Apple's Cost Sharing Arrangement: Frankenstein's Monster

172 Tax Notes Federal, p. 1049 (Aug 16, 2021) [Part 1] and p. 1217 (Aug 23, 2021) [Part 2]

69 Pages Posted: 28 Sep 2021 Last revised: 2 Feb 2022

Date Written: August 16, 2021


This paper performs a forensic analysis of Apple's transfer pricing cost sharing arrangement based on facts and documents that were disclosed in hearings before the U.S. Senate Permanent Subcommittee on Investigations in May 2013 and an investigation of Apple's transfer pricing arrangements by the European Commission between 2013 and 2016 as part of its State Aid investigation, related court filings in Europe and other sources. The paper finds that Apple provided conflicting information to these different investigations and that, when combined, documents from both investigations, when combined with additional research reveal that Apple appears to have violated U.S. transfer pricing laws in 2009 and later years, that should have invalidated its cost sharing arrangement but were apparently not detected by the IRS. These tax violations resulted in U.S. federal tax underpayments that we estimate to be greater than $84 billion. Apple's reserves for Uncertain Tax Positions were $16.5 billion as of September 2020, much less than this amount. The proposed adjustments under the cