Apple’s Vodafone Moment: A U.S. vs India Appraisal of Corporate Tax Avoidance

By Aarti Aggarwal (Jindal Global Law School ’18, India)

 

In one of the most notorious cases of corporate tax avoidance of recent times, the European Commission has ordered Ireland to recover EUR 13 billion in back taxes plus interest from Apple, after ruling that a special tax arrangement for Apple to route profits through Ireland was illegal state aid.[1] This landmark decision has complicated international tax diplomacy. For Indians, it is a striking reminder of India’s “Vodafone[2] scandal, in which indirect transfers also caused reverberations throughout the worldwide tax community.

This paper will first traverse the developments of the Apple case, analyzing how the U.S. tax regime worked in favor of Apple’s tax structure. I will then evaluate the same company in the context of India, and determine whether the Indian tax regime, post-Vodafone, would close American corporations’ tax loopholes. Cases such as Vodafone have stirred up global tax debates on various tax planning strategies that enterprises employ and what governments can try to do to stump them. Global companies often reduce their locally declared profits and shift profits to lower-tax locations, a strategy commonly referred to as base erosion and profit shifting (BEPS).The Vodafone case surrounded a controversy regarding an offshore transfer of shares of a Cayman Islands company by the Hutchison Group to the Vodafone Group.[3] In a landmark decision, the Supreme Court reversed the decision of the Bombay High Court and held that the Indian tax authorities did not have territorial jurisdiction to tax the offshore transaction, and therefore, Vodafone was not liable to withhold Indian taxes.[4]

This comparison is particularly relevant since both cases involve large multinational corporations in different parts of the world. Analyzing these countries’ tax structures shall provide useful insights in grappling with the issue of tax avoidance.

 

Background on multinational corporations’ tax structures
The Apple case[5] highlights a loophole in the double taxation principle of international tax-norms, which holds that all incomes are to be taxed once and only once. A corollary to the principle mandates that double NON-taxation should also be prevented.[6] However, in order to reduce the tax burden on multinational enterprises in their activities abroad, states often facilitate double non-taxation.[7] In 1980, shortly before its listing on the New York Stock Exchange, Apple Inc. (US) set up the following three wholly-owned subsidiaries in Ireland: Apple Operations International (AOI), Apple Operations Europe (AOE) and Apple Sales International (ASI). The form of this corporate structure is displayed in the table below.
graph1Notes to Table:

  • Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, Offshore Profit Shifting and the U.S. Tax Code—Part 2 (Apple Inc.) (2013) (US Hearing Report), 22
  • Id, 21
  • Id, 24
  • Id, 27
  • Id, 25-26

 

As per the definition of corporate residence, AOI is not a resident of Ireland as the Irish definition of corporate tax residence is determined solely by the location of a company’s central management and control. However, AOI is neither a resident of the U.S., as U.S. tax law defines residence of a company solely in terms of its place of incorporation.[8] Furthermore, while ASI entered into a cost sharing agreement with Apple Inc. for Intellectual Property (IP), the legal ownership of these IP rights rests with Apple Inc. in the US.[9]

There is no question that Apple’s tax planning structure was in full compliance with the tax laws of the countries involved. But the above outcomes defy economic justification and common sense. The locations of real economic activities, such as R&D and sales, were detached from location of profits; this booked a disproportionate amount of Apple’s income in its Irish subsidiaries — where it would be subject  to a much lower tax rate.[10]

 

What worked for Apple?
Why were the profits booked in the Irish companies not taxed in the U.S., given the reputation of the American Controlled Foreign Corporation regime (CFC)? Why were those same profits not taxable in the source countries where Apple products were sold to end customers? These issues, and the laws that facilitated the impugned double non-taxation, highlight weaknesses that domestic and international tax laws face when exploited by multinational enterprises (MNEs) such as Apple Inc.

