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? 

Answer rating: 100% (QA)

The tax planning used by Apple as described in the scenario is an example of transfer pricing Transf... View the full answer