Service (May 27, 2011). http://www.ctj.org/pdf/crs_repatriationholiday.pdf
2
Michael Mundaca, Assistant Treasury Secretary for Tax Policy, “Just the Facts: The Costs of a Repatriation Tax
Holiday” (March 23, 2011). http://www.treasury.gov/connect/blog/Pages/Just-the-Facts-The-Costs-of-aRepatriation-Tax-Holiday.aspx
3
Paid2Trade.com, “Apple Form 10-K Fiscal Year Ending September 30th 2012 (Nov. 2, 2012).
http://paid2trade.com/9511/apple-form-10-k-fiscal-year-ending-september-30th-2012/page/0/19
4
Apple, Inc. Form 10-K filing with the U.S. Securities and Exchange Commission (accessed May 20, 2013).
http://investor.apple.com/secfiling.cfm?filingID=1193125-12-444068&CIK=320193
5
Marty Sullivan, “Apple Reports High Rate But Saves Billions on Taxes,” Tax Analysts (Feb. 13, 2012).
http://taxprof.typepad.com/files/134tn0777.pdf
6
Charles Duhigg and David Kocieniewski, “How Apple Sidesteps Billions in Taxes,” The New York Times (NYT) (April
28, 2012). http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-andnations.html?_r=3&
7
Citizens for Tax Justice (CTJ), “Apple, Microsoft and Eight Other Corporations Each Increased Their Offshore Profit
Holdings by $5 Billion or More in 2012” (March 11, 2013). http://ctj.org/pdf/offshorechampions0313.pdf
8
Ryan Tate, “In Apple’s War on Taxes, Surrender Costs $28 Billion,” Wired (January 7, 2013).
http://www.wired.com/business/2013/01/apples-28-billion-dollar-tax-war/
9
Op cit, NYT.
10
Mike Godfrey, “Apple Pays Less Than 2% Tax On Non-US Earnings,” Tax-News.com (November 7, 2012).
http://www.tax-news.com/news/Apple_Pays_Less_Than_2_Tax_On_NonUS_Earnings____58140.html
11
Op cit, Tax Analysts.
12
Richard Rubin, “Offshore Cash Hoard Expands by $183 Billion at Companies,” Bloomberg News (March 8, 2013).
http://www.bloomberg.com/news/2013-03-08/offshore-cash-hoard-expands-by-183-billion-at-companies.html
13
Kimberly A. Clausing, “A Challenging Time for International Tax Policy,” Tax Notes (July 16, 2012).
http://www.taxanalysts.com/www/website.nsf/Web/HomePage/$file/clausing.pdf.
14
U.S. Senator Bernie Sanders, “Fact Sheet on the Sanders/Schakowsky Corporate Tax Fairness Act” (accessed May
20, 2013). http://www.sanders.senate.gov/imo/media/doc/CORPTA%20FAIRNESSFACTSHEET.pdf
15
Op cit, Tax Notes.
16
The President’s Economic Advisory Board, Report on Tax Reform Options: Simplification, Compliance, and
Corporate Taxation (August 2010), pp. 89-91. http://www.treasury.gov/resource-center/taxpolicy/Documents/PERAB-Tax-Reform-Report-8-2010.pdf
17
CTJ, “Executive-Pay Tax Break Saved Fortune 500 Corporations $27 Billion Over the Past Three Years” (April 24,
2013). http://ctj.org/pdf/excessstockoption0413.pdf
18
Op cit, NYT.
19
U.S. Senate Permanent Subcommittee on Investigations, “Offshore Funds Located Onshore, Majority Staff
Report Addendum, December 14, 2011, to Repatriating Offshore Funds: 2004 Tax Windfall For Select
Multinationals Majority Staff Report, October 11, 2011,” pp. 4-5. Apple had $29 billion in undistributed
accumulated foreign earnings as of FY2010. http://www.hsgac.senate.gov/download/report-addendum_-psimajority-staff-report-offshore-funds-located-onshore
20
Reuters, “Factbox: WIN America members include Microsoft, others” (August 24, 2011).
http://www.reuters.com/article/2011/08/24/us-usa-tax-holiday-factbox-idUSTRE77N43720110824
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