Location, location, location
Large multinational companies aim to structure their tax payments in the most cost-effective way. A popular strategy is to set up a subsidiary in a geographic location that enjoy more lenient tax laws than the MNE’s home country. Ireland is a popular jurisdiction for international tax structures for this very reason; the country is a low-tax state with a corporate tax rate of 12.5%. It is also an EU Member State, which means that subsidiaries established there can take advantage of the EU laws which help avoid corporate taxes.[11] Moreover, Ireland hasan especially “accommodating” tax system for MNEs from the U.S., as illustrated by the country’s definition of corporate tax residence.[12]

Transfer of Intangibles
One of the most contentious aspects of Apple’s tax structure is the transfer of its IP rights (hereinafter called ‘intangibles’ or ‘intangible assets’) to ASI under the aforementioned cost-sharing agreement. Pursuant to this agreement, ASI owns the production and marketing rights of Apple’s products for Europe and Asia. ASI does not have to pay any royalties to Apple Inc. due to this split economic ownership of the intangible assets.[13] Having these rights vested in the Irish shell company is inconsistent with the reality that Apple Inc.’s R&D activities are virtually all carried out in the U.S., especially given that in any legal dispute, the legal ownership of Apple’s IP always rests with the American Apple Inc.[14]

This practice of transferring intangibles to a low-tax country is neither new nor uncommon. Under a cost-sharing agreement, a U.S. parent company allocates the majority of costs to a subsidiary. Because the subsidiary is then technically responsible for the majority of the development costs, it is also entitled to a comparable chunk of the profits from the intangible asset (in this case, the IP). This is completely legal, even if the R&D activities take place wholly in the United States. The rationale behind this cost-sharing regime is that a MNE  undertakes some level of indeterminate risk, because there would theoretically be some level of uncertainty as to whether the company’s R&D activities would be unsuccessful and hence, with that uncertainty comes the risk of assuming those costs in the first place. Thus, the general assumption is that MNEs won’t be willing to take that big a risk by entering into the above described cost sharing agreements just to avoid taxes.[15]

As of today, this assumption has proven to be far from the truth, mainly because it does not account for the information asymmetry between MNEs and tax authorities. MNE’s can afford to hire legal help to avoid taxes, a fact often underestimated by tax authorities. MNEs divert R&D costs into subsidiaries while knowing well in advance that their investments would be successful. As a result, companies are able to reap profits at ridiculously low tax rates in these jurisdictions.[16] 

Transfer Pricing – treatment of intra-group transfers
Another major issue in these transactions is that of transfer pricing and enforcement of arm’s length principle[17] between the multinational corporation and its subsidiary. Existing transfer pricing rules allow MNEs to effectively allocate their income to low-tax taxing jurisdictions where they set up their subsidiaries.[18] This is most often accomplished by transferring intangibles and other mobile assets for less than their full value, and by contractually allocating risk (such as those associated with R&D) to low-tax jurisdictions.

Apple benefits immensely by simply setting up a subsidiary whose supposed risk to the parent company essentially absolved its profits from taxation. Common sense would beg that these transactions are prohibited between unrelated parties and hence, if Apple managed to do so, was the subsidiary even treated as an unrelated entity. Hence, the arm’s length principle becomes pivotal in determining whether commercial transactions between these parties have been carried out as if they were not related.[19] The U.S. regulations, which have shaped the modern transnational transfer-pricing regime, treat a corporate group on an entity-by-entity basis.[20] This has the undesirable loophole of corporations using  transactions to allocate assets, functions and risks, rather than looking at the underlying economic substance.[21

While this paper will not delve into an extensive appraisal of this transfer-pricing regime, the transfer of rights under such cost sharing arrangements between group companies does not involve any bona fide shifting of risk. While prima facie contractual assignment may appear, the real risk never leaves the group entity.[22] Especially in cases involving intangibles, considerations such as functions performed, assets used, and risks assumed by parties must be evaluated to ascertain true ownership.[23] Neither legal ownership nor bearing of mere R&D costs on paper relating to intangible asset development should allow an entity within a MNE group to retain the benefits or returns associated with that  – the returns are still of the parent MNE.[24] Although  R&D and IP were transferred to ASI, Apple Inc. still owns those profits, since substantial functional development and risk-undertaking occurred in the U.S.

