Apple tax under scrutiny

Apple Inc paid an income tax rate of only 1.9 per cent on its earnings outside the US in its latest fiscal year, a regulatory filing by the company shows.

The world's most valuable company paid $US713 million ($A688.52 million) in tax on foreign earnings of $36.8 billion in the fiscal year ended September 29, according to the financial statement filed on October 31.

Its foreign earnings were up 53 per cent from fiscal 2011, when Apple earned $24 billion outside the US and paid income tax of 2.5 per cent on it.

The tech giant's foreign tax rate compares with the general US corporate tax rate of 35 per cent.

Apple may pay some income taxes on its profit to the country in which it sells its products, but it minimizes them by using various accounting moves to shift profits to countries with low tax rates. For example, the strategy known as "Double Irish With a Dutch Sandwich" routes profits through Irish and Dutch subsidiaries and then to the Caribbean.

Other multinational corporations also use such tax techniques, which are legal.

Like other big companies, Apple leaves cash overseas.

If it brought the cash home to the US, it would have to pay US corporate taxes on the money. The cash that Apple has left overseas as of September 29 has amounted to a stunning $82.6 billion, up from $74 billion as of June 30.

Where Apple differs from other companies is that it sets aside a portion of the foreign profits, marking them as subject to US taxes sometime in the future.

When Apple reports quarterly results, it records that portion of the taxes as a liability, which is subtracted from its profits even though it hasn't actually paid the taxes.

Tax experts say the company could easily eliminate these "phantom" tax obligations. That would boost Apple's profits for the past three years by as much $10.5 billion, according to calculations by The Associated Press.

While investors might rejoice if Apple suddenly added $10.5 billion to its profits, unilaterally erasing a massive US tax obligation could tarnish its reputation as a relatively responsible payer of US taxes.

Instead, the company is lobbying to change US law so that it can erase its liabilities in a less conspicuous fashion.

Overall California-based Apple had net income of $41.7 billion, or $44.15 per share, in fiscal 2012. That was up 61 per cent from $25.9 billion, or $27.68 per share, in fiscal 2011.

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