Apple, the tech giant that has made a corporate bonanza by selling iPhones, iPads and iPods to consumers worldwide, has avoided tens of billions of dollars in U.S. taxes on its income and profits, according to a Senate report summary issued Monday and swiftly challenged by the firm.

The California-based firm has used a web of offshore entities — including three Ireland subsidiaries that it said don’t have tax residency in any country — to cut some of its tax rates to 0.05%, the Senate Permanent Subcommittee on Investigations reported.

One of those Apple subsidiaries reported $30 billion in net income for 2009-2012, yet filed no corporate tax return and paid no income taxes to any government during those years, the panel reported in advance of a public hearing set for Tuesday.

Another affiliate received $74 billion in sales income over four years, but paid taxes “on only a tiny fraction of that income,” the report said.

Apple also transferred economic rights for some of its intellectual property to its offshore affiliates in low-tax jurisdictions, saving tens of billions of dollars in levies, the Senate panel concluded in its latest look at corporate tax avoidance tactics.

The company then went a step further by using U.S. tax loopholes to avoid federal taxes on $44 billion in otherwise taxable offshore income from the intellectual property rights during the last four years, the report concluded.

“The secret to Apple’s business success isn’t in the aluminum and the steel and the glass of an iPhone,” Sen. Carl Levin, D-Mich., the panel’s chairman, said Monday evening. “The genius is the ideas that bring those elements together in an elegant package. That intangible genius is intellectual property … nurtured and developed here in the United States. Any yet, it ends up that most of the profits are shifted to a tax haven.”

Arizona Sen. John McCain, the panel’s ranking Republican, said Apple “should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue.”

In written testimony filed with the subcommittee, Apple said “in accordance with U.S. law,” the firm “pays U.S. corporate income taxes on the profits earned from its sales in the U.S. and on the investment income of its controlled foreign corporations.”

Insisting it doesn’t use “tax gimmicks,” Apple said it does not move intellectual property to offshore tax havens and use that structure to sell products in the U.S., thereby ducking domestic taxes. The company, which reported $102.3 billion of its $145 billion in cash was held in offshore affiliates as of March 30, said it has that much money overseas “because it sells the majority of its products outside the U.S.”

Apple CEO Tim Cook, CFO Peter Oppenheimer and tax operations chief Phillip Bullock are scheduled to testify at Tuesday’s hearing. Cook told The Washington Post last week his testimony would include a proposed “dramatic simplification” of corporate tax laws that would encourage U.S. firms to bring foreign earnings back home for job creation and economic investment.

Apple said it paid $6 billion in federal corporate income taxes during its 2012 fiscal year and expects to pay $7 billion in the current year. Those totals make Apple “likely the largest corporate income tax payer in the U.S,” the company said.

Tax-avoidance techniques are commonly used by many large U.S.-based global firms as a legal way to reduce government levies at home and abroad. In a separate study last fall, the Senate panel reported that two other domestic tech giants, Microsoft and Hewlett-Packard, used such strategies to avoid billions in federal taxes.

In its Apple study, the Senate panel reported that Apple for the last decade has operated in Ireland with a specially negotiated tax rate of less than 2%, well below the country’s 12% statutory rate.

Apple has several Ireland subsidiaries, including Apple Operations International, its top-tier offshore affiliate, and two sub-affiliates called Apple Operations Europe and Apple Sales International.

Incorporated in 1980, AOI “has no physical presence” in Ireland “or any other address” and doesn’t have any employees, the Senate report said. Its board meetings have almost always been held in the U.S., and its assets are managed by an Apple subsidiary in Nevada.

“According to Apple, AOI’s net income made up 30% of Apple’s total worldwide net profits from 2009-2011, yet Apple also disclosed to the subcommittee that AOI did not pay any corporate income tax to any national government during that period,” the report said.

Apple said “it had not determined” whether AOI was managed and controlled in the U.S., which would make its profits taxable, the report said, noting that the subsidiary hadn’t filed a corporate tax return in the last five years.

