Appearing before US senators, Apple boss Tim Cook rejects accusations that his company is exploiting tax loopholes and says it pays “every single dollar” of the tax it owes.
The Irish government, meanwhile, has denied allowing Apple to use the country as a tax haven.
Ireland’s Deputy Prime Minister Eamon Gilmore issued the denial after the US senate said Apple had avoided paying tax on tens of billions of dollars of profit by using subsidiaries in the country.
In a 40-page report published before Apple’s chief executive, Tim Cook, was due to appear before congress, American senators said: “Ireland has essentially functioned as a tax haven for Apple”.
The report said the iPhone manufacturer channels 30 per cent of its worldwide profits from other offshore affiliates into a subsidiary with a postal address in Ireland’s second city, Cork.
The subsidiary, a holding company that includes Apple’s retail stores throughout Europe, has not paid any corporate income tax in the last five years, the report alleged.
They are issues that arise from the taxation systems in other jurisdictions, and that is an issue that has to be addressed first of all in those jurisdictions. Eamon Gilmore, Irish deputy PM
The Senate permanent subcommittee on investigations identified three subsidiaries in total that have no tax residency either in Ireland, where they are incorporated, or in the United States, where those companies are managed.
The arrangements allegedly allowed Apple to allowed it to pay just 1.9 per cent tax on its $37bn in overseas profits in 2012.
Mr Gilmore said the responsibility lay with US law, saying: “They are issues that arise from the taxation systems in other jurisdictions, and that is an issue that has to be addressed first of all in those jurisdictions.”
The report says Apple exploits a difference between US and Irish rules on tax residency.
In Ireland, a company must be managed and controlled in the country to be a tax resident, but under US law a company is a tax resident of the country in which it was established.
Apple apparently claims that its companies are not tax resident in either country – a unique ploy among multinationals, according to the subcommittee.
Apple created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere. Carl Levin, US senator
Its chairman, Democratic Senator Carl Levin, said: “Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven. Apple sought the holy grail of tax avoidance.
“It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.”
UK tax campaigner Richard Murphy said the scheme was “the ultimate in abuse, if true”.
The congressional report also alleged that Ireland agreed a special 2 per cent rate for Apple’s Irish taxable profits instead of the normal 12.5 per cent corporate tax – an accusation hotly denied by the Irish authorities.
US firms invested $30bn in Ireland last year, more than they invested in China and the rest of emerging Asia combined, according to the American Chamber of Commerce.
Microsoft’s Irish operations, along with its activities in low-tax Singapore, helped the company pay tax of 9.4 per cent on $21bn of non-US earnings last year.
Apple does not use tax gimmicks. Apple statement
Google channels most of its overseas profits through Ireland, a practice that allowed it to pay tax at a rate of 2.6 percent on $6bn of foreign profits in 2012.
The average corporate tax rate in the countries of the Organisation for Economic Co-operation and Development, the high-tech companies’ main markets, was 24 per cent in 2012.
Apple said last year it would add 500 more people to its Cork workforce of 2,800.
The company said in a statement that it employs tens of thousands of Americans and pays “an extraordinary amount” in US taxes.
Apple says it “complies fully with both the laws and the spirit of the laws”, adding that it “pays all its required taxes, both in this country and abroad” and “does not use tax gimmicks”.
Mr Cook later told senators: “We are proud to be an American company and proud of our contributions to the US economy.
“Last year, our US federal cash effective tax rate was 30.5 per cent and we paid nearly $6bn in cash to the US Treasury.”