Apple revamped its overseas subsidiaries to take advantage of tax loopholes on the European island of Jersey after a crackdown on Ireland's loose rules began in 2013, according to The New York Times and the International Consortium of Investigative Journalists . The news outlet and the nonprofit investigative organization cited confidential records that were obtained by the German newspaper Suddeutsche Zeitung ("ZOOT-doi-cheh DZEYE-tung") and shared. The cache of 13 million secret documents came from Appleby, a Bermuda-based law firm that helps businesses and wealthy individuals find tax shelters. The moves came after a U.S. Senate subcommittee found in 2013 that Apple had avoided tens of billions of dollars in taxes by using overseas havens. The paper said Apple has $128 billion in offshore profits not taxed by the U.S. By 2015, Apple had moved the tax home of two Irish subsidiaries to Jersey, a self-governing island in the English Channel, and also made Ireland the tax home of a different European subsidiary.
Tech giants are often criticised for using complex tax loopholes to bank more of their profits than arguably they should, but occasionally the authorities do manage to find fault in their accounts. Following "an extensive audit" of Apple's books, HM Revenue & Customs scored itself an additional £136 million in back taxes, plus interest, from the company. The Financial Times spotted the payment in the financials of Apple Europe, a UK subsidiary that performs sales support, marketing and other duties for other Apple subsidiaries. According to the FT, HMRC reasoned that Apple Europe did not receive appropriate commission for sales leads from an Ireland-based subsidiary over a number of years up to 2015. Less commission, less taxable income... you get the idea.
If you live in Japan and you buy an iPhone from Apple, that money goes to (who else?) Apple Japan. If you buy apps, movies or music from iTunes in Japan, however, that money goes to a different subsidiary: iTunes K.K. Ah, but there's more: much of Apple's intellectual property is owned by two subsidiaries in Ireland, and other Apple business units around the world pay those entities royalties to use that IP. iTunes K.K. had one such arrangement set up -- when people used the iTunes service to listen to music or watch videos, the subsidiary owed part of its profits to an Apple-owned holding company in Ireland as royalties.
Apple chief executive Tim Cook says the European Commission is "picking on" Ireland and that "no one did anything wrong", but is he right? In two Irish interviews, Mr Cook hit back at the Commission's "maddening" ruling that Apple's tax benefits in the country are illegal. He added that the 13bn ( 11bn) tax bill Apple received was "political" and based on "false" numbers. The BBC has looked at some of Mr Cook's key claims to see if they were fair. Margrethe Vestager, the European Commissioner in charge of the case, stated that Ireland's selective tax treatment of Apple was "illegal under EU state aid rules".