How Apple—and the Rest of Silicon Valley—Avoids the Tax Man
Today, the European Union ordered Apple to pay $14.5 billion dollars in back taxes, which its antitrust regulator says the company owes because a sweetheart tax deal offered by Ireland violated EU policy.
The penalty, which is the largest the EU has ever lobbied against a single corporation, signals that the Union is getting increasingly serious about holding foreign companies accountable for their tax bills. But Apple is far from alone.
For sheer ingenuity, you can’t beat Silicon Valley—especially at outsmarting the tax man. By selling intellectual property rights to sock-puppet subsidiaries, tech giants shift profits to low-tax nations like Ireland. But that’s just a start. Sublicense the IP to a second Irish unit that books global sales, have entity B pay onerous royalties back to A (wiping out its earnings), then show that A is headquartered in the Caribbean, making its royalty income untaxable in Ireland. Slick! Only problem: Until the IRS gets its cut, the companies can’t bring the cash back home to use it. Hmm … not so genius after all.
Editor’s note: This story originally appeared in the April 2014 issue of WIRED; it has been updated to reflect breaking news. Figures are for 2012 (except Microsoft: 2011); R&D cost-sharing payments to US parent companies and some IP paths not shown. Information on the sources for the infographic can be found here.
See the original article here: