On Dec. 20, when CBS News asked Apple CEO Tim Cook about his company’s history using subsidiaries in Ireland to evade US taxes, he waxed indignant:
Charlie Rose: But here’s what they concluded: Apple is engaged in a sophisticated scheme to pay little or no corporate taxes on $74 billion in revenues held overseas.
Tim Cook: That is total political crap. There is no truth behind it. Apple pays every tax dollar we owe.
But today, Italy confirmed that Apple will pay €318 million to settle allegations…that it used subsidiaries in Ireland to avoid taxes on its profits.
To be fair, Cook wasn’t talking about euros in his interview, but in both cases Apple is accused of having used creative accounting to book its profits in the lowest-taxed jurisdictions possible. The company attributes the bulk of its intellectual property rights to a subsidiary in Ireland, and has its retail subsidiaries pay most of their profits back to it as licensing fees, avoiding taxes in the country where sales occur.
As a preliminary European Community investigation found last year, Apple does not appear to have complied with its rules for payments between related subsidiaries. (The same concern came up during the 2013 US Senate investigation.) In the Italian case, Apple was also accused of under-reporting its Italian profits between 2008 and 20013; prosecutors had originally asked for more than €800 million in penalties before Cook personally met with Italy’s prime minister to smooth out settlement talks, a month before his interview aired.
Apple did not respond to a request for comment.
Many US multinationals, with Apple at the fore, take advantage of loopholes in the US tax code to defer taxes on overseas profits and accumulate large amounts of ostensibly “overseas” un-taxed cash. While legal, it’s a sign of an inefficient corporate tax code in need of reform, something Cook and other corporate leaders have urged lawmakers to take on.
But US and EC investigators suggest something more pernicious: Using improper accounting standards to turn legal leaks in the global tax system into geysers.