Apple's Irish Tax Stash Is Actually Hidden in New York City

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Sam Biddle

05/22/13 08:45AM

Filed to: tax dodging

Tim Cook's grand scheme to avoid American corporate tax rates was just revealed as a little more absurd, with a new report by the New York Times. The (Californian) company is using (Irish) dummy companies to funnel cash to (Manhattan) bank accounts.

Recent congressional scrutiny is focused on Apple Sales International and Apple Operations International—two holding companies created in Ireland to help Apple escape US taxes. But the whole "Irish" thing is overstated:

Apple’s $102 billion in offshore profits is actually managed by one of its wholly owned subsidiaries in Reno, Nev., according to the Senate report on the company’s tax avoidance. The money is tracked by Apple company bookkeepers in Austin, Tex. What’s more, the funds are held in bank accounts in New York.

That's right: billions upon billions of Apple dollars are deemed "offshore" and untouchable, despite sitting in Manhattan accounts. The system works! For Apple.

Photo: Chris Hondros/Getty

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Magister Sam Biddle 05/22/13 10:32AM

I also like this bit from the Times..

A similar policy was enacted in 2004, which prompted American companies to return more than $300 billion in foreign earnings at the reduced rate of 5.25 percent. But it led to no discernible increase in American investment or hiring. On the contrary, some of the companies that brought back the most money laid off thousands of workers, and a study by the National Bureau of Economic Research later concluded that 92 cents on every dollar was used for dividends, stock buybacks or executive bonuses.

Makes sense. Demand for products didn't increase and I'm sure anyone who needed the money for production wouldn't have stashed it "offshore". It was unallocated money without a purpose. Kudos to any company which may have distributed the bulk as dividends, when it would have been much easier to just spread it among the top execs without saying a word.

zirpe Magister 05/22/13 04:59PM

I hate to burst your bubble, but they did (probably) spread the wealth mainly among the upper echelons of the insiders. Bonuses were given directly at the top (maybe in the form of stock or options). Then, dividends were increased on the stock, thus, raising the price. Then an open-market stock repurchase (buyback) was signaled, which would signal to the market that the stock is underpriced, driving the share price up. At the same time, layoffs were announced, driving the share price up even more, but dramatically. At this point, the managers – if they're rational operators – would dump a large portion of their shares, thus earning them some fast cash that they could reinvest. If they have options, they could use them to buy back the shares later at the lower option price, for which their cash bonuses would come in handy. Selling after an open-market repurchase is totally legal, for some reason. It's good to be the 1%.

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zirpe Magister 05/22/13 06:11PM

If you want to see what the company that repatriated the most money, Pfizer got up to, read this. It doesn't talk about the repatriation per se (which they used in the 2nd quarter 2005 for a buyback), but you can see that everything was in disorder, money and compensation were being doled out like candy to the top execs, companies were being bought without any plan, all the while they were laying off their R&D people. It doesn't talk about the personal finances of the people in the company, but if you read between the lines, you'll see that everyone was getting compensated like crazy with options and restricted shares before the stock jumped around that time, and before they chose to announce layoffs (which always sends prices up). The reason that the stock dropped is generally considered to be because of legal issues, a lack of leadership and a more conservative strategy that got Pfizer out of the blockbuster business.

Magister zirpe 05/22/13 06:35PM

I think whomever wrote the Times piece or possibly someone from the NBER was more in a bubble, if they thought this found money would have been used for increase in production. If the money was needed, it had always been there and all the tax amnesty did was allow them to distribute it, rather than keep it stagnant "offshore".

zirpe Magister 05/22/13 06:49PM

Teleologically, the newspaper reporters' job is to write praisingly about share values increasing for the shareholders and write negatively about share value decreasing for the shareholders. They can't and won't handle complexer microeconomic issues.
Read this article from the WSJ about the counterintuitive increase in stashing money offshore and huge loss of tax revenue that resulted from the reprieve.

"The 2004 repatriation tax holiday further motivated companies to keep even more of their earnings overseas, the report found. With the exception of Pfizer, the 10 companies that repatriated the most money after the 2004 tax break have stashed increasing funds offshore every year since the 2004 tax break, the survey noted."

This is just what Apple wants to do, bring more money back to the US at the reduced tax rate Congress will eventually give them, after which they'll start compensating their management with these shenanigans. Just watch. They probably won't lay off people, because they're fairly lean, but they'll buy back stock and the execs raise their compensation.

agaaaaain Sam Biddle 05/22/13 06:06PM

Not mentioned in this article, because apparently the author doesn't like research:

This is pretty much standard operating procedure. The profits get funneled through the subsidiary, and then come back to a US based bank account.

Also not mentioned, having the money in a US based account actually (theoretically) helps our economy by increasing the amount that banks have to lend. Unfortunately, the banks have been hoarding cash and not lending which incidentally has slowed down the recovery.

sigmaoctans agaaaaain 06/06/13 02:43PM

And correct me if I'm wrong, but its not like Apple (the U.S. corporate entity) can spend the money held in bank accounts owned by AOI (Apple Operations International - the Irish entity). This "held in Manhattan banks" thing doesn't really matter in a globalized financial marketplace. If Apple ever wanted or needed to spend those profits in the U.S., they would have to put the money under U.S. control and pay tax. So its not so much like "Apple doesn't pay taxes on its profits" its more like "Apple is delaying paying taxes on its profits as long as it can".

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Jonas Cord Sam Biddle 05/22/13 04:55PM

No, not "untouchable" - "untaxable," like every other account of a foreign company or subsidiary.

There are tons of bad faith offshore tax dodging shenanigans going on with lots of Corporations - but I have yet to see anyone look into this Apple arrangement and find anything other than Apple not paying domestic taxes on foreign income that they haven't repatriated. Which shouldn't be controversial if you learn about it and think about it for a few minutes.

MaxPoint Sam Biddle 05/22/13 03:07PM

Enron

agaaaaain MaxPoint 05/22/13 06:08PM

Your point?