From Wikipedia: Apple Inc.: Corporate affairs: Finance: Tax practices:
In 2015 Reuters reported that Apple had earnings abroad of $54.4 billion which were untaxed by the IRS. Under U.S. law corporations don’t pay income tax on overseas profits until the profits are brought into the United States.
As Bloomberg explains it using Google as an example:
Income shifting commonly begins when companies like Google sell or license the foreign rights to intellectual property developed in the U.S. to a subsidiary in a low-tax country. That means foreign profits based on the technology get attributed to the offshore unit, not the parent. Under U.S. tax rules, subsidiaries must pay “arm’s length” prices for the rights – or the amount an unrelated company would.
Because the payments contribute to taxable income, the parent company has an incentive to set them as low as possible. Cutting the foreign subsidiary’s expenses effectively shifts profits overseas.
The expenses are shifted to a country like Bermuda where they don’t pay corporate taxes.
