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SEC reveals review of Apple's Irish tax disclosures

October 03, 2013|By Chris O'Brien
  • Apple CEO Timothy Cook testified before the Senate Homeland Security and the Senate Governmental Affairs Committee's Investigations Subcommittee in May about the company's offshore profits and tax strategies.
Apple CEO Timothy Cook testified before the Senate Homeland Security and… (Chip Somodevilla / Getty…)

Securities regulators filed a series of letters on Thursday in which they raised questions about disclosures by Apple Inc. of its Irish tax strategies.

Ultimately, the U.S. Securities and Exchange Commission took no action against Apple, which agreed to change some of the language in its securities filings to provide more information for investors. 

Still, the review revealed in Apple's SEC filing is the latest round of scrutiny the company has faced for its controversial overseas tax strategies.

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In late May, Apple Chief Executive Tim Cook appeared before a congressional committee to answer questions about the strategies the company used to reduce its tax bill. Congress also released a report providing details about some of those strategies. 

The report claimed that Apple used a sophisticated series of international subsidiaries and tax strategies to cut its U.S. federal tax bill by $74 billion between 2009 and 2012. Many of the questions that day focused on Apple's Irish subsidiary and whether it was a legitimate business operation or whether it existed primarily to help Apple reduce its tax bill.

At the time, Cook stated, "We pay all the taxes we owe."

On June 13, about three weeks after the hearing, Apple received a letter from SEC officials asking about such things as whether the company had considered providing more details about overseas tax agreements. The agency also wanted to know where Apple was holding most of its money overseas, and to clarify its statements about repatriating that money to the U.S.

Apple responded on June 24 by agreeing to expand its disclosures about risks associated with overseas taxes. The company also noted that the bulk of its foreign earnings were being held in Ireland:

"In response to the Staff’s comment, the Company notes that substantially all of the Company’s $40.4 billion in undistributed international earnings intended to be indefinitely reinvested in operations outside the U.S. (as of September 29, 2012) was generated by subsidiaries organized in Ireland, which has a statutory tax rate of 12.5%. The Company supplementally advises the Staff that most countries in which the Company operates have tax rates lower than that of the U.S."

In a letter on July 9, the SEC pressed Apple to clarify its tax risks. While Apple refers to the risks in "foreign" jurisdictions, the SEC wanted that changed to "Irish" since this was where the bulk of the overseas earnings occurred.

"Your responses state that your Irish subsidiaries generated substantially all of your $40.4 billion in undistributed international earnings, creating a tax benefit of approximately $5.9 billion in 2012," the SEC said. "Thus, it appears that you should specifically reference the potential risks associated with any changes in Irish tax laws."

In a letter on July 22, Apple said it would include a reference to Ireland and explaining that changes to the country's tax laws could have a material impact on Apple.

Apple also clarified that it expected to continue holding that money overseas in part because it could generate enough cash in the U.S., or borrow enough, for its needs without repatriating its foreign earnings.

The company also noted that 61% of its net sales in 2012 occurred outside the U.S. and that it would invest much of that money earned abroad in things like building more Apple stores overseas and expanding its international iTunes stores and marketing.

On Sept. 5, the SEC informed Apple that it had completed its review and decided not to take any action. 

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