During the fiscal year of 2012, Apple made more money than ever before and became the world’s most valuable company. But they also managed to pay only 1.9% of income tax on earnings outside of the U.S. Of the $36.8 billion Apple earned outside the U.S. Apple only paid $713 million in taxes.
Some may see those numbers and cry foul, but Apple hasn’t done anything illegal. Like a lot of other Fortune 500 companies, Apple keeps their international profits stashed somewhere outside the U.S. rather than having to pay a heavy tax rate for bring that cash back to America. The strategy saves Apple billions on their tax bill, but it also limits what they can do with those profits.
Apple’s foreign tax rate is much lower than the general U.S. corporate tax rate which stands at 35%. If Apple brought their international profits back into the U.S., they would have a much higher tax rate that would be comparable to the 35% most companies pay. As a result, Apple has left about $82.6 billion overseas.
Apple uses a number of accounting moves to lower their tax bill by shifting profits to countries with lower tax rates. The associated Press calls the move the “Double Irish With a Dutch Sandwich,” where companies route profits through Irish and Dutch subsidiaries and then to the Caribbean.
As CEO of Apple, Tim Cook has told politicians in Washington that they should consider a “Tax Holiday” wherein U.S. companies like Apple and Google who have large amounts of cash stashed overseas, could bring that cash back into the U.S. tax-free and then invest in American companies.