Apple pays non-US income taxes of just 2 per cent

The company is likely awaiting a "repatriation tax holiday".

Apple's annual tax return (pdf), filed with the US Securities and Exchange Commission, reveals that it paid just 2 per cent tax on "foreign" (non-US) earnings in 2012.

The news, highlighted by the Sunday Times' Simon Duke, can be found on page 61 of the document, which reveals that the company owed $1,203m taxes on foreign pretax earnings of $36.8bn, and deferred payment on $490m in order to realise a tax bill of $713m this year. Even if the deferred taxes were paid in full, the company would still be paying an effective rate of just over 3 per cent.

International sales accounted for 61 per cent of Apple's business in the last year, and so many are likely to cry foul at the low proportion of taxes which it pays in the areas in which it carries out the majority of its business.

Apple, like many multinational corporations, employs many strategies to legally lower its tax bill. The company bases its entire Europe, Middle East and Africa division in Cork, Ireland, a low-tax jurisdiction, and also operates its worldwide sales and distribution network from there. In addition, the company is famous for the large amount of non-repatriated cash it sits on.

This is money which it has earned on foreign sales, and wishes to bring back to the US, but has not yet done so. Like many companies, Apple is hoping for a "repatriation tax holiday", where it can move that income back to the US without having to pay income tax on it. The most recent holiday was in 2004, and saw companies that brought back profits taxed at 5 per cent, instead of 35 per cent. Until Apple decides what to do with those cash holdings, the company is likely to continue deferring tax owed on them.

In addition, the company doesn't have to pay any tax on foreign earnings which are reinvested overseas – it has spent over $5bn this way in the 2012 tax year.

While the 2 per cent paid on international profits may harm Apple's reputation outside the US, the company still pays an effective tax rate of over 25 per cent overall, and provides a breakdown of the deductions that reduce this from the 35 per cent baseline corporation tax rate of the US.

Updated with credit to Sunday Times.

Apple's Headquarters in Cupertino, California. Photograph: Joe Ravi, CC-BY-SA 3.0

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.