Pioneer in taxation?
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Apple has gained unwanted attention here as it has allegedly used tax loopholes to lower tax payments. / Korea Times file
Apple under fire for using tax loopholes
By Cho Mu-hyun
Apple is under fire again here as it has allegedly used loopholes to lower tax payments. Its tax practices in Korea are receiving attention following a report that Apple paid only 1.9 percent of its earnings in taxes outside the United States during the last fiscal year.
Apple paid just $713 million in overseas corporation tax on profits of $36.87 billion. It paid 2.5 percent the previous year. This compares to the headline corporation tax rate in the U.K. of 24 percent and 35 percent in the United States.
The tax rate does not sound acceptable considering the corporation tax in many of the countries where Apple operates. Korea has a tax rate of 22 percent. United States has one of the highest in the world with 35 percent, while Ireland charges 12.5 percent.
According to industry observers Friday, the Cupertino, California-based firm has not broken any laws here but used tax loopholes to minimize what it paid. They estimated that the company has paid around 2.75 percent of its revenue in taxes over the past three years.
“What Apple does, like most global businesses, is purchase its own products expensively and sell them here at a slightly higher price, so that the numbers for Korea will be low, and therefore so will its taxes,” said a legal consultant for a domestic conglomerate over the phone. “It is a common practice by global companies to move profits to countries with lower tax rates.”
“A company’s goal is to maximize profit as much as possible. Though what Apple does is within the legal boundaries, the main incentive for bilateral agreements between countries is to allow firms to pay the lower of either tax rates, which can be frowned upon.”
Apple’s tax practice is within legal boundaries but many consider it as an intentional attempt to dodge taxes.
“Apple was a pioneer of an accounting technique known as the Double Irish With a Dutch Sandwich, which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean,” claimed a New York Times report in April.
Apple Korea became a private company in August, 2009 and its financial records have not been revealed to the public since then. Apple Korea spokesman Steve Park declined to comment on how much taxes the firm paid after that period.
According to the Financial Supervisory Service, the iPhone maker paid 1.28 billion won in taxes in the fiscal year from October 2008 to September 2009. It was only 0.5 percent of the year’s total sales of 170 billion won
The company started earning more here the next year after it launched the iPhone via telecommunications company KT in 2009 but tax rates and earnings are undisclosed after that period.
Research agency Gartner predicts that Apple sold a total of 1.07 million iPhones during the second half of last year and the first half of this year in Korea.
The American firm is currently the world’s most valuable company and boasts one of the highest profit rates of around 30 percent. The low tax rate has prompted some complaints from overseas leaders such as U.K. Prime Minister David Cameron who said he is "not happy with the current situation" of Apple and other overseas companies avoiding taxes, according to The Guardian.
Apple minimizes overseas taxes by using its subsidiaries in Luxembourg, Ireland and the British Virgin Islands that help cut the taxes it pays around the world. It was known to have designated overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income tax.
“Such ways to sidestep paying high taxes are common practice while tax laws change at much slower rates. Lower tax rates are also great incentives to invite foreign businesses so there is that dilemma as well,” said the consultant.