By Daniel Bates
PUBLISHED: 10:06 EST, 30 April 2012 | UPDATED: 12:22 EST, 30 April 2012
Apple avoided paying up to $2.4billion in taxes last year through a complex strategy that funnels money to low tax states and foreign countries, according to a report.
The technology giant has set up up offices in Nevada, the Netherlands, Luxembourg and the British Virgin Islands to ensure it pays a tax rate of just 9.8 per cent, the New York Times claimed.
Some offices are little more than a postal address or a few desks and some phones, according to former executives who helped plan the the measures.
Whilst entirely legal, Apple’s tactics have outraged residents in California where the company’s Cupertino HQ is based.
Schools and hospitals badly need Apple’s tax dollars to plug a $9.2billion budget black hole for 2012 alone.
Adding to their fury is that just 200 miles away from Cupertino, Apple has set up a small office in Reno, Nevada – where there is no corporation tax.
A report in the New York Times reveals that last year Apple paid $3.3billion tax in its profits of $34.2billion, which is a tax rate of 9.8 per cent.
Wal-Mart by contrast paid $5.9billion tax on a profit of $24.4billion, or 24 per cent tax, a typical rate for a non technology company.
One of Apple’s chief tax avoidance measures in the US was to set up in 2006 a subsidiary called Braeburn Capital – named after the Braeburn apple – in Reno.
This has invested and managed the company’s money despite being little more than a few computer terminals in an anonymous office building.
But because Nevada imposes no corporation tax and no capital gains tax, by opening an ‘office’ in the state it avoids the 8.84 per cent corporation tax it would incur in its home state of California.
Those living in California are disgusted with the disclosures, including Britain Murphy, the president of De Anza College in Cupertino, which Apple founder Steve Wozniak attended.
Despite being just one and a half miles from the Apple HQ, due to budget cutbacks it has had to slash more than 1,000 courses and lay off staff.
Mr Murphy said: ‘I just don’t understand it. I’ll bet every person at Apple has a connection to De Anza.
‘Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.
‘But then they do everything they can to pay as few taxes as possible.’
Apple has used similarly inventive methods abroad, so much so that 70 per cent of its profit is ‘earned’ in foreign countries.
Businessmen: Apple CEO Tim Cook, left, introduces the new iPhone 4s at the company’s headquarters in Cupertino on October 4, 2011, and co-founder Steve Wozniak, who attended De Anza College, right
Among Apple’s favoured techniques for dodging tax was a process called ‘Double Irish With a Dutch Sandwich’ which was so successful it has since been adopted by hundreds of other top companies.
This involves sending profits through Irish subsidiaries, Holland and then onto the Caribbean.
In Luxembourg an Apple subsidiary called iTunes S.à r.l. handles 20 per cent of iTunes sales worldwide despite having only a few dozen workers.
Former Apple executive Robert Hatta told the New York Times: ‘We set up in Luxembourg because of the favorable taxes.
‘Downloads are different from tractors or steel because there’s nothing you can touch, so it doesn’t matter if your computer is in France or England. If you’re buying from Luxembourg, it’s a relationship with Luxembourg.’
Apple set up two subsidiaries in Ireland called Apple Operations International and Apple Sales International after being granted favourable tax rates by the Irish government.
But it also allowed the company to move royalty payments to Ireland rather than have them taxed in California, giving it a 12.5 per cent tax rate instead of 35 per cent in the US.
The arrangement handled more than a third of Apple’s worldwide revenues in 2004, company filings reveal.
The Ireland-based Apple Sales International was also used to send profits to the Caribbean where Apple has set up another company called Baldwin Holdings in the British Virgin Islands, a tax haven.
And because of tax treaties with other European countries, the Irish subsidiaries could also be used to send money to Holland, paying hardly any taxes.
Apple is the latest corporate giant to come under scrutiny over its tax affairs.
Last month it emerged that General Electric paid no tax at all in America last year and even managed to get a $3.2billion ‘rebate’ from the government.
Investor Warren Buffett had already put the issue in the spotlight when he famously admitted he pays less tax than his secretary despite having a personal fortune of $44billion.
In a statement Apple claimed to have generated $5billion in the first half of 2012 in federal and state income taxes, although it did not give further details.
A spokesman said it ‘has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules’ and that the company was ‘incredibly proud of all of Apple’s contributions’.
The spokesman added the firm ‘pays an enormous amount of taxes, which help our local, state and federal governments’.