The US Controlled Foreign Corporation (CFC) regime
In 1962, the U.S. designed the first CFC regime to limit tax deferral of certain highly mobile income and intra-group sales income.[25] A controlled foreign corporation (CFC) is a corporate entity that is registered and conducts business in a different jurisdiction than the residency of the controlling owner. Control of the foreign company is defined according to the percentage of shares owned by U.S. citizens.

This concept eliminates deferral of U.S. tax on some categories of foreign income by taxing certain U.S. persons currently on their pro-rata share of such income earned by their controlled foreign corporations (CFCs). The CFC regime operates by treating a U.S. shareholder of a CFC as if it actually received its proportionate share of certain categories of the corporation’s current earnings and profits. The U.S. shareholder is required to report this income currently in the United States whether or not the CFC actually makes a distribution. Therefore, this does not tax the CFC. Rather, its rules apply only to a U.S. person who owns, directly or indirectly, 10% or more of the voting stock of a foreign corporation that is controlled by U.S. shareholders.[26]

Given the perception that the U.S. aggressively  prosecutes tax avoidance via its CFC regime, the Apple case casts a murky shadow on whether this regime is really as rigorous and effective as its reputation. A detailed discussion of the CFC regulations[27] is not within the scope of this paper, but looking at the exceptions they creates can illustrate legal realities of how the law is actually working.

The U.S. CFC regime relaxed its requirements of the ‘manufacturing exception’ in 2008, exempting entities from immediate taxation if they were themselves a manufacturer that ‘substantially contributed’ to the goods, even if the parent company itself was not actually a manufacturer.[28] This is important since the interpretation of ‘substantial contribution’ is open to interpretation and could be justified on several counts to gain the exemption, when in fact one indulged in so such manufacturing costs. For instance, ASI claimed qualify for the exception due its contractual manufacturing activities with China, even though in actuality most of the contribution was fulfilled through the contract manufacturers in China and assembled and supplied to markets in Europe and Asia.

Because of the lack of clarity in defining “substantial contribution or transformation,” ASI is effectively entitled to the CFC tax exemption even though no real ‘substantial contribution’ occurred in the ASI Ireland operations, [29] For the U.S. to even have that as a qualifying exception makes one wonder what was once touted as an effective tax deferral regime, may have had its fair share of glaring loopholes at that.

 

The case of Apple in India
Much ink has already been spilled about the Vodafone case[30]. This section will only cover some  principles of Indian tax law exemplified by the case and compare them to the Apple case study. Cases such as Vodafone have stirred up global tax debates on various tax planning strategies that enterprises employ and what governments can try to do to stump them. Global companies often reduce their locally declared profits and shift profits to lower-tax locations, a strategy commonly referred to as base erosion and profit shifting (BEPS).The Vodafone case surrounded a controversy regarding an offshore transfer of shares of a Cayman Islands company by the Hutchison Group to the Vodafone Group.[31] In a landmark decision, the Supreme Court reversed the decision of the Bombay High Court and held that the Indian tax authorities did not have territorial jurisdiction to tax the offshore transaction, and therefore, Vodafone was not liable to withhold Indian taxes.[32]

One key Indian tax law principle discussed by Justice Kapadia of the Supreme Court of India in the Vodafone case was the “look at” principle. The principle means that in ascertaining the legal nature of a transaction, the Court must  “look at” the entire transaction as a whole, instead of evaluating each step piecemeal.[33] The Court also held that the basic foundation of any corporate structure is the “separate entity principle,” ruling that holding and subsidiary entities must be recognised in corporate tax laws.[34]

