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Apple tax scheme whizz retires Featured

Peter Oppenheimer, the man who saved Apple billions with his creative tax avoidance schemes, has retired. The Apple CFO's timely departure comes just as the lengths the company has taken to avoid paying tax have reached the top of the political agenda in Australia.

Australia’s treasurer Joe Hockey has said that a key item for the G20 economic summit will be to try to work out ways to stop multinationals taking advantage of international tax havens to avoid tax in their countries of operation.

But it’s a bit too late, especially for the apparently well-fed Oppenheimer.. He was Apple’s highest paid executive, and with stock options earnt US$68.6 million in 2012, 16 times more than CEO Tim Cook. He no doubt earned his money.

The kind of practices he devised are now widespread. Cashed up megacorporations with more money and better lawyers than most governments have been able to run rings around any attempts to get them to shoulder their fair share of tax.

The practice is most common in the IT industry, and one of the most high profile offenders is Apple. Of course it says it has done no wrong, and within the letter of the law that is the case. It, and other companies such as Google and Microsoft, have been able to make a mockery of national taxation laws by using clever transfer mechanisms that take advantage of the ways different laws work in different countries.

Such clever tricks are especially easy, and especially prevalent, in the IT industry because most of the business is in intangible products like software and digital content. Physical objects, which can be easily tracked, are rarely involved.

The trick is to hide profits as ‘transfer payments’ or ‘licence fees’. Apple has turned this into an art form.

Now the Australian Financial Review has launched an investigation and gotten hold of some documents from Apple corporate which show clearly how the system works. Apple has established a subsidiary called Apple Sales International (ASI), whose only job is to facilitate the movement of Apple’s products around the world.

ASI pays subcontractors to build Apple products, then sells them at an inflated price which allows for little apparent profit, to Apple subsidiaries in various countries. ASI pays no tax in Australia, which allows Apple Australia to pay tax only on the slim margin it gets from ASI. Last year, says the AFR, Apple sold $5.9 billion worth pf poduct in Australia but made only $88.5 million in declarable pre-tax profit.

Meanwhile, ASI’s massive profits are channelled through low tax countries like Singapore and Ireland, and even there they are lower than normal because ASI must pay an artificially constructed intellectual property licence fees to Apple corporate in the US, where such fees received favourable tax treatment.

All perfectly legal and above board, says Apple. “Apple purchases its hardware and software products predominantly from its affiliates overseas at an arm’s length price, resulting in profits commensurate with the value of Apple sales and marketing efforts undertaken in Australia,” it self-righteously told the House of Representative’s Standing Committee on infrastructure and Communications in Canberra, when Labor’s Ed Husic quizzed it on the subject in a hearing last year.

Apple – surprise, surprise – has refused to comment on subsequent revelations.


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Graeme Philipson

Graeme Philipson is senior associate editor at iTWire and editor of sister publication CommsWire. He is also founder and Research Director of Connection Research, a market research and analysis firm specialising in the convergence of sustainable, digital and environmental technologies. He has been in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism.