Apple's Most Creative Product: Tax Accounting

Macrobusiness:

Apple, famous for its innovative products, is equally creative in its tax structure.
From 2009 to 2012, it successfully sheltered US$44 billion from being taxed anywhere in the world, including sales generated in Australia.
While there are probably some sound reasons for Apple’s CEO, Tim Cook, to claim in a US congressional hearing in May 2013 that his company “complies fully with both the laws and spirit of the laws”, many people may think it is immoral for such a successful company to avoid taxation.
But the company shouldn’t be alone in the being blamed for the low tax it pays around the world.
Concerted government action, including specific provisions inserted into US tax laws in 1997, have made it possible for multinationals with complex structures to funnel profits between the gaps of tax authorities.
And it is unlikely to be a coincidence that Irish tax law has been crafted to allow companies incorporated in Ireland to take full advantage of these gaps in the US.....
The tax structure of Apple is designed to ensure that little income is left to be taxed in non-US markets like Australia.
For example, when a customer buys an iPad in Australia for A$600, the sale is recorded as a revenue of Apple’s distribution subsidiary incorporated in Australia.
But this company “purchases” the iPad from another Apple subsidiary incorporated in Ireland for A$550.
The Irish subsidiary is basically a shell company with no employees and no factory. The iPad was manufactured through third party contract manufacturers in China, who shipped it directly to Australia.
Hearings on both sides of the Atlantic have revealed that by effectively disabling one of its major anti-avoidance weapons in its tax law – namely the controlled foreign corporation regime – the US government has been knowingly facilitating the avoidance of foreign income tax by its multinationals.
Originally, under the US anti-avoidance regime called “subpart F”, the kinds of payments made to the Irish shell company by the Australian company would have been considered the income of the US parent.
But changes made in 1997 meant Apple was able to elect to deem the Irish company to have “disappeared” for US tax purposes, thus escaping from the US tax net.

Quite ironic that the U.S. helps multinational corporations avoid taxes in other countries, but insist that foreign banks help track down international income when individuals try to stiff the U.S. on taxes.