The Court also urged revenue authorities to “look at” the entire ownership structure set up by a group as a single consolidated bargain.[35] In that sense, if the controlling foreign enterprise makes an indirect transfer without any reasonable business purpose for the purposes of  tax avoidance, then the Tax Authority may disregard the arrangement, re-characterize the equity transfer according to economic substance, and impose the proper tax on the enterprise. However, it is the burden of the Tax Authority to allege and establish abuse of holding structures for tax avoidance.[36]

This Indian tax law principle of “look at” as discussed above, stands in contrast with the equivalent principle to counter tax avoidance established in the U.S., called the ‘check-the-box’ regime.[37] The check-the-box rules allow multinationals to create entities that are treated one way in a foreign jurisdiction and another by the United States. These hybrid entities, constitute the core of MNEs’ tax strategies, through which multinationals use disregarded loans to strip earnings out of high-tax jurisdictions and relocate those profits to low- or even no-tax countries. The simplest form of this tax structure involves an  entity reaping the benefits of a tax haven making a loan to a subsidiary in a foreign jurisdiction. The United States recognizes neither the loan nor the interest payments as taxable income. The foreign country, however, will view the tax haven entity as a corporation and allow the interest to be deducted as a business expense, and the corporation avoids both the tax  in the foreign jurisdiction as well as that imposed on  gross income in the United States.[38]

Ultimately, the entire U.S. CFC regime is “gutted”[39] by the check-the-box regime. The CFC regime is designed to capture profits shifted to a subsidiary incorporated in a low-tax country, relying on the separate entity doctrine where each group company is treated as a separate taxpayer. But, by simply “checking the box” for all the subsidiaries of AOI (including ASI), those companies are deemed as part of AOI for U.S. tax purposes.[40] This enables all such subsidiaries to be treated as one entity, covering up for the underlying transactions of each subsidiary. By “checking the box,” AOI was regarded as having derived sales income directly from the end customers under U.S. tax law (even though technically ASI was the entity that did so); the income was exempted from the CFC regime under the ‘active business exception’[41].

In other words, the “check-the-box regime” effectively disables the CFC regime by deeming intra-group transactions as non-existent. However, the increased  reliance on the ‘look at’ approach post-Vodafone, it can be said that India could have avoided this legal anomaly. Since the law forbade  dissecting of the transactions and heavily incentivizes authorities to look at the structure holistically, it would have been easily discernible that all these profits through ASI, AOI and the like were traceable back to the one entity: Apple Inc. Also, if it had been ascertained that in the holding structure of Apple, an entity has no commercial substance or corporate purpose except tax avoidance, inter-positioning can be disregarded.

There exist different tests for regulators to evaluate companies in terms of their business operations for taxation as can be seen from above. Irish law asks where a company is managed and controlled to determine its tax residence.[42] U.S. law asks where the company was organized, that is, incorporated.[43] If neither country regards a particular corporation as a resident, no tax treaty mechanism assigns tax residence to the other. The tax treaty between the United States and Ireland does not cover Apple’s nonresident Irish subsidiaries. As a result, Apple’s Irish holding company and its Irish principal company claim tax residence nowhere. These are the two entities through which Apple’s huge foreign revenues flow.[44]

Apple’s corporate tax strategy enables the company to shift billions of dollars in global profits into overseas subsidiaries without having to pay U.S. taxes. Although Apple is, by all accounts, an American company, its holding company in Ireland currently retains the bulk of its profits. Apple’s three primary Irish entities hold 60 percent of the company’s profits, but claim to be tax residents nowhere in the world. By centralizing worldwide profits outside of the Americas in Ireland, Apple is able to shelter its profits from the U.S. tax authorities.[45]

This reveals how simply tax residency can be twisted as per even the established law to benefit. Apple has exploited a difference between Irish and U.S. tax residency rules. Apple explained that, although AOI is incorporated in Ireland, it is not tax resident in Ireland, because AOI is neither managed nor controlled in Ireland. Apple also maintained that, because AOI was not incorporated in the United States, AOI is neither a U.S. tax resident under U.S. tax law.[46]

