Apple used Jersey for new tax haven after Ireland crackdown, Paradise Papers reveal

Tech giant moved the firm holding most of its vast untaxed offshore cash reserve to the Channel Island - after a crackdown in the Republic of Ireland

Rob Merrick
Deputy Political Editor
Monday 06 November 2017 19:46
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Tech giant Apple chose the Channel Islands as a new haven to continue avoiding billions in taxes, the Paradise Papers show.

The company picked Jersey as an alternative after a 2013 crackdown on its controversial tax practices in the Republic of Ireland, they reveal.

Apple moved the firm holding most of its huge untaxed offshore cash reserve to the Channel Island, allowing it to avoid billions of tax around the world – but has insisted the secretive new structure had not cut its taxes.

It told the BBC it remained the world’s largest taxpayer, paying about £26bn in corporation tax over the past three years and that it had followed the law.

The revelation is the latest from the Paradise Papers, a huge leak of financial documents that is throwing light on the world of offshore finance.

Until 2014, Apple had been exploiting a loophole in tax laws in the US and the Republic of Ireland known as the “double Irish”.

This allowed Apple to funnel all its sales outside of the Americas – currently about 55 per cent of its revenue – through Irish subsidiaries that incurred hardly any tax.

Instead of paying Irish corporation tax of 12.5 per cent, or the US rate of 35 per cent, its foreign tax payments rarely amounted to more than 5 per cent of its foreign profits – and dipped below 2 per cent in some years.

The European Commission calculated the rate of tax for one of Apple’s Irish companies for one year had been just 0.005 per cent.

After the EU announced in 2013 that it was investigating Apple’s Irish arrangement, the Irish government decided that firms incorporated there could no longer be stateless for tax purposes.

In order to keep its tax rates low, Apple needed to find an offshore financial centre that would serve as the tax residency for its Irish subsidiaries.

The Paradise papers, seen by the BBC, show that Apple chose Jersey, a UK Crown dependency that makes its own tax laws and has a 0 per cent corporate tax rate for foreign companies.

The documents show Apple’s two key Irish subsidiaries, Apple Operations International (AOI), believed to hold most of Apple’s massive $252bn (£191bn) overseas cash hoard, and Apple Sales International (ASI), were managed in Jersey from the start of 2015 until early 2016 – enabling Apple to continue avoiding billions in tax around the world.

Apple’s 2017 accounts showed they made $44.7bn (£33.9bn) outside the US and paid just $1.65bn (£1.25bn) in taxes to foreign governments, a rate of around 3.7 per cent – less than a sixth of the average rate of corporation tax in the world.

The Jersey connection has been revealed after Apple’s legal advisers, in March 2014, sent a questionnaire to Appleby, a leading offshore finance law firm and source of much of the Paradise Papers leak.

It asked what benefits different offshore jurisdictions – the British Virgin Islands, Bermuda, the Cayman Islands, Mauritius, the Isle of Man, Jersey and Guernsey – could offer Apple.

The document asked key questions such as was it possible to “obtain an official assurance of tax exemption” and could it be confirmed that an Irish company might “conduct management activities … Without being subject to taxation in your jurisdiction”.

Leaked emails also make it clear that Apple wanted to keep the move secret and for it “only to be discussed among personnel who need to know”.

The 13.4 million documents were obtained by the German daily Süddeutsche Zeitung and shared with other international media organisations.

Apple has responded to the reports, saying the company “pays every dollar it owes in every country around the world”.

In a lengthy statement, the firm reposted parts of a statement it had put out in response to a New York Times story on the company's tax arrangements last month. It said: “We’re proud of the economic contributions we make to the countries and communities where we do business.”

“The debate over Apple’s taxes is not about how much we owe but where we owe it. As the largest taxpayer in the world we’ve paid over $35 billion in corporate income taxes over the past three years, plus billions of dollars more in property tax, payroll tax, sales tax and VAT. We believe every company has a responsibility to pay the taxes they owe and we’re proud of the economic contributions we make to the countries and communities where we do business.

“Under the current international tax system, profits are taxed based on where the value is created. The taxes Apple pays to countries around the world are based on that principle. The vast majority of the value in our products is indisputably created in the United States — where we do our design, development, engineering work and much more — so the majority of our taxes are owed to the US.”

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