How do US corporations like Apple (AAPL) pay less taxes via Ireland

How do US corporations like Apple (AAPL) pay less taxes via Ireland 

double-Irish-Dutch-Sandwich-tax-dodge   by Stockguy22

double-Irish-Dutch-Sandwich-tax-dodge by Stockguy22

How does a US corporation save so much taxes with a sandwich?

 

Its called the “Double Irish Dutch Sandwich”and its a way for US corporations to reduce their worldwide tax liability on Intellectual Property( IP ).

What happens is a US company transfer the Intellectual Property first to an Irish subsidiary that has a tax residency of Bermuda. Another subsidiary used is also a Netherland company that co-licenses the IP to the Irish subsidiary.

With this little sandwich that they have created. The parent company claims dividends it receives from other affiliates through to the Irish subsidiary.  For example Apple ( Nasdaq:AAPL ) put through approx. $30Billion from 2009-2012 which was 30% of all worldwide net profits through this little sandwhich.

What happens is that income is only liable to pay taxes in Ireland which is at a rate of 12.5% and in some cases because of the structure the rate becomes near zero if you read more below on GOOG.

On the bright side,  its better that the money is in Ireland, Netherland & Cayman Islands and not in Cyprus but imagine if one of the countries like Ireland wanted a quick cash grab how easily it would be to tap this money pipeline.

Why is it called a Double Irish Sandwich ? 

The Irish holding companies are thought of as “bread” and the Netherlands company as “cheese” so that’s how this scheme gets its name.

Now we all know all the companies taking advantage of this loophole are not Irish companies but US corporations so regardless how they spin it its a tax dodge but since its such a nice “shell” game they are playing and since many are doing it it has not been a big issue till….

Senate hearings took aim once it saw how much a company like Apple (Nasdaq:AAPL) has not paid in taxes and the hearings started yesterday…

In 2012 Apple saved more than $9 billion in taxes via this system.  Apple CEO Tim Cooke said that AAPL paid $6B to US in 2012 and made no apology for its tax strategy.

Cook said Apple agreed with those in Congress who want to reform corporate taxes and called for changes that include lower corporate income tax rates and a reasonable tax on foreign earnings

 

The following chart depicts both types of income and how Apple structured its offshore operations to avoid U.S. taxes on both.

Apple (Nasdaq:AAPL) offshore distribution Structure

Apple (Nasdaq:AAPL) offshore distribution Structure

You can read the Subcommittee Memo on offshore Profits here: 40 page report on Apple Senate Hearings

Subcommittee Memo on Offshore Profit Shifting Apple by Dave Weigel

Just reading through this and found out that Cathy Kearney (Director) Ireland and Apple Operations International ( AOI ) only Irish resident has to be the most powerful paper pusher for Apple worldwide since has saved company so many billions.

Technically there is nothing illegal about this scheme but has been called sketchy , immoral and a tax dodge but Apple is not the only corporation doing this. Apple and the other companies would have to pay the tax once that money came back to the US so that is why that money will probably always stay offshore (unless rules are changed or a smaller one time tax rate was put in place to allow these co’s to bring back those billions to the US). As a shareholder of some of these companies we have a dilemma in that you want the company to make as much money as possible but you would also want that cash to be used to benefit shareholders and/or economy here rather than just sitting on a huge pile of cash offshore. The US taxes are actually deferred until the money comes back to US so without an incentive or repatriation,  we won’t be seeing that money in the US economy anytime soon. The way some companies get access to those funds is indirectly like we saw AAPL do recently after a lawsuit from David Einhorn to pressure Apple for more investor payout. What did AAPL do? well they increased dividend and increased share buyback – they also raised money via bonds to take advantage of the low interest rate environment.

David Einhorn sues Apple : “i want more of your money ..lol” 

http://www.reuters.com/article/2013/02/07/us-apple-greenlight-idUSBRE9160MI20130207

Apple’s Record Debt Deal

http://online.wsj.com/article/SB10001424127887324482504578454691936382274.html

How much money is held offshore by US corporations?

As per Forbes article the amount of cash Stockpiles overseas by US corporations offshore has reached an astounding $1.5Trillion : http://www.forbes.com/sites/afontevecchia/2013/03/19/u-s-companies-stashing-more-cash-abroad-as-stock-piles-hit-record-1-45t/

Which other companies enjoy the Dutch Double Sandwich benefits ?

Many of the tech companies enjoy the benefits of the “sandwich” so AAPL is not the only one.

The list includes most of the tech companies and others  : Google ( Nasdaq:GOOG) , Yahoo ( Nasdaq:YHOO) , Microsoft ( Nasdaq:MSFT ) , DELL ( nasdaq:DELL) , General Electric ( NYSE: GE) , Facebook ( Nasdaq: FB) , Adobe Systems ( Nasdaq: ADBE) , Johnson & Johnson ( NYSE:JNJ) , Oracle ( Nasdaq: ORCL) , Starbucks ( Nasdaq: SBUX) and more…

TOP 5 US corporations with biggest overseas cash piles were : AAPL MSFT GOOG PFE and CSCO which accounted for $347Million so 1/4 of all the money overseas.

Google (nasdaq:GOOG) pays just 0.14% tax in seven years

http://www.independent.ie/business/irish/google-pays-just-014-tax-in-seven-years-28945199.html

Yahoo cut its taxes by $42.8 million in 2011

http://business.financialpost.com/2013/01/23/yahoo-joins-google-other-corporate-giants-in-us13-trillion-netherlands-tax-haven/?__lsa=d516-af0e

 Dell Global BV, only paid 0.10 percent on profits of $2 billion in 2011

When will this Irish loophole end?

Ireland getting a lot of flack and publicity lately and a top Irish Tax Consultant thinks this will end before 2 years time.

Just read article today that Ireland may have to scrap the tax loophole.

http://www.irishexaminer.com/business/government-will-have-to-scrap-double-irish-system-231985.html

The Government will be forced to scrap the tax arrangement known as the “double Irish” in order to avoid criticism of the country’s tax system, says one of the most senior tax experts in the country.

The tax consultant, who did not want to be named, claimed that the “double Irish” and another controversial tax mechanism known as the “Dutch-Irish sandwich” would be gone within 18 months.

Ireland’s tax regime is currently the subject of intense scrutiny because of US Senate hearings into Apple’s tax affairs. 

The “double Irish” among other arrangements has enabled Apple to avoid paying tax on roughly $44bn (€34.2bn) of taxable income. It has prompted a huge political backlash in the US with Ireland commonly depicted as a tax haven in the international media. 

 

You may also like this blog I did on where Apple keeps all the cash on hand it has: very interesting how it breaks it all down – has not changed much since my blog but the amount is more: I may update it soon.

http://stockguy22.com/2012/01/27/where-does-aapl-apple-inc-keep-close-to-100-billion-in-cash-and-what-to-do-with-it/

Hope you found this helpful,

 

Stockguy22

 

 

To get my live charts and live trades join our GOLD membership only $7 for a 2 week Trial

Stockguy22 Gold Membership Special

Join us at our Weekly Free Webinars here: https://www1.gotomeeting.com/register/868331328

We review futures and stocks at our Free Saturday Weekly webinars so sign up above and see you there

Posted in Apple Stock Chart - Nasdaq:AAPL, Blog, Commentary Tagged with: , , , , , , , , , , , , , , ,