Imagining the hypothetical in which the Apple case involves the above situation in the Indian POEM scenario: Given that Apple Inc. is the parent company, the subsidiary AOI’s key decisions and management is undertaken by Apple Inc.; 32 out of 33 of its board meetings happened in the U.S. Moreover, Apple Inc. has 100% ownership and control of AOI. In that sense, AOI seems to be nothing more than a shell company while the operations and effective management happens in US. Thus, shifting to a ‘substance’ over ‘form’ understanding, the Indian POEM test will mandate that, such and such AOI subsidiary of Apple Inc., provided all of its operations are controlled and managed by an Apple Inc. stationed in US, must be taxed as a resident company under US tax laws. If one were to argue AOI is indeed an active company outside of US, then the POEM will be outside US if majority of its Board meetings are held outside. But since all of AOI’s board meetings were all also held in US, it will continue to be a tax resident in US and effectively not be able to evade taxes there.

The value of Apple products derives from its intellectual property. Apple’s intellectual property is in the United States, where it was developed. Strictly speaking, it is not parked in a tax haven. But Apple has an old contract with its Irish principal company and Irish operating company, called a ‘cost-sharing agreement’, which produces a similar effect to parking intellectual property in a tax haven – it generates income from foreign sales out of the United States.[47]

ASI is the repository for all of Apple’s offshore intellectual property rights. Although ASI is an Irish incorporated entity and the purchaser of the goods, only a small percentage of Apple’s manufactured products ever enter Ireland.[48] Upon arrival, the products were resold by ASI to the Apple distribution affiliate that took ownership of the goods. Before 2012, ASI had no employees despite $38 billion in income over three years. Apple’s cost sharing arrangement facilitated the shift of $74 billion in worldwide profits away from the United States from 2009 to 2012.[49] Like AOI, ASI claims to be a tax resident of nowhere.

This is the current Apple scenario. In the Indian context, a recent Delhi High Court judgment sheds some light on the Indian law on the same. The Delhi High Court’s recent judgment in the matter of CUB Pty Ltd v. Union of India[50] relied on the internationally accepted principle of common law which provides that the ‘situs of an intangible asset must be the situs of the owner of such asset’. Accordingly, the High Court held that merely because a trademark is registered in India, and even if it has developed significant goodwill due to its use in India, it cannot be said that such trademark is situated in India for purposes of taxation under the Indian Income Tax Act, 1961 (“ITA”) when the owner of the trademark is situated abroad.[51] While the High Court recognized that the identification of the situs of intangible property can be tricky, since the taxpayer in the case[52] at hand was located in Australia, it was the legal owner of the Trademarks at the time of transfer.

Flowing from the same logic, in an Indian jurisprudence it can be reasonably assumed that the offshoring of profits by Apple through the cost sharing arrangements of IP will not go down well. Since the law has been interpreted in the section 6 and 9 of the Income Tax Act, 1961,[53] to mandate that the IP is taxable where the owner of such property is physically located, it follows even though through contractual agreements Apple had managed to off shore its IP returns to ASI in Ireland, it in effect was the true owner of the IP of Apple Inc. in US, based on whose research all sales were made. In effect all the rights in such IP were attributable to the control and work of Apple Inc. as situated in US and hence, liable to tax liability in US itself.

 

Conclusion
The point of this paper is not to look down upon the American tax regime or to glorify that of India, but to try and understand the failures of the American tax regime through the recent developments in Indian tax laws that address those very loopholes. Tax avoidance or evasion may be counteracted by borrowing useful legal principles cross-jurisdictionally. The idea is to keep evolving established legal principles in light of the peculiar situations these multinationals and other organisations present. While India’s tax regime is still in evolution, this fact may make the country better equipped to tackle extensive tax ramifications. The U.S. tax regime, while very complex, retains some easily resolvable loopholes for evasion, particularly in its treatment of MNE’s. Thus, there isn’t always a straightjacket formula for tackling these issues. Sometime one has to look at jurisdictions and countries that may not be as celebrated at the world forum as others, and keep an open eye to see where one is going wrong. I hope this paper is a step ahead in bridging that gap in borrowing from other jurisdictions so as to make tax regimes stronger in grappling with these issues.

