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Report shows how Apple moved $8.9B in untaxed profits from Australia to Ireland

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Apple, slammed in 2013 for its tax avoidance strategies, was the subject of an Australian Financial Review investigation on Thursday. According to AFR, Apple shifted an estimated $8.9 billion in untaxed profits from its Australian operations to a tax haven structure in Ireland in the last decade.

Last year, specifically, Apple Last reported pretax earnings in Australia of only $88.5 million. Those knowledgeable in the sales of Apple devices in Australia, where devices usually go on sale first on launch day due to time zone differences, might shake their heads. They'd be right. The AFR said that the Cupertino, Calif.-based giant sent an estimated $2 billion of income from its Australian sales division to Ireland via Singapore, where -- in 2009 -- Apple negotiated a secret tax deal.

University of Sydney senior lecturer of taxation law Antony Ting noted that this is the first time that actual numbers have been given to the complaints and reports on tax avoidance by companies like Apple, Google, and Microsoft.

Newspapers have had lots of stories about tax avoidance by Microsoft and Google and Apple, but there are hardly any numbers. Now, for the first time, there are numbers for the profits that escaped from Australian tax.

At last week's G20 meeting in Sydney, Australia, the three mega-giant tech firms mentioned above were given a deadline to reform their tax policies, ­warning that “by the Brisbane summit [in November], we will start to deliver effective, practical and sustainable measures” against such international tax dodging.

Apple Sales International has reported more than $100 billion in profits over the last five years, but its accounts show it has paid less than $0.50 in tax for every $1,000 of income. Moreover, since 2002, Australians have purchased $27 billion worth of Apple products, AFR reported. Despite that, Apple has paid only $193 million to the Australian Tax Office (ATO) which amounts to just 0.7 percent of that sales revenue.

Compare that to your tax rate.

Apple is well-known to use the complex tax avoidance scheme now called the "Double Irish With a Dutch Sandwich," which uses multinational loopholes to avoid taxes. Although the method is currently used by a number of large corporations, Apple has taken the brunt of the criticism for employing the technique based on its size -- at one time, fairly recently, the top company in the world by market cap -- and profitability.

Ting added:

If I pay $600 for an iPad in Australia, then $550 is paid to Apple Ireland and out of the $550, $220 is not taxed anywhere in the world. So that means basically around 40 per cent of the payments we make to buy Apple products in Australia has escaped Australian tax and at the same time escaped tax anywhere in the world.

U.S. tax attorney Lee Sheppard explained that these moves, while annoying -- to put it mildly -- to John and Jane Q. Public who cannot exercise them -- are perfectly legal.

The value of such a product is really not in the plastic and glass, right? It's in the protected intellectual property, it's in the patents. That, as income, that could be represented by a royalty.

What Apple and companies like it are doing is they are arranging themselves in such a way that the royalties go through Ireland to places like Bermuda where they're not taxed.

Australia and the other G20 countries, and the members of the OECD (Organisation for Economic Co-operation and Development), they've all signed tax treaties and the tax treaties say that a company can deduct royalties and it can pay royalties to itself, essentially, and sometimes you have a treaty that says you don't withhold tax on that either.

Ireland's Finance Minister Michael Noonan has promised to revise the country's tax code to prevent multinational corporations like Apple, Google, Microsoft and others to avoid paying billions of dollars in taxes. Whether or not that actually happens remains to be seen.