APPLE TAX AVOIDANCE
SCHEME
DOUBLE NON-TAXATION
April 2015

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Apple International Structure

Source: New York Times

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Taxation Principles
RESIDENCE:
• Incorporation
• Place of Management
-> Case of Ireland
SOURCE:
• Source jurisdiction is generally expected to have priority, but the concept of source is generally poorly developed in domestic tax legislation
• Notion of permanent establishment, head office and transfer pricing rules

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Double Irish Arrangement
• The Double Irish Arrangement is a tax avoidance

strategy that some multinational corporations use to shift income from a higher-tax country to a lower-tax country.

• It is called Double Irish because it requires two Irish

companies to complete the structure. One of these companies is tax resident in a tax haven

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Apple Operations International (AOI)
• AOI, the company's primary offshore holding company,

made up 30% of Apple's total world profits.

• Residence: Irish and U.S. tax residency rules:
• Ireland uses a management and control test to determine tax residency. • United States determines tax residency based upon the entity’s place of formation.
• AOI is incorporated in Ireland, it is not tax resident in

Ireland, because AOI is neither managed nor controlled in
Ireland. Because AOI was not incorporated in the United
States, AOI is not a U.S. tax resident under U.S. tax law either. 5

Apple Sales International (ASI) (1)
• The second biggest Apple subsidiary
• ASI buys Apple's finished products from contracted

manufacturers in China and resells them to other Apple affiliates • Upon arrival, the products were resold by ASI to the Apple distribution affiliate that took ownership of the goods.

Source: Apple Consolidating Financial Statement

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Apple Sales International (ASI) (2)
• A company incorporated in Ireland with central

management and control in the US is therefore not a resident of either country. It follows that under the source principle, the Irish company would be subject to tax in
Ireland only on its income sourced in the country (if any).
• The important implication of the non resident status of ASI

in Ireland is that its foreign source income is tax free in the country. 7

Apple’s Tax Avoidance Scheme

Source: New York Times

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How US react to Apple’s loophole strategy • Apple has to meet its civic obligations to pay taxes:

But:
• The effectiveness of US Tax code has been weakened by

certain regulations and statutory exemptions (e.g. checkthe-box rule, transfer pricing, deferral)
• The US senate permanent investigation subcommittee is

focusing on this problem. According to them, Apple evaded taxes for $74 billions

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How EU react to Apple’s loophole strategy • EU has recently stressed the importance of Tax

transparency to avoid multinational cross-boarder corporations’ strategies to diminish the duty to pay taxes
• In addition, the EUC states that Tax avoidance damages public morale and creates competitive disadvantage for companies that cannot or will not engage in abusive tax practices • Loopholes between the national Tax regimes become unnoticed • If Ireland refuses to change its policy, the EU will apply fines 10

THANK YOU FOR YOUR ATTENTION!

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Backup - References
• European Commission, Combatting corporate tax avoidance: Commission presents Tax

Transparency, 2015, http://europa.eu/rapid/press-release_MEMO-15-4609_en.htm;
• C. Arthur, S. Gibbs, Apple may have to repay millions from Irish government tax deal,

2014 http://www.theguardian.com/technology/2014/sep/30/apple-repay-millions-irishgovernment-tax-deal; • P. Halpin, Ireland likely to phase out "Double Irish" tax regime – sources, 2014

http://www.reuters.com/article/2014/10/10/ireland-tax-idUSL6N0S53TU20141010;
• A. C. Kaufman, Ireland Moves To Close Tax Loophole Favored By Apple, 2014,

http://www.huffingtonpost.com/2014/10/14/apple-double-irish_n_5982814.html;
• A.Ting, iTax - Apple's International Tax Structure and the Double Non-Taxation Issue, 2014,

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2411297

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References (2)
• H.Gleckman, The Real Story On Apple's Tax Avoidance: How Ordinary It Is, 2013,

http://www.forbes.com/sites/beltway/2013/05/21/the-real-story-about-apples-taxavoidance-how-ordinary-it-is/;
• B.Wilson, Apple tax and the Irish connection – Senate, 2013,

http://www.bbc.com/news/business-22614672;
• W.Hickey, Apple Avoids Paying $17 Million In Taxes Every Day Through A Ballsy But

Genius Tax Avoidance Scheme, 2013, http://www.businessinsider.com/how-apple-reduces-what-it-pays-intaxes-2013-5#ixzz3XOBnH8ry • C. Duhigg, D.Kocieniewski, How Apple Sidesteps Billions in Taxes, 2012,

http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-taxstates-and-nations.html?pagewanted=all&_r=0;