[1] European Commission Decision of 30.8.2016 on State Aid SA.38373 (2014/C) (ex 2014/NN) (ex 2014/CP) implemented by Ireland to Apple.

[2] Vodafone International Holdings B.V. v. Union of India & Anr. (2012) 6 SCC 613; S.L.P. (C) No. 26529 of 2010 dated 20 January 2012

[3] Id

[4] Id

[5] European Commission Decision of 30.8.2016 on State Aid SA.38373

[6] League of Nations, Double Taxation and Tax Evasion—Report presented by the Committee of Technical Experts on Double Taxation and Tax Evasion (C.216.M.85 1927 11 (1927)), 23

[7] H.J. Ault, “Some Reflections on the OECD and the Sources of International Tax Principles” (2013) 70(12) Tax Notes International 1195, 1195

[8] See Antony Ying, ‘iTax—Apple’s International Tax Structure and the Double Non-Taxation Issue’ [2014] BTR, No.1 © 2014 Thomson 40 Reuters (Professional) UK Limited and Contributors

[9] Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, Offshore Profit Shifting and the U.S. Tax Code—Part 2 (Apple Inc.) (2013) (US Hearing Report), 25-26

[10] S.E. Shay, “Testimony before the US Senate Permanent Subcommittee on Investigations—Hearing on Offshore Profit Shifting and the Internal Revenue Code” (May 21, 2013), 8

[11] R. Mitchell, “France Urges OECD, G-20 Action to Boost Taxation of Global Internet Giants” (January 25, 2013) Bloomberg BNA Daily Tax Report

[12] Antony Ying, “iTax – Apple’s International Tax Structure and the Double Non-Taxation Issue”, [2014] BTR, No.1 © 2014 Thomson Reuters (Professional) UK Limited and Contributors

[13] US Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (2010), 21

[14] Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, Offshore Profit Shifting and the U.S. Tax Code—Part 2 (Apple Inc.) (2013) (US Hearing Report), 8. See also, US Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (2010)

[15] See Antony Ying, supra note 6

[16] Antony Ying, ‘iTax—Apple’s International Tax Structure and the Double Non-Taxation Issue’ [2014] BTR, No.1 © 2014 Thomson 40 Reuters (Professional) UK Limited and Contributors. See also US Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (2010), 110, 116.

[17] OECD, Action Plan on Base Erosion and Profit Shifting (OECD Publishing, 2013) (BEPS Action Plan).

[18] Id

[19] Id

[20] OECD, Addressing Base Erosion and Profit Shifting (OECD Publishing, 2013) (BEPS Report); OECD, Action Plan on Base Erosion and Profit Shifting (OECD Publishing, 2013) (BEPS Action Plan). See also R. Vann, “Reflections on Business Profits and the Arm’s-Length Principle” in B.J. Arnold, J. Sasseville and E.M. Zolt (eds), The Taxation of Business Profits under Tax Treaties (2003), 133, at 135–139.

[21] Id

[22] US Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (2010), 110

[23] OECD, Discussion Draft—Revision of the Special considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions (2012) (the Discussion Draft).

[24] OECD, Discussion Draft—Revision of the Special considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions (2012) (the Discussion Draft), 12. See also Antony Ying, supra note 6.

[25] US Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (2010), 36-46

[26] U.S. I.R.C. Subpart F (§ 951(a))

[27] See https://www.irs.gov/irm/part4/irm_04-061-007.html accessed on 8 November, 2016

[28] Lowell D. Yoder, ‘The Subpart F Physical Manufacturing Exception’, International Tax Journal (Nov-Dec 2008). See also Antony Ying, supra note 6

[29] Id

[30] Vodafone International Holdings B.V. v. Union of India & Anr. (2012) 6 SCC 613; S.L.P. (C) No. 26529 of 2010 dated 20 January 2012

