Computer giant Apple isn't just a pioneer of merging art and technology -- the most profitable tech company in the world is also a tax innovator, having created some of its own accounting tricks to get around paying billions to the U.S. Treasury, according to a report from The New York Times that has Apple on the defensive this week.
In a statement this weekend, Apple insisted that it pays "an enormous amount of taxes which help our local, state and federal governments."
"In the first half of fiscal year 2012 our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax," Apple's statement added. "Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules. We are incredibly proud of all of Apple’s contributions."
But that's not the impression you might get reading the Times report that triggered Apple's response.
Former Treasury Department economist Martin A. Sullivan recently produced a report, cited by the Times, which concludes that Apple skipped out on more than $2.4 billion in taxes (PDF) in 2011 by moving nearly 70 percent of its profits through overseas tax havens and using other tax avoidance strategies. The California-based firm even opened a subsidiary in Nevada just so it can avoid California's corporate tax rate, and has helped to invent new tax dodging strategies that dozens of other firms now emulate.
Sullivan's report found that Apple paid an effective tax rate of 9.8 percent last year, on profits of more than $34 billion. The Times noted that Apple's rate was actually lower than big box retailer Wal-Mart's, which paid 24 percent on profits of $24.4 billion.
One of those tricks Apple is credited with helping pioneer is called the "double Irish with a Dutch sandwich," which today sees dozens of companies sending their profits through Ireland and the Netherlands to take advantage of holes and exceptions in both countries' tax laws.
The Times was, of course, careful to note that none of Apple's strategies are illegal.
The company's response citing almost $5 billion in federal and state income taxes also appears to include money owed by their employees. The firm reportedly has an offshore savings of more than $74 billion.
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