Apple Pays Less Than 2% Tax On Non-US Earnings

by Mike Godfrey, Tax-News.com, Washington

07 November 2012

According to its Form 10K filing with the United States Securities and Exchange Commission, Apple Inc. paid a corporation tax rate of less than 2% on its foreign earnings in its financial year ending September 29, 2012.

During the year to end-September this year, Apple’s effective tax rate was 25.2%; comparable with the 24.2% and 24.4% it paid in 2011 and 2010, respectively. As it explains, its “effective rates for these periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no US taxes are provided because such earnings are intended to be indefinitely reinvested outside the US.”

Its foreign provision for income taxes, based on foreign pre-tax earnings of USD36.8bn, USD24.0bn and USD13.0bn in 2012, 2011 and 2010, respectively, was USD713m, USD602m and USD161m. While its foreign earnings have therefore been increasing rapidly, it has maintained effective tax rates on non-US earnings at 1.94%, 2.5% and 1.24% in 2012, 2011 and 2010, respectively.

As pointed out in the company’s Form 10K, Apple’s consolidated financial statements do “provide for any related tax liability on amounts that may be repatriated, aside from undistributed earnings of certain of the company’s foreign subsidiaries that are intended to be indefinitely reinvested in operations outside the US”.

As of September 29, 2012, it adds: “US income taxes have not been provided on a cumulative total of USD40.4bn of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately USD13.8bn.”

However, the cash that Apple has not repatriated, and not actually paid any US tax on, has sharply increased. As at end-September 2012 and end-September 2011, it confirms, USD82.6bn and USD54.3bn, respectively, of the company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries.

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