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Tax Tactics from the Big Players

By now Apple’s tax techniques are well known, both applauded and criticized. Their individual techniques are useful on their own, but it’s the tax strategy that put Apple in a place where bold and cunning also translated to being fully compliant. With the second part to our "Overseas But Not Out of Mind", let’s discuss some of the tax techniques used by this international giant.

  • Transfer Pricing: When two related companies (parent and subsidiary, or two subsidiaries) trade with each other, a transfer price is established to account for varying tax laws across international jurisdictions. The goal is to minimize tax costs while maintaining compliance in all jurisdictions.
  • Cost-sharing Agreement: Similar to transfer pricing, companies will implement a cost-sharing agreement to minimize tax costs and liability. By allowing related parties to jointly develop intangibles, future profits can be allocated to low tax jurisdictions.
  • Offshore Subsidiaries and Tax Havens: Ireland is a mecca for offshore subsidiaries of multi-national corporations, with their 12% corporate tax rate and unique rules regarding corporate residency the actual effective rate can be less than 2%. Apple’s tax strategy have many wondering how far is too far.

None of these practices are illegal or ‘bad’. It is the strategy and implementation that will put corporations in a world of hurt from the IRS, or the sweet spot of compliance and over 80% savings on global tax costs.

Apple and other multinational corporations are able to dedicate whole departments to find this tax sweet spot.

The rest of the corporate world? Left with their jaw hanging at how a company can save billions of dollars with their tax strategy.

Apple’s case has done wonders for tax professionals, who are gaining traction for what we’ve been touting for decades—tax impact is navigable by companies at every size and stage of growth. With the right tax strategy, you too can be lessening your tax risk, saving cost and time.

Stay tuned for our next blog, which will discuss how different tax practices can be used by smaller and growth companies. It’s never too early, or too late, to start thinking about your tax strategy.