Apple Sales International, ranked below AOI on the corporate flow chart, in 2011 paid $10 million in global taxes on $22 billion of income, the report said. In 2010, ASI paid $7 million in taxes on income totaling $12 billion.

“Those Irish tax payments are so low … they raise questions about whether ASI is declaring on its Irish tax returns the full amount of income it has received from other Apple affiliates,” the report said.

ASI and Apple Operations Europe, the third Ireland affiliate, have research and development cost-sharing agreements with the U.S. parent company, giving them joint ownership of economic rights to Apple’s intellectual property offshore, the report said.

That structuring enabled Apple to avoid having worldwide sales revenue related to the rights attributed to the parent firm. Instead, the company arranged for a large portion of the worldwide revenue to be attributed to ASI, which benefits from an Irish tax rate as low as 0.05%, the report said.

Apple also used a tax loophole in the U.S. tax code, the Senate panel said. By checking an IRS tax form box that designated its lower-tier foreign affiliates as “disregarded” entities, the IRS was required to treat the affiliates for tax purposes as part of Apple Operations International, the company’s top overseas subsidiary.

Apple used this procedure for offshore affiliates in Europe, Asia and elsewhere, the report said. From 2009-2012, Apple reported that AOI received $29.9 billion in income, mostly from dividends paid by lower-tier overseas affiliates, the report said.

That passive income would normally be taxed. “But by using the check-the-box loopholes, Apple was able to designate the income as coming from disregarded entities. “Once they became part of AOI, their dividend payments … were no longer taxable passive income,” the report said.

The Senate panel recommended strengthening the federal tax code to eliminate incentives for U.S. multinational firms to transfer intellectual property rights to offshore affiliates in low-tax areas.

In other recommendations, the panel called for reforming “check the box” tax rules and imposing current U.S. tax on income earned by any overseas affiliate managed and controlled in the U.S.

Article source: http://www.usatoday.com/story/money/business/2013/05/20/senate-investigation-apple-tax-payments-foreign-profits/2326497/

Minnesota legislators were putting the finishing touches on the state’s $38 billion two-year budget during late-night debates that paved the way to adjourning by midnight Monday, May 20, the deadline for the session.

By Sunday night, lawmakers had passed seven of the eight spending bills that make up the budget, and the House had started what was expected to be a long discussion on the tax bill that will pay for that spending. Senate leaders planned to take up the tax bill shortly after the DFL-controlled House voted on it.

The final spending bill on the agenda pays for state agency operations. Lawmakers plan to vote on it Monday.

Earlier Sunday, the House and Senate sent a $15.7 billion K-12 education bill — the largest bill of the session — to Gov. Mark Dayton for his signature.

The tax bill would raise Minnesota’s income tax rate for the first time in 26 years. It would raise $2.1 billion by boosting taxes on high-wage earners, smokers and corporations.

House Taxes Committee Chair Ann Lenczewski, DFL-Bloomington, said the income tax increase would make the state’s taxes fairer because the highest-earning Minnesotans now pay a smaller share of their income on state and local taxes than middle-class taxpayers.

The top 2 percent of wage earners — about 54,000 taxpayers — would pay about $1 billion more under the bill. Their tax rate would go up 2 percentage points to 9.85 percent on taxable income over $150,000 for singles and $250,000 for

couples. That would give Minnesota the fourth-highest state income tax rate in the nation.

Republicans warned that the income tax increases would drive some job creators out of the state, discourage others from moving here and make it harder for businesses to complete for professional talent.

Cigarette taxes would go up $1.60 per pack, and taxes on other tobacco products also would increase sharply. But taxes won’t rise for beer, wine or liquor.

“We are closing corporate tax loopholes,” Lenczewski said. The bill eliminates $424 million in business tax write-offs, mostly for foreign operations.

Businesses would get an upfront exemption from sales taxes on capital equipment, resulting in an $81 million tax break.

