Despite almost all design and development of its products taking place in the US,

Apple has for years been able to report that about two-thirds of its worldwide

profits were made in other countries, where it has used tax planning to access

ultra low tax rates.

Basically, Apple formed two Irish incorporated subsidiaries, ASI and AOE, which held rights to

exploit the Apple group's intellectual property outside the Americas under a cost-sharing

agreement with Apple Inc. The vast majority of the profit reported by these two entities was

attributable to these IP rights that they acquired through the cost-sharing arrangement that

they co-funded, even though the activities took place exclusively in Cupertino.

The only actual functions that ASI and AOE performed were relatively routine manufacturing

procurement service functions, and they took place at their Irish branches. Because the

subsidiaries were incorporated in Ireland, but effectively managed elsewhere, they avoided tax

residency in any jurisdiction. Their only taxable income was whatever profit could be attributed

to the Irish branches, which under two Irish advanced pricing agreements was a very modest

amount.

Of the two types of tax planning, which type is reflective of these facts, and why?