Last year the most successful I.T. Company Apple has caught a national wide focus. This time is not because they held a conference for new iphone or any i-products, but because their tax planning. As a model company, Apple always create amazing products, we can see their products all around the world, so many newspapers and magazines praise their design teams and marketing teams. These time their Tax team was enjoying the annoyance, after the news related Apple’s tax strategy open to the public there were a lot of argument around them. Some people thought they break the Tax laws, some people believe the Apple was clean, and some people ...view middle of the document...
Second, the company use some tactics to ensure that the offshore income is in the shield of the U.S. taxes system, they do not need to pay the taxes to the U.S. government based on the IRS code, and can get the profits from subsidiary companies. In order to get this goal, Apple created many offshore corporations the most important are Apple Operations International (AOI), Apple Sales International (ASI), and Apple Operations Europe (AOE). These three offshore companies incorporate with Ireland, but not the tax residence in Ireland, each of these three companies have their own purpose and played a critical role in Apple’s tax avoiding plan. AOI owned by Apply only is the main corporation for tax avoiding plan and is the top of the offshore company structure. AOI, ASI, and AOE are Ghost Company, the company had no physical parts in Ireland, employees and carried out its operations through the action of a U.S.-based board of directors, most of whom were Apple Inc. in the U.S., these companies are incorporated in the Ireland but control by U.S.
Even though Apple already create these three company at tax heaven in Ireland, Apple also need find some laws and exceptions to ensure these sub-companies can make their tax avoiding plan work. “Cost-sharing agreement” and “check-the-box” are useful tools for Apple’s tax avoiding plan worked. Cost-sharing agreement: “An agreement between two parties to share the cost of developing an intangible asset. Such an arrangement is used to reduce or avoiding taxes on the transfer of assets. For example, if a parent company wanted a foreign subsidiary to use one of its patents, tax authorities might consider the transfer a taxable transaction. By establishing a cost sharing agreement, the parent company and the subsidiary share in the cost of developing the patent, so that both are entitled to use it, and it is not transferred from one to the other”. Apple setup the cost-sharing agreement with its Irish company, it is not an arm’s-length transaction. As a result the company can share the cost, and shift profits generated by its intellectual property.
Check-the-box: this regulation can help company avoiding the Subpart F rules which tax passive income. The check-the-box rule allows a taxpayer to elect to treat a foreign corporation as though it does not exist for U.S. law (reg. section 301.7701-3). So Ireland would treat a checked Apple subsidiary as a corporation and recognize payments made to and from it. Other countries would also treat it as a corporation. But the United States would not recognize the corporation, and would not acknowledge the payments. 
2) Simple map for Apple tax avoiding plan.
After the introduction we know that Apple create some ghost company at the tax heaven country, and use the differences of the tax law between Ireland and United States to let the company in the nowhere income tax area. As a supplement, Apple also fined the loophole in the U.S. tax law which is combine the...