Apple’s (AAPL) Tax Avoiding Strategies Criticized By Congressional Inquiry: Report

The New York Times reports that a year-long congressional investigation into the accounting practices of Apple (NASDAQ:AAPL) and a number of US tech firms that use specialized accounting systems to allocate incoming revenue and intellectual property offshore to lower the taxes they pay in the United States, is coming to an end.

Citing people with “firsthand knowledge” of the matter, the Times says that Apple had become the primary focus of the investigation due to its novel accounting principles. According to the report, Apple’s accountants have found legal ways to allocate about 70 percent of the company’s profits in overseas jurisdictions despite running a base of operations in the U.S.

While the tactics used are completely legal, Carl Levin, the Michigan senator who heads the Senate investigations panel, said avoiding US taxes by shifting income to offshore tax havens “is one significant cause of the budget deficit, and adds to the tax burden that ordinary Americans bear.”

During a September hearing involving testimony from software gaint Microsoft (MSFT) and PC maker Hewlett-Packard (HPQ), senator Levin commented that the ongoing investigation into Apple indicated the company had deferred taxes on over $35.4 billion between 2009 and 2011 and that much of this was kept from the public’s eye until 2012.

Martin A. Sullivan, a former Treasury Department economist, told the Times that “Apple [has gone] out of its way to try and ensure that its tax savings didn’t attract too much public attention, because tax avoidance of that magnitude — even though it’s legal and permissible — isn’t in keeping with the image of a socially progressive company.”

Apple, in a statement on Thursday strongly denied any wrongdoing, saying the company was “one of the top corporate income taxpayers in the country, if not the largest,” and noted that it “conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules.”

In fiscal 2012 Apple paid $6 billion in federal corporate income taxes, which according to the iPhone-maker’s statement, is “1 out of every 40 dollars in corporate income taxes collected by the U.S. government.” That said however, the tech giant paid $3.3 billion in taxes on profits of $34.2 billion in FY 2011, a tax rate of only 9.8%.

While Apple’s revolutionary role in technology is well-known, its trendsetting abilities apparently extend also into the corporate accounting field. According to The Times, in the 1980s Apple was a pioneer of an accounting scheme known as the “Double Irish With a Dutch Sandwich,” where profits are routed through Irish and Dutch subsidiaries before finally landing in the Caribbean. Today, hundreds of corporations use those tax avoiding methods.

Apple is reportedly cooperating with the senate subcommittee’s investigation, which is expected to issue wide-ranging recommendations that are likely to play a significant role in future changes to tax and accounting rules in the United States.

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