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A rotten first bite of Apple

Apple is best known for the brilliance of its technological wizardry. But when Senate investigators finish examining its financial practices, the electronics giant may be best known for its brilliance in legal tax avoidance.

Through complexity that rivals the inner workings of its computers, Apple has avoided paying taxes on tens of billions of dollars it earns overseas, money that last year accounted for 61 percent of its earnings.

Exploiting technicalities and discrepancies in tax laws in the United States, where it’s headquartered, and in Ireland, where it manages a web of overseas subsidiaries, Apple paid virtually no taxes on $74 billion in earnings in the last four years. As long as that money stays offshore, Apple won’t have to.

The company did pay $6 billion in taxes last year, at what Apple says was an effective rate of 30.5 percent.

That prompted Sen. John McCain of Arizona – the ranking Republican on the Senate Permanent Subcommittee on Investigations – to observe that Apple had the dual distinction of being both the U.S.’s largest taxpayer and largest tax avoider.

One top tax expert told the New York Times that economists had a technical term for this kind of brazen avoidance: “unbelievable chutzpah.”

Apple is not alone in this form of corporate tax avoidance, only better at it than most. Its example points up the need for a thorough reform of the U.S. tax code, a complex legislative undertaking that is most unlikely in the current climate.

Congress, in its solicitude for business – especially big business – should keep in mind that, in 2011, individuals paid $1.1 trillion in federal taxes. Corporations paid about $181 billion. Maybe those individuals should have Apple do their taxes.