Essay on How Do Foreign Holding Companies Work?

1267 Words Nov 20th, 2016 6 Pages
How do foreign holding companies work? U.S.-based MNCs are able to generate huge tax savings through the use of foreign holding companies with no operations or employees at the top of its foreign operations. In the case of Apple, its Irish holding companies serve as a group of finance companies, and Apple Inc., the U.S.-based parent of the whole group, pays U.S. tax only on the investment earnings in the U.S. (Sheppard 2). What is interesting is that these tax haven foreign tax jurisdictions permit the holding companies to pay no tax to any government. In the case of Apple, the principal company that is under the Irish holding companies holds the contracts with Apple’s Chinese manufactures, which in turn own the inventory that is produced. The U.S. tax laws state that the U.S. income tax rate will only apply to profits earned by the parent companies, like Apple Inc. in this example, and not the Irish holding companies, which generate most of the profits.
U.S.-based MNCs are able to use their foreign holding subsidiaries to transfer royalties internally by simply moving funds from one part of the company to a subsidiary overseas in a lowered income tax rate (Duhigg, Kocieniewski 6). The financials shown below illustrate Apple’s revenue disclosed in its 10-K reports. What is significant is that Apple’s business in the global picture is nothing short of massive when compared to the Americas Segment. The Sales Data table clearly demonstrates that 60% of total sales are…

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