What A Tax Attorney Can Do for You: Understand How Apple, Inc. Legally Does Not Pay Income Tax

by Moskowitz LLP

When Apple Inc., disclosed that it has not paid any corporate income tax over the past 4 years, it got the government’s attention.   Hailed before the Senate, Apple is confident in their tax position because, it is legal. 

Essentially, Apple games the system by aggressively manipulating the Internal Revenue Code and tax treaties to save billions of dollars in taxes.  9 Billion and counting to date.  The Apple plan may work for any company whose assets can be sold anywhere in the world because the nature of the business allows for forming the necessary subsidiaries in tax havens (countries that have no income tax) while still maintaining the ability to conduct computer-generated sales. For example: if Apple sells an ITune or IPad app in the United States, the sale produces federally taxable gross revenue. However, if the same ITune or app is sold through an offshore haven, no federal revenue is generated for US tax purposes. Therefore, Apple is not taxed on the income generated from the sale of the ITune or app until it is repatriated to the US, if ever.

Apple takes advantage of the laws of Ireland. Ireland has recently enacted numerous laws to attract foreign investors. Apple uses a technique known as the “Irish-Dutch Sandwich.”  For tax planning reasons it is known as a sandwich because it involves more than one different countries, much like Hungary, Lichtenstein, and Switzerland are used to practically eliminate capital gains taxes that foreign investors would normally be paid on capital gains to the US for gains in real property or securities (See our article, U.S. Tax Effects of Treaties in the Context of Foreign Investment in the U.S.).

Here, Apple successfully utilizes the “Irish-Dutch Sandwich”:  

Intellectual property is transferred from the U.S. corporation to a subsidiary established in Ireland. The subsidiary is managed by individuals residing in a Caribbean tax haven country such as the Cayman Islands, Nevis, Bermuda, or the British Virgin Islands. A sale is generated in Ireland. However, the gross proceeds of the sale are quickly transferred to an offshore tax haven in order to avoid taxation in Ireland. Under Irish law, the company established in that jurisdiction is not taxed due to the fact that the manager resides outside of that jurisdiction. (Typically, a corporation is a tax resident of the country where it is incorporated. This is not the case under Irish law. Under Irish law, a corporation is a tax resident where its manager resides.) Therefore, an entity can incorporate and conduct business in Ireland. However, if its management is located in a tax haven jurisdiction such as the ones discussed above, the corporation is considered incorporated in the tax haven jurisdiction, not Ireland.

However, by virtue of the corporation maintaining its domicile in Ireland, it can utilize tax friendly agreements amongst European Union members.   For instance, Apple next takes the sales revenues which were generated in Ireland, transferred to a non-Irish country, and finally diverted to the Netherlands. The Netherlands charges only a small tax on royalty income from the sale of ITunes or apps and since it is within the European Union, there is no tax withholding or tax between Ireland and it.    It should be noted that rock groups such as the Rolling Stones and U2 have transferred sales from worldwide record sales to the Netherlands to avoid paying taxes in their home countries.

In conclusion, by establishing a multinational chain of subsidiaries, Apple has successfully avoided paying US taxes for years, even though it is headquartered in the US.

As the result of favorable world-wide income tax treaties, foreign investors in the U.S. may be able to arrange their business transactions in the U.S. without realizing any U.S. tax liability.    Further, corporations of really any size can potentially utilize this system because it is relatively inexpensive.   Particular attention must be paid to both the tax treaties of different countries and also the additional tax savings in planning the use of multiple tax treaties and multiple entities to legally avoid the taxes that would otherwise be paid.

To better understand this intricate area of tax law, consult with a tax attorney at Moskowitz, LLP by calling (415) 394-7200 or via our Tax Law Firm’s website.

Moskowitz LLP, A Tax Law Firm, Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Moskowitz LLP | Attorney Advertising

Written by:

Moskowitz LLP

Moskowitz LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.