Apple – “Think” Taxes

Tech giant Apple is on the hot seat again for apparently paying nothing for corporation taxes for its UK subsidiaries in 2012.

According to the corporate results filed by the company, its two subsidiaries made pre-tax profits of around 60 million pounds, and sales of over 1 billion pounds combined. So why the company pay zero in taxes?

According to Forbes, there are three things to consider before allegations are made against the company.

First, iTunes sales are made in Luxembourg as VAT rates are lower. Furthermore, the EU tax law itself states that “electronic services” pay taxes in the country they come from and not the country where the service is delivered. For physical services or items, the rate will follow the place of delivery. So in the case of iTunes’ digital downloads, all the taxes will be settled in Luxembourg even if the recipient is in the UK.

Second, Apple being a global company, has its business structured strategically. Apple purchases its materials from China via an Irish company which will then sell the products to different dealers and Apple stores all over the world. The profits earned by the Irish company will are taxed in Ireland – although in Ireland, taxes only need to be paid if the transaction took place within the country – so no taxes need to be paid.

Finally, operating profits are not subject to taxes in the UK. What are taxed are the profits before tax. What the company does is that it issues stocks to the management as part of their pay. Expenses due to employee pay are deducted from pre-tax profits, and only then will they be only to calculate the taxes due.

While there is nothing illegal about what Apple is doing as far as its taxes as concerned, it all seems dodgy and a little discomforting for some. After all – Apple’s signature is to “Think” – and so there is actually no surprise to the company’s creativity in managing its finances.