Apple Australia denies Double Irish with Dutch sandwich tax avoidance

Apple Australia denies tax avoidance but the numbers just don’t add up.

The media spokeswoman for Apple Australia has been very busy the past two weeks.

Her boss appeared at a Senate hearing on corporate tax evasion a couple of weeks ago, so she’s had to do some mopping up with the media.

At the well-publicised inquiry in Sydney, Greens Leader Christine Milne accused Apple of using a tax avoidance strategy called a “Double Irish sandwich with Dutch associations”.

(The controversial strategy involves using payments between related entities in a corporate structure – between the US and its subsidiaries in Ireland, the Netherlands and Bermuda – to shift income from higher- to lower-tax countries).

But Apple Australia’s managing director, Tony King, said he had never heard of the strategy, and he was rightly ridiculed by senators for his faux ignorance – the tax strategy has been making headlines since at least 2012 when The New York Times won a Pulitzer Prize for exposing it.

Since King said he had never heard of it, he couldn’t say that his company didn’t use it. So that was left to his media team.

Following the hearing, if journalists reported that Milne had linked Apple Australia to the Double Irish tax strategy, then they likely received a prompt phone call from Apple Australia’s media spokeswoman.

She told them that, no, Apple does not use the Double Irish with Dutch associations and it never has. If you reported it to be the case can you correct your report please.

Fair enough. It’s always interesting when a large multinational company demands that small corrections be made to the record when they’ve been accused of doing something that isn’t quite right, but which comes close to what they have been doing, but then they don’t disclose what that actually is.

But so the record’s clear: Apple has not used the Double Irish with Dutch associations to minimise or avoid tax. Milne was wrong to say that it has.

It has been sheltering billions of dollars from taxation over the last few years by using a tax structure that shifts money between different jurisdictions across the Atlantic, but it has been using a different strategy.

How do we know? Because Apple executives have told us.

According to Apple executives at a US Congressional hearing in May 2013, the company has used a double non-taxation strategy that uses Irish affiliate companies to minimise its tax bill.

It hasn’t needed to set up a company in the Netherlands.

Antony Ting, an associate professor of taxation law at Sydney University, says Apple’s international tax structure is much like its products – relatively simple compared to its competitors’.

“From the iMac in 1998 and the iPod in 2001 to the more recent iPhone in 2007 and iPad in 2010, they often set the standard for the product category,” Ting wrote in a paper called iTax – Apple’s International Tax Structure and the Double Non-Taxation Issue.

“In the tax world, Apple has also proved to be equally creative and bold. An unusual feature of its tax structure is its relative simplicity: it does not rely on the Double Irish Dutch Sandwich structure that has been commonly used by other US multinationals. Nevertheless, it is highly effective in achieving the goal of tax avoidance.

“From 2009 to 2012, Apple’s international tax structure successfully sheltered $US44 billion from taxation anywhere in the world [including from sales generated in Australia].”

The US Congressional hearing heard testimonies from Apple Inc’s chief executive, Timothy Cook, its chief financial officer, Peter Oppenheimer, and its head of tax operations, Phillip Bullock.

Ting says those testimonies revealed detailed information about the company’s tax structure “that is difficult, if not impossible, to discern from its financial statements”.

So if you have the time and the inclination, try to read Ting’s paper as well as the transcript of those testimonies.

Then have a read of the opening statement at Australia’s Senate inquiry into tax avoidance from Apple Australia’s managing director Tony King. Here are a few snippets:

“Apple Australia pays all taxes it owes, in accordance with Australian law,” he said.

“Apple’s product design, development and manufacturing all take place outside Australia.

“All of the sales from our operations here are included in Apple Australia’s accounts. Apple Australia buys the products we sell here and we pay Australian tax on the profit of those sales. We also pay GST on every single sale in addition to corporate, payroll and fringe benefits tax. In fact, in our most recently lodged accounts our effective tax rate was above the Australian corporate tax rate of 30 per cent.

“In addition to our Apple retail stores, we also have a broad network of partners that are successfully selling our products to millions of customers around the country. Our reseller channel alone offers more than 6,500 places for our customers to buy and this has driven hundreds more local jobs.”

There’s very little important detail there about Apple’s global tax structure.

As King told senators later: “I am not an international tax expert. I am not familiar with any of our tax activities offshore. I can talk clearly about our tax activities in Australia.”

So, let’s keep attention on the Australian operation only. And that operation, according to its most recently reported financial statements, has recently booked revenue of about $6 billion and has an income tax expense of around just $80 million.