Apple sidestepped a 2013 crackdown on its controversial Irish tax structure by moving the majority of its offshore cash holdings to the small island of Jersey, a self-governed territory with loose ties to the United Kingdom, according to leaked financial documents obtained by The New York Times and BBC.
The so-called Paradise Papers, primarily sourced from offshore tax law firm Appleby, reveal that Apple's two key Irish subsidiaries were managed from Appleby's office in Jersey from 2015 until early 2016. Apple chose Jersey after exploring several potential tax havens, such as Bermuda and the Cayman Islands.
Apple said it made regulators in the United States and Ireland, and the European Commission, aware about the reorganization of its Irish subsidiaries, and added that the changes haven't reduced its tax bill.
"The changes we made did not reduce our tax payments in any country," an Apple spokesperson told The New York Times. "At Apple we follow the laws, and if the system changes we will comply. We strongly support efforts from the global community toward comprehensive international tax reform and a far simpler system."
Apple turned to Jersey after European officials began to crack down on the so-called "Double Irish" tax structure Apple had exploited.
The "Double Irish" tax loophole allows for multinational corporations to funnel revenue through an Irish subsidiary, which in turn sends that money to another Irish subsidiary that has residency in a tax haven. In a nutshell, the practice has enabled Apple to save billions of dollars in taxes around the world.
The European Commission found Apple paid between 0.005 percent and 1 percent in taxes in Ireland from 2003 through 2014, compared to the country's headline 12.5 percent corporate tax rate. Apple CEO Tim Cook said the Commission's ruling against Apple was "total political crap" and that the tax rates were a "false number."
When questioned by the United States Senate investigative subcommittee in 2013, Cook said "we pay all the taxes we owe." He added that Apple doesn't "stash money on some Caribbean island."
While that was true at the time, it's clear Apple was exploring similar options as part of its tax minimization efforts.
"This is how it usually works: You close one tax shelter, and something else opens up," said Reuven Avi-Yonah, director of the international tax program at the University of Michigan Law School. "It just goes on endlessly."
Cook has made it clear that Apple is willing to repatriate some of its offshore cash holdings into the United States, but he recently said tax reform is "sorely needed" first. U.S. President Donald Trump has proposed lowering the headline corporate tax rate to 20 percent, down from 35 percent currently.
Update: Apple this afternoon shared a press release entitled "The facts about Apple's tax payments," which has been written in response to today's reports. Apple says there are several inaccuracies being circulated and it is aiming to correct them.
"The debate over Apple's taxes is not about how much we owe but where we owe it. As the largest taxpayer in the world we've paid over $35 billion in corporate income taxes over the past three years, plus billions of dollars more in property tax, payroll tax, sales tax and VAT. We believe every company has a responsibility to pay the taxes they owe and we're proud of the economic contributions we make to the countries and communities where we do business.
Under the current international tax system, profits are taxed based on where the value is created. The taxes Apple pays to countries around the world are based on that principle. The vast majority of the value in our products is indisputably created in the United States -- where we do our design, development, engineering work and much more -- so the majority of our taxes are owed to the US.
When Ireland changed its tax laws in 2015, we complied by changing the residency of our Irish subsidiaries and we informed Ireland, the European Commission and the United States. The changes we made did not reduce our tax payments in any country. In fact, our payments to Ireland increased significantly and over the last three years we've paid $1.5 billion in tax there -- 7 percent of all corporate income taxes paid in that country. Our changes also ensured that our tax obligation to the United States was not reduced.
We understand that some would like to change the tax system so multinationals' taxes are spread differently across the countries where they operate, and we know that reasonable people can have different views about how this should work in the future. At Apple we follow the laws, and if the system changes we will comply. We strongly support efforts from the global community toward comprehensive international tax reform and a far simpler system, and we will continue to advocate for that."
The release also provides details Apple has reiterated multiple times in the past, such as its position as the largest taxpayer in the world and the fact that it holds overseas cash because that's where the majority of its products are sold. Apple also again says that comprehensive international tax reform "is essential" and that it continues to advocate for a simplification of the tax code.
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