U.S. Senate scrutiny of Apple Inc. (AAPL)’s tax strategies turned the spotlight on a unit with $30 billion in profit since 2009 that’s incorporated in Ireland, controlled by a board in California, and doesn’t pay taxes in either place.
The shifting of profits by multinational companies is costing the U.S. and Europeat least $100 billion per year in lost tax revenue, according to Kimberly Clausing, an economics professor at Reed University in Portland, Oregon.
Similar practices by an assortment of companies — from Google Inc. (GOOG), owner of the world’s most popular Internet search engine, to Forest Laboratories Inc. (FRX), the maker of antidepressant drug Lexapro — are drawing increased scrutiny from regulators in the U.S. and around the world, particularly as European nations face a backlash against austerity measures.
Corporate tax avoidance is now being targeted on several fronts. The Organization for Economic Cooperation and Development, a think tank funded by governments around the world, is scheduled to release an “action plan” in July to deal with tax revenue lost to profit shifting. The plan came in response to a request by the Group of 20 nations.
In the U.S., President Barack Obama’s Treasury Department in April released a list of global tax loopholes to close, many of which it has targeted unsuccessfully in the past.
Apple Chief Executive Officer Tim Cookyesterday maintained the company had done nothing wrong and said it pays “all the taxes we owe — every single dollar.” The Cupertino, California-based company is also not alone in moving profits to such offshore units.
Google, for example, has used a pair of tax shelters known by tax attorneys as the “Double Irish” and “Dutch Sandwich” that move foreign profits through Ireland and the Netherlands to Bermudato avoid about $2 billion in income taxes a year, according to the company’s filings in the U.S.
Google has been questioned by the U.K. Parliament twice since November over its tax affairs and is in a more than $1 billion dispute with French tax authorities.
Forest Laboratories, based in New York, has used a virtually identical strategy to that of Google, claiming most of its profits are offshore, even as its sales are almost entirely in the U.S. It has also used an Irish unit that claims to be headquartered in Bermuda, and therefore not on the hook for Irish income taxes.
Cisco spokeswoman Kristin Carvell had no comment for this article. Yahoo spokeswoman Sara Gorman, Google spokeswoman Samantha Smith and Forest Laboratories Vice President Frank Murdolo didn’t return calls for comment.
The companies have also depended on a U.S. tax regulation known as “check the box” — cited by the Senate investigators in the Apple case — that makes offshore transactions effectively invisible to the IRS.
“Apple says their Irish subsidiaries’ ‘mind and management’ lies outside Ireland, but the real question is, do those subsidiaries have any mind of their own at all?” Kleinbard said. “If they are not really competent to make independent decisions to take on risks and make contracts on their own behalf, then the structure collapses of its own weight, and the income properly should be taxed to the United States.”