The US technology giant used tax deductions from share awards to employees to help wipe out the corporation tax liabilities of its UK businesses.

However, the company offset tax deductions relating to share schemes of £27.7m against its corporation tax liabilities in the UK. The move also enabled it to claim a tax credit of £3.8m to carry forward to future years. Experts have also suggested Apple’s total sales in the UK are far higher, as many are logged elsewhere.

There’s three different things going on here.

The first is that all of their electronic stuff, iTunes and the like, gets sold from Luxembourg. The VAT rate there is lower so all the buyers of the stuff get it cheaper: this might be called tax dodging but it’s us consumers that get the benefit.

Then there’s all their hardware sales. What they actually do is buy it in from China or wherever and sell it to an Irish company. That’s where the massive profit margins are whacked onto it. The Irish company then sells it to the UK (or German, French etc) company at a price that is just about equal to the sales price minus the costs of actually selling it (ie, running Apple Stores). So all the profit is in Ireland, not the UK, France, Germany etc.

And then there’s this third thing, the share options. There’s absolutely nothing at all dodgy about this even if you don’t like the first two dodges. Part of the pay of Apple’s managers is stock in the company. This is obviously a cost of doing business: it’s part of the pay of the managers. It must be tax deductible therefore.

The only thing tricky that Apple has to do is to make sure that they’ve manipulated the prices from the Irish to English company enough so that there are profits in the UK against which they can offset this tax cost of the shares. Because it would be just terrible if they didn’t make enough profit to be able to claim the tax exemption: that would be horrible. It would reduce the amount piling up tax free in Ireland.

Photo: Apple CEO Tim Cook testifies on Capitol Hill in Washington, Tuesday, May 21, 2013, before the Senate Homeland Security and Governmental Affairs Permanent on Investigations as the panel examine the methods employed by multinational corporations to shift profits offshore and how such activities are affected by the Internal Revenue Code. Lawmakers want to know the tax strategy of how Apple, the world’s most valuable company, based in Cupertino, Calif., holds a billion dollars in an Irish subsidiary as a tax strategy, according to a report issued this week by the subcommittee.