Apple is paying less than 2% tax on its overseas profits, with new documents revealing that the world’s biggest company has again slashed the amount foreign taxmen receive. It paid $713m (£445m) corporation tax abroad in the year to the end of September, even as profits surged to a mammoth $36.8bn outside America, according to regulatory filings lodged last week.The Sunday Times, 4 November 2012

“The regulatory document they’re referring to is the 10-K which is here. The relevant information is on page 61, in Note 5 on income taxes. They’ve definitely got the right numbers and I don’t think they’ve done anything obviously wrong in their calculation,” Tim Worstall reports for Forbes. “However, they do get one thing wrong: ‘The meagre payouts to exchequers in Britain and across Europe are likely to inflame public anger over the aggressive tax avoidance tactics used by American tech firms.'”

“You see, this isn’t tax avoidance and it’s most certainly not aggressive such. For this isn’t some loophole in the tax system, isn’t a mistake somewhere along the line. Nor is it anyone playing games and avoiding the spirit of the law. This is just how the corporate income tax works,” Worstall reports. “Apple really does pay only 2% or under on those foreign profits. And does so entirely legally without even a hint of tax avoidance let alone anything more than that. For this isn’t an aberration: it’s simply how the system actually works.”

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MacDailyNews Note: As Worstall points out, Her Majesty’s Revenue and Customs (HMRC), a department of the UK Government responsible for the collection of taxes, clearly stated in October 2012:

A UK-resident company has to pay UK corporation tax on the profits from its UK activities. A company which is not resident in the UK does not have to pay UK corporation tax on its trading profits, unless it is trading through a branch in the UK. Having UK customers is not the same as having a branch in the UK.

Non-resident trading companies which do not have a branch in the UK, but have UK customers, will therefore pay tax on the profits arising from those customers in the country where the company is resident, according to the tax law in that country. The profits will not be taxed in the UK. This is not tax avoidance: it is simply the way that corporation tax works.

Most major economies operate corporation tax in the same way as the UK, so UK-resident companies are treated in a similar way in other countries. In other words, UK companies do not pay corporation tax to another country on the profits from sales in that country, unless they trade through a branch based there. Instead, they pay corporation tax in the UK.

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