Feds probe how big tech companies avoid U.S. taxes
By Charles Duhigg and David
Kocieniewski
The New York Times
The New York Times
Published: Friday, Jan. 4, 2013 -
12:00 am | Page 6B
Congressional investigators are wrapping up their scrutiny of the accounting practices of Apple and other technology companies that allocate revenue and intellectual property offshore to lower the taxes they pay in the United States.
Congressional investigators are wrapping up their scrutiny of the accounting practices of Apple and other technology companies that allocate revenue and intellectual property offshore to lower the taxes they pay in the United States.
The Senate Permanent Subcommittee on
Investigations inquiry now drawing to a close began more than a year ago and
involves at least a half-dozen technology companies, according to people with
firsthand knowledge of the inquiry who were not authorized to speak publicly.
Those people said the subcommittee
had subpoenaed or otherwise asked the companies to explain methods they have
used to avoid domestic taxes. They said Apple had become a focus of the inquiry
and was cooperating with the subcommittee, which is expected to issue
wide-ranging recommendations that would likely play a significant role in
congressional tax code negotiations.
Apple's domestic tax bill has drawn
interest among corporate tax experts and policymakers.
Although the majority of Apple's
executives, product designers, marketers, employees, research and development,
and retail stores are in the United States, Apple's accountants have found
legal ways to allocate about 70 percent of the company's profits overseas,
where tax rates are often much lower, according to corporate filings.
Apple said it is "one of the
top corporate income tax payers in the country, if not the largest." The
statement said the company "conducted all of its business with the highest
of ethical standards, complying with applicable laws and accounting rules."
It is unclear how broadly Senate
investigators are looking into the technology industry, if any laws are thought to have been broken and how many
companies are involved. Beyond Apple, the subcommittee is known to be looking
at Google, Hewlett-Packard, Microsoft and firms in such fields as
biotechnology.
The subcommittee, which is overseen
by Sen. Carl Levin, D-Mich., has been interested in the effect on the budget deficit of offshore tax strategies. Representatives from Microsoft
and Hewlett-Packard testified at a subcommittee hearing on the subject in
September. Both companies were criticized sharply by Levin for using
intellectual property rules to move revenue to other nations to avoid paying
U.S. taxes.
"The resulting loss of revenue
is one significant cause of the budget deficit, and adds to the tax burden that ordinary Americans bear," Levin said at that
hearing.
Apple has long been a pioneer in
developing innovative tax strategies that reduce its domestic taxes. Last year,
for instance, Apple saved the equivalent of $2.4 billion through various
techniques, according to a study by a former Treasury Department economist,
Martin Sullivan. At the September hearing, Levin said the investigation
indicated that Apple had deferred taxes on over $35.4 billion in offshore
income between 2009 and 2011.
Tech companies easily shift
"intellectual property, and the profit that goes along with it, to tax
havens," said Sullivan. "Apple went out of its way to try and ensure
that its tax
savings didn't attract too much public
attention, because tax avoidance of that magnitude – even though it's legal and
permissible – isn't in keeping with the image of a socially progressive
company."
Apple paid cash taxes last year of
$3.3 billion around the world on reported profits of $34.2 billion, a tax rate
of 9.8 percent. (The company 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.
In its statement, Apple said it paid
"an enormous amount of taxes" to local, state and federal
governments. "In fiscal 2012 we paid $6 billion in federal corporate income taxes, which is 1 out of every 40 dollars in corporate income
taxes collected by the U.S. government," it said.
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