More than any other American company, Apple holds $181.1 billion in offshore accounts, according to a Tuesday report released by Citizens for Tax Justice, an advocacy group.
Other major American tech firms—including Cisco, Google, Hewlett-Packard, and Oracle—are among the largest companies that are using legal but questionable tax tricks to keep money overseas and effectively pay little to no American federal corporate taxes.
Citizens for Tax Justice concluded: "Multinational corporations’ use of tax havens allows them to avoid an estimated $90 billion in federal income taxes each year."
One tax law professor told Ars that this untapped revenue source could stand to significantly benefit the United States.
"Losing $90 billion of potential tax revenues every year is a very big deal," Neil Buchanan, a professor at George Washington University, said by e-mail. "That money could be used to reverse recent cuts in Head Start, and/or assistance to state governments to fund education at all levels, or increase the Earned Income Tax Credit, and on and on. Politicians who respond to proposals to fund these programs by saying that ‘we can't afford it’ are simply saying, ‘I'd rather cut Apple's tax bill than educate our children.’"
As the organization wrote in its findings:
Similarly, it noted with respect to Google:
For Microsoft, the group concluded:
Ars has previously detailed how such arrangements typically work.Bloomberg reporter Jesse Drucker first described the process in 2010: a company sells or licenses its foreign rights for intellectual property developed in the United States to a subsidiary in a country with lower tax rates. The result? Foreign profits that come from that tech—like the rights to Google’s search and advertising technology, effectively the keys to the kingdom—are now attributed to that offshore subsidiary rather than the Mountain View, California, headquarters. The subsidiaries have to pay "arm’s length" prices for those rights, just like an outside company would.
Bloomberg concluded: "Because the payments contribute to taxable income, the parent company has an incentive to set them as low as possible. Cutting the foreign subsidiary’s expenses effectively shifts profits overseas."
In July 2014, Ars also reported that Google Ireland Limited paid an effective tax rate of just 0.16 percent on €17 billion ($22.8 billion) revenue in 2013. That bill came to a mere €27.7 million ($37.2 million). Google paid €11.7 billion in "administrative expenses," which The Irish Times reports "largely refers to royalties paid to other Google entities, some of which are ultimately controlled from tax havens such as Bermuda."
But, other tax law experts noted that such a system is unlikely to change any time soon, despite international efforts to do so.
"The effect on the average US taxpayer is that the US government is deprived of revenue," Omri Marian, a professor at the University of California, Irvine, told Ars by e-mail.
"US corporate tax collection as a percentage of GDP is currently at an all time low. This means the U.S. government has to compensate for the shortfall from other sources (read: domestic taxpayers with no multinational activity) and cut public spending. There is, of course, an alternative: to change the law so Apple actually pays taxes on this income. In current Congressional environment, this will happen immediately after hell freezes over."
Samuel Brunson, a professor at Loyola University Chicago, put it more succinctly.