Apple computers used a sophisticated series of international subsidiaries and tax strategies to cut its U.S. federal tax bill by $74 billion between 2009 and 2012, a report has claimed.
The Securities and Exchange Commision filed a series of letters raising questions about disclosures by Apple Inc. in relation to its Irish tax strategies.
It's the latest example of the ongoing scrutiny the company has faced for its controversial overseas tax strategies, but the U.S. Securities and Exchange Commission took no action against the company, which has reportedly agreed to change some of the language in its securities filings to provide more information for investors.
Earlier this year Apple Chief Executive Tim Cook appeared before a congressional committee to answer questions about the strategies the company employed to reduce its tax bill.
Congress later released a report providing details about some of those strategies. The report claimed that Apple used a series of international subsidiaries and tax strategies to cut its U.S. federal tax bill.
Many of the congressional questions focused on Apple's Irish subsidiary and whether it was a legitimate business operation or whether it existed primarily to help Apple reduce its tax bill.
Responding to the questioning Cook stated, 'We pay all the taxes we owe.'
In June Apple reportedly received a letter from SEC officials asking whether the company had considered providing more details about its overseas tax agreements. The agency also wanted to know where Apple was holding most of its money overseas.
Apple responded on June 24 by agreeing to expand its disclosures about risks associated with overseas taxes. The company also noted that the bulk of its foreign earnings were being held in Ireland:
'In response to the Staff’s comment, the Company notes that substantially all of the Company’s $40.4 billion in undistributed international earnings intended to be indefinitely reinvested in operations outside the U.S. (as of September 29, 2012) was generated by subsidiaries organized in Ireland, which has a statutory tax rate of 12.5%. The Company supplementally advises the Staff that most countries in which the Company operates have tax rates lower than that of the U.S.'
According to the LA Times in a letter on July 9, the SEC pressed Apple to clarify its tax risks. Although Apple spoke of the risks in 'foreign' jurisdictions, the SEC wanted that changed to 'Irish' jurisdictions since this was where the bulk of the overseas earnings occurred.
'Your responses state that your Irish subsidiaries generated substantially all of your $40.4 billion in undistributed international earnings, creating a tax benefit of approximately $5.9 billion in 2012,' the SEC said. 'Thus, it appears that you should specifically reference the potential risks associated with any changes in Irish tax laws.'
In a letter on July 22, Apple said it would include a reference to Ireland and explained that changes to the country's tax laws could have a material impact on Apple.
Apple added that it expected to continue holding that money overseas in part because it could generate enough cash in the U.S. or borrow enough for its needs without repatriating its foreign earnings.
Apple noted that 61% of its net sales in 2012 occurred outside the U.S. and that it plans to invest much of that money made abroad in building more Apple stores overseas and expanding its international iTunes stores and marketing outreach.
On September 5, the SEC informed Apple that it had completed its review and decided not to take any action.