How Apple avoids paying taxes on iTunes revenue

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iTunes is down!. Photo:
Apple paid nearly zero taxes on iTunes in Europe. Photo: Jim Merithew/Cult of Mac

Apple’s tax tactics in Ireland have landed the company in Congress’ hot seat this year, but another European nation has also helped Apple wiggle its way out of paying massive taxes on its iTunes revenues.

Apple reportedly took advantage of Luxembourg’s complex and corporation-friendly taxation system to get out of paying taxes on its iTunes revenue in Europe. The country has a 29% corporate tax rate, but after negotiating a deal, Apple paid only $25 million in taxes out of the $2.05 billion in iTunes revenue. Apple’s not the only American company exploiting Luxembourg’s tax laws either, with some companies paying less than 1% of revenue.

Here’s how Apple avoids paying nearly all taxes in Europe:

Luxembourg served as one of Apple’s overseas tax havens from September 2008 until December of last year, giving the company a 1.2% corporate tax rate. Over two-thirds of Apple’s European revenue from iTunes was routed through its Luxembourg holding company called iTunes Sarl. Apple has since moved the holding company to Ireland where it pays less than one percent tax on iPhone and iPad sales.

Astonishingly, Apple’s tax bill is not even the lowest among Luxembourg-incorporated companies, as Amazon and others enjoy a much lower rate. Now everyone’s moving their money over to Ireland to cash in before their loophole closes.

EU regulators issued a preliminary conclusion in September that Apple received illegal state support from Ireland. Apple responded by claiming it never received preferential treatment by Irish officials, but the country announced recently that it plans to close its Double Irish loophole that has become the vogue on Wall Street for getting out of high tax bills.

Irish officials have vowed to close the ‘Double Irish’ loophole, but Ireland has given Apple a six-year grandfathering close that will allow the company to keep its annual earnings practically tax free until 2020.

Source: AFR