Apple uses subsidiaries in Ireland, the Netherlands and other low-tax nations in a strategy that enables the technology giant to cut its global tax bill by billions every year, a report says.
The New York Times outlined legal methods used by Cupertino, California-based Apple to avoid paying billions of dollars in government and state taxes.
One approach highlighted in the report is even though the company is based in California, Apple has set up a small office in Reno, Nevada, to collect and invest its profits. The corporate tax rate in Nevada is zero, but in California, it is 8.84%.
While many major corporations try to reduce their tax bills, technology companies such as Apple, Google, Microsoft and others have more options to do so. That is because some of their revenue comes from digital products or royalties on patents, which makes it easier for them to move profits to tax-friendly states or countries, the Times said.
In contrast, it is tougher to shift the collection of profits from the sale of a physical product - like groceries or a car - to a tax-friendly haven.
The 71 technology companies in the Standard & Poor's 500, including Apple, Google, Yahoo and Dell, reported paying global cash taxes over the past two years at a rate that is, on average, one-third less than other S&P 500 companies, the Times said.
Apple has legally allocated about 70% of its profits overseas, where tax rates are often much lower than in the US, according to company filings.
The Times cites a study by former US Treasury Department economist Martin Sullivan that estimates Apple's federal tax bill would have been 2.4 billion dollars higher last year without such tactics. The newspaper says Apple paid 3.3 billion dollars (£2 billion) in cash taxes globally on 34.2 billion dollars (£21.1 billion) in profits last year. That is a tax rate of 9.8%.
Apple told the Times that it had complied with all laws and accounting rules and said that its US operations generated nearly five billion dollars (£3 billion) in federal and state income taxes in the first half of fiscal 2012.
Wall Street analysts predict Apple could earn up to 46.9 billion dollars (£28.9 billion) in its current fiscal year, according to FactSet.