Did You Pay Your Taxes? Apple and Google Didn't

Written by Jason Simpkins
Posted April 17, 2014 at 1:24PM

On average, individuals pay 28% of their annual incomes in state and federal income taxes.

But not tech giants like Apple and Google.

Apple, the largest company on the planet with a market cap of $466 billion, paid cash taxes of $3.3 billion on reported profits of $34.2 billion last year. That's a tax rate of 9.8%.

That's not just in the United States, either. That's globally.

You see, always the innovator, Apple has pioneered a number of digital-age tax dodges that let the company shield its income from governments overseas and at home.

For instance...

Everyone knows that Apple’s headquarters are in California, a state whose corporate tax rate is 8.84%. But by putting an office in Nevada, a state where the corporate tax rate is zero, it effectively dodges those taxes.

That's especially obnoxious, when you consider the state of California is already giving the company tax breaks for making the Golden State its home. Apple has reported state tax savings of $412 million from research and development credits of all sorts since 1996.

In this manner, Apple skips out on paying taxes, not just in California, but 20 other states, as well.

The company also plays this same shell game overseas, where it's managed to allocate 70% of its profits.

Apple's tax hacks have invented maneuvers known as the “Double Irish” and “Dutch Sandwich” to shelter their foreign income. Basically, Apple created a unit that’s incorporated in Ireland, controlled by a board in California, and doesn’t pay taxes in either place.

Tech industry competitors, like Google, have adopted these methods, as well, further exacerbating the problem.

Like Apple, Google shifts profits into an Irish subsidiary that doesn’t pay taxes in Ireland. Except in Google’s case, the unit is managed in Bermuda, which has no corporate income tax. This avoids about $2 billion in income taxes each year.

In all, tactics like these are costing the United States and Europe at least $100 billion per year in lost tax revenue.

Tech companies have proven particularly adept at dodging taxes because so much of their revenue comes not from physical goods but digital downloads and patent royalties. These items can be sold from anywhere, as opposed to physical goods, which are tied to a specific retail outlet.

That's why Wal-Mart, for example, ended up paying $5.9 billion in taxes on $24.4 billion of income – a tax rate of 24% that's more in line with what individuals pay.

No doubt, every company in the world uses tax loopholes to protect its profits.

So Apple isn't alone... It's just the worst.

Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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