But the bill extends sales taxes for the first time to commercial warehousing and storage services, electronic equipment repair and telecommunications equipment, resulting in a $214 million tax increase for businesses.

Lenczewski said the legislation provides “massive property tax relief.”

Thousands of homeowners and renters would become eligible for property tax refunds for the first time and thousands more would get larger refund checks.

It also provides indirect property tax relief. The measure exempts cities and counties from state sales taxes, resulting in $172 million in savings on top of a $130 million increase in state aid to local governments. The bill puts a 3 percent cap on local property tax levy increases next year.

A backup funding source for the new Minnesota Vikings stadium is tucked into the tax bill. It deposits a one-time, $24.5 million cigarette tax windfall into a stadium account and closes a corporate loophole to provide about $20 million a year in future years, if needed. Dayton and lawmakers crafted the backup plan after the main source of stadium funding — electronic pulltab and bingo tax revenue — fell short.

In addition, the bill provides hefty tax breaks to promote Mayo Clinic’s $6 billion “Destination Medical Center” economic-development project in Rochester, the Mall of America’s planned expansion, 3M’s planned new research and development facilities in Maplewood and incentives for Baxter Healthcare Group to locate in Brooklyn Park.

EDUCATION

The $15.7 billion K-12 funding bill is on its way to the governor after the House passed it early Sunday morning by a 78-56 vote and the Senate followed suit in the afternoon.

All the House DFLers voted yes, plus five Republicans.

The Senate vote was 41-26, with all the DFLers except Ann Rest of New Hope in favor of the bill. Three Republicans supported it as well.

The bill represents more than 40 percent of the state general fund budget.

It adds $158 per pupil — about $238 million — onto the basic school funding formula. About $134 million is allocated to fund all-day kindergarten, and another $46 million for early childhood scholarships.

The education bill spends $485 million more than the forecast amount.

Sen. Patricia Torres Ray, DFL-Minneapolis, called it a “long overdue investment in our kids.”

Senate Minority Leader David Hann, R-Eden Prairie, said the bill spends a lot of money without locking in measures to improve student achievement. “I think we failed,” he said. “We better get this figured out.”

But Sen. Chuck Wiger, DFL-Maplewood, the bill’s chief sponsor, said the money is being spent on high-quality initiatives that will put every child on the path to career- and college-readiness. “This is genuine reform,” he said.

Republicans continued to hammer on a change in the bill that does away with the high-stakes GRAD test and replaces it with a “suite of assessments” aimed at career- and college-readiness. GOP members argue that it waters down the high school diploma.

“Life is a high-stakes test,” said Sen. Dave Thompson, R-Lakeville, and the sooner high school students learn that the better.

Sen. Paul Gazelka, R-Nisswa, summed up the bill as follows: “We’re spending a lot more, and we’re expecting less.”

STATE GOVERNMENT

Lawmakers won’t be getting a pay raise this session.

The DFL-led Senate wanted to raise their $31,140-a-year salaries to $40,890 by 2015, but the House refused to go along.

But a state agency funding bill does include raises for the governor and his department heads. The governor’s $120,303 annual base pay would go up 3 percent in 2015 and again in 2016. It also allows some commissioners to make more than the governor, a move Dayton has supported to keep high-level managers in the public sector.

The state also would hire a consultant to conduct a comprehensive study to analyze pay and benefits for top positions in the executive branch to make sure they’re competitive with similar work in the private sector.

But that doesn’t mean discussion has ended on lawmaker pay. The House on Friday approved putting a constitutional amendment on the ballot that would have an outside council — not legislators — decide how much state lawmakers should be paid.

If the Senate agrees to put it on the ballot and voters approve, it would create a legislative pay council appointed by the governor and the chief justice of the state Supreme Court. The amendment wouldn’t go on the ballot until 2016.

TRANSPORTATION

With gas prices soaring, lawmakers decided to forgo a proposed 5 cents-a-gallon gas tax increase. They also rejected a half-cent sales tax increase for Twin Cities-area bus and rail transit.

