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The Bulletin

Apple's tangled web of tax shelters

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Apple's web of subsidiaries, which house billions of dollars in cash offshore to avoid U.S. taxes, not only provides insight into the tech company's audacious strategy but it also underscores the flimsiness of America's tax code.

Apple, the U.S's most profitable tech company, has set up a web of tax shelters so complex it goes beyond anything most experts have ever seen, reported New York Times.

Apple paid more than $6 billion in taxes in the U.S. last year on its American operations. The company has managed to sidestep taxes on tens of billions of dollars it earned outside the U.S. by creating offshore entities, many of which are in Ireland, while claiming to be a tax resident of nowhere.

Technically, Apple isn't breaking the law. It is, however, exploiting the numerous loopholes contained in the U.S. tax code. And that's angered politicians, many of whom will square off against CEO Tim Cook in a congressional hearing today.

For example, Apple consolidates as much of its offshore earnings as possible in Ireland, where the company has an Irish tax rate of less than two percent, according to a congressional subcommittee memo on offshore profit shifting. Apple also has avoided other taxation through vehicles that have allowed the company to shift profits out of other developed countries as well.

The memo cited this example:

In 2011 Apple's ability to pass title to the goods it sells around the world through Ireland resulted in 84 percent of Apple's non-U.S. operating income being booked in ASI. This left very small earnings, and correspondingly small tax liabilities, in countries around the wolrd. In 2011, for example, only $155 million in earnings before taxes were recorded in Apple's UK affiliates. Apple also had no tax liability in its French and German retail affiliates that same year.

Photo: Apple

— By on May 21, 2013, 1:31 AM PST

Kirsten Korosec

Contributing Editor

Kirsten Korosec has written for Technology Review, Marketing News, The Hill, BNET and Bloomberg News. She holds a degree from Northwestern University's Medill School of Journalism. She is based in Tucson, Arizona. Follow her on Twitter. Disclosure