How Apple Uses the Channel Island of Jersey to Avoid Billions in Taxes
When Apple’s efforts to reduce its taxes around the world came under fire in Congress a few years ago, CEO Tim Cook fired back. “We do not depend on tax gimmicks,” Cook said. “We do not stash money on some Caribbean island.”
The first statement depends on the definition of a “gimmick.” Apple was certainly using loopholes and openings in different countries’ tax laws to minimize its own obligations.
But he was telling the truth in saying the iPhone maker had no money stashed in the Caribbean. The company didn’t need to—its funds were stashed in subsidiaries incorporated in Ireland, but that, on paper at least, had no home country for tax purposes.
But as the controversy spread and the European Union went after not just Apple but other American multinationals like Google and Starbucks, Ireland changed its rules. That set off a scramble at Apple to find a new haven for its vast cash hoard, one that ended up at the Channel Island of Jersey, 12 miles off the coast of Normandy, France. Apple turned to tax avoidance experts at the law firm Appleby for that advice, according to emails disclosed in a huge leak of financial documents known as the Paradise Papers, the New York Times and BBC reported on Monday.
Apple asked the lawyers whether it would be best to shift its tax-free subsidiary to the British Virgin Islands, Bermuda, the Cayman Islands, Mauritius, the Isle of Man, Guernsey, or Jersey, according to the emails. Apple chose Jersey, which has a zero percent corporate tax rate for foreign companies. Apple has made $ 44.7 billion outside the United States in 2017, while paying $ 1.65 billion in foreign taxes, a rate of less than 4%, the BBC reported. The European Union is trying to get Apple to pay about $ 15 billion in back taxes, but Apple disputes the finding.
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Fortune asked Apple for comment and will update this story with any response. The company follows the tax laws in all countries and the changes related to Jersey did not reduce its tax payments in any country, a spokesman told the New York Times.
Apple said last week that it had accumulated $ 252 billion of cash, 94% of it held offshore. That is largely a result of the tax avoidance strategies that shift profits from sales in Europe, Asia, and the Middle East out of any country’s direct tax jurisdiction. But Apple cannot bring the untaxed profits back into the United States without paying the U.S. 35% rate, so it keeps the money offshore. Apple’s long-term debt has grown to almost $ 100 billion over the past few years partly because it needs a source of funds to buy back stock and pay dividends.