Instead, the House and Senate on Sunday passed a so-called “lights on” transportation funding bill that maintains the status quo.

Article source: http://www.twincities.com/politics/ci_23280007/spending-bills-clear-time-talk-taxes

Google and other tech companies have come under fire for exploiting a common tax loophole to book revenues through their Irish subsidiaries, but today The Sunday Times is reporting that a former Google UK executive has evidence of further tax avoidance by his one-time employer. Barney Jones worked for Google between 2002 and 2006 and says that during his time at the company, Google relied almost exclusively on its UK sales staff to secure advertising deals in London, effectively closing deals there rather than in Dublin, where it booked the revenues. Google VP Matt Brittin had previously testified to the Commons Public Accounts Committee (PAC) that “nobody” at Google’s UK office was selling Google advertising, last week revising his statement to clarify that while “a lot of the aspects of selling” ads did happen in London, the Dublin office was actually the one closing the deals.

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Jones claims that London sales staff were in charge of sending out ad contracts

The Sunday Times writes that Jones will be submitting some 100,000 documents and emails to HM Revenue and Customs (HMRC) that clarify the innerworkings of Google’s ad operations. In particular, Jones claims that London sales staff were in charge of sending out ad contracts and receiving signed copies back from clients, which could poke holes in Brittin’s earlier testimony. It also notes that Ireland’s corporate tax rate currently sits at 12.5 percent, just over half of the UK’s 23 percent tax on corporate income.

It’s not clear whether the evidence is enough to show malfeasance on Google’s part, but Jones’s claims do add another layer of complexity to the investigations into the company’s tax practices in the UK. Commenting to The Sunday Times, Google’s director of external relations said that “none of the allegations put to us change the fact that Google pays the corporate tax due on its UK activities and complies fully with UK law,” but that it was unable to respond to documents that haven’t yet been made public. We’ve reached out to Google for comment and will update if we hear anything back.

Article source: http://www.theverge.com/2013/5/19/4344842/google-uk-exec-alleges-tax-avoidance-scheme

City Councilwoman Inez Dickens — a top contender to be City Council speaker — won’t have debt collectors hounding her to pay property taxes after all.

The Daily News revealed Friday that she owns half of two Harlem apartment buildings that were scheduled to be part of a tax lien sale. The lien buyers could then have pursued her to pay the debt.

RELATED: CITY TO SELL OFF COUNCILWOMAN $48,000 REAL ESTATE DEBT

But late Thursday, after The News called Dickens’ office about the tax arrears, somebody paid off enough of the tab to keep collections at bay.

The Department of Finance received $25,000 at about 6 p.m. on three buildings Dickens owns with her family: 187 Lenox Ave. and 2153 and 2155 Seventh Ave., the agency said.

RELATED: CITY COUNCIL HOPEFUL SAYS HE’LL DECLINE MATCHING PUBLIC CAMPAIGN FUNDS

Todd Maisel/New York Daily News

Dickens, a Democrat representing Harlem, inherited ownership of the buildings from her father, late City Councilman Lloyd Dickens.

As a result, all three were taken off the tax lien list, officials said.

Dickens and her family still owe $40,000 in back taxes on the three buildings, according to the city, which will now try to get back the remainder of the money.

RELATED: WHAT THE DICKENS! GADFLY TO CHALLENGE HARLEM COUNCILWOMAN

“If the taxes on the properties are not satisfied, outstanding debts will be at risk of being included in next year’s lien sale same as any other property that owes the city money,” a statement from the Department of Finance reads.

Dickens has said through a spokesman that she doesn’t have anything to do with the day-to-day management of the real estate. Her office didn’t respond to a call seeking comment Friday.

The Harlem Democrat inherited her ownership of the buildings from her father, the late City Councilman Lloyd Dickens.

tmoore@nydailynews.com

Article source: http://www.nydailynews.com/new-york/councilwoman-dickens-reduces-taxes-owed-real-estate-article-1.1347637