[31] Id

[32] Id

[33] Id

[34] Id

[35] Id

[36] EY Tax Alert, “The Vodafone case: SC rules transfer of shares of a foreign company that indirectly held underlying Indian assets not taxable”, 20 January, 2012

[37] Antony Ying, “iTax – Apple’s International Tax Structure and the Double Non-Taxation Issue”, [2014] BTR, No.1 © 2014 Thomson Reuters (Professional) UK Limited and Contributors

[38]Id. See Lowell D. Yoder, ‘The Subpart F Physical Manufacturing Exception’, International Tax Journal (Nov-Dec 2008). See also [http://www.forbes.com/sites/taxanalysts/2014/02/19/check-the-box-for-tax avoidance/#62de19433975] accessed on 4 November, 2016

[39] Antony Ying, “iTax – Apple’s International Tax Structure and the Double Non-Taxation Issue”, [2014] BTR, No.1 © 2014 Thomson Reuters (Professional) UK Limited and Contributors

[40] Id

[41] U.S. Code, Title 26, Income Taxes, Section 954; See also Antony Ying, “iTax – Apple’s International Tax Structure and the Double Non-Taxation Issue”, [2014] BTR, No.1 © 2014 Thomson Reuters (Professional) UK Limited and Contributors

[42] Antony Ying, “iTax – Apple’s International Tax Structure and the Double Non-Taxation Issue”, [2014] BTR, No.1 © 2014 Thomson Reuters (Professional) UK Limited and Contributors

[43] IRC section 7701(a)(5)

[44] The Permanent Subcommittee on Investigations, “Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.)”, Printed Hearing Record dated May 21, 2013. See also [http://www.forbes.com/sites/leesheppard/2013/05/28/how-does-apple-avoid-taxes/#6ffca93fd6f7] accessed on 5 November 2016

[45] Id

[46] “AOI is the company’s primary offshore holding company. It was registered in Cork, Ireland in 1980, and its purpose is to serve as a cash consolidator for most of Apple’s offshore affiliates. It receives dividends from those affiliates and makes contributions as needed. Apple owns 100% of AOI either directly or through controlled foreign corporations. AOI has no physical presence and has not had any employees for 33 years. 32 of 33 AOI board meetings were held in Cupertino (US) rather than Cork (Ireland). Shockingly, AOI doesn’t pay taxes. Anywhere.” Id. See also [http://www.businessinsider.com/how-apple-reduces-what-it-pays-in-taxes-2013-5?IR=T] accessed on 5 November 2016.

[47] The Permanent Subcommittee on Investigations, “Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.)”, Printed Hearing Record dated May 21, 2013. See also [http://www.forbes.com/sites/leesheppard/2013/05/28/how-does-apple-avoid-taxes/#6ffca93fd6f7] accessed on 5 November 2016. IRS regulations no longer permit this division of income without a significant upfront payment to the U.S. parent for use of intellectual property, but Apple may be claiming the benefit of the older, more permissive rules (Reg. section 1.482-7)”. See also page 4 of this paper, text accompanying footnote 11.

[48] The Permanent Subcommittee on Investigations, “Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.)”, Printed Hearing Record dated May 21, 2013. See also [http://www.businessinsider.com/how-apple-reduces-what-it-pays-in-taxes-2013-5?IR=T] accessed on 5 November 2016

[49] Id

[50] W.P. (C) No. 6902 of 2008

[51] Id, See also, Nishith Desai Tax Hotline, ‘Sale of Foreign Owned Trademarks registered and used in India not taxable: Delhi High Court’, 2 August 2016 [http://www.nishithdesai.com/information/news-storage/news-details/article/income-accruing-from-the-sale-of-trademarks-registered-and-used-in-india-not-subject-to-tax-if-trade.html] accessed on 5 November 2016

[52] CUB Pty Ltd. vs. Union of India, W.P. (C) No. 6902 of 2008

[53] See CUB Pty Ltd. vs. Union of India, W.P. (C) No. 6902 of 2008

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