Tech Companies’ Tax Tactics

Remarkably, the world’s most profitable tech company, Apple, has developed tax strategies which have helped them avoid paying billions in taxes. This isn’t unusual for technology companies. Their products aren’t necessarily physical goods but royalties or patents in this digital age. The American tax system seems a bit outdated for companies such as these.

Because technology companies’ products are predominately digital, they can more easily relocate to low-tax overseas countries in order to avoid paying higher taxes on American soil. Technology is now one of America’s leading industries. But because the nation’s tax system is based on company structure from the industrial age, many of these technology companies are among the least taxed.

“Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’” (Duhigg, C. & Kocieniewski, D. (2012, April 28). How Apple Sidesteps Billions of Taxes. The New York Times).

Tax Avoidance Tactics

  • Collect Company Profits in a Low-Tax State

Apple has a small office in Reno, Nevada where they collect their profits and reinvest them. Their headquarters are in California. But by shifting profits across the state border, they save 8.84% in California taxes. How? The tax-rate in Nevada is 0%.

  • Double Irish with a Dutch Sandwich

This accounting technique carries this name because taxes are reduced by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Apple was the inventor of this method which many other corporations have put into practice.

Some hold Apple’s tactics responsible for the lack of funding needed from taxes for State programs. However, Apple claims they have a high ethical standard and have done nothing wrong.