Dear CSS Members and Colleagues:
As a follow-up to the above webinar, Dr. Goel posed the question, “How does Apple pay only 17% tax on annual earnings.” Lauren answered the following:
This article may help answer the question Danny asked about Apple:
What Apple has done is taken tax paid/profit and this equals about 17% which is not the 21% US tax rate (corporate tax rate)— this is because the 21% tax rate is applied not just to the profit we see on the income statement, but also to the profit figure adjusted for various deductible expenses, credits, etc
Without getting too complicated here, a company can adjust their profit for tax deductible expenses (for example, I think charitable contributions are one of them, professional subscriptions are as well I believe) before applying the tax rate to determine tax owed
This is how you can end up with tax paid as per income statement / profit as per income statement being less than 21% as if you have reduced the profit figure to which you apply tax this will be a lesser proportion of the profit shown on the face of the income statement (in this case 17%).
We cannot say for sure exactly how Apple has reduced their tax bill without of course seeing their actual calculations but I imagine it has something to do with this
Let me know if any other questions