Is Apple Mired in a Tax Mess?

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Apple (NASDAQ:AAPL) has defended its tax practices ahead of the release of a Congressional report into its corporate finance structure. Apple said in a statement on Thursday that it was “one of the top corporate income taxpayers in the country, if not the largest”, and that it paid “an enormous amount of taxes” to local, state, and federal authorities.

“In fiscal 2012 we paid $6 billion in federal corporate income taxes, which is 1 out of every 40 dollars in corporate income taxes collected by the U.S. government,” the iPhone maker said in a statement.

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According to The New York Times, Apple was the central focus of the yearlong U.S. Senate Permanent Subcommittee on Investigations inquiry into at least six of the country’s leading tech firms. The investigation also included Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Hewlett-Packard (NYSEHPQ), and a few biotech companies.

Apple is known to use its Irish, Dutch, and Caribbean subsidiaries to keep most of its profits overseas, thus escaping the high corporate taxes of the U.S. While not illegal, the practice does test ethical boundaries. During a September hearing, Senator Carl Levin had said that Apple had deferred taxes on at least $35 billion of offshore income over two years.

“Although the majority of Apple’s executives, product designers, marketers, employees, research, and development operations and retail stores are in the U.S., in the past Apple’s accountants have found legal ways to allocate about 70 percent of the company’s profits overseas, where tax rates are often much lower, according to corporate filings,” The NYT said.

Apple may have to offer a better response than just asserting that it paid high tax amounts. “Apple went out of its way to try and ensure that its tax savings didn’t attract too much public attention,” Ex-Treasury Department economist Martin Sullivan told The NYT. “Because tax avoidance of that magnitude — even though it’s legal and permissible — isn’t in keeping with the image of a socially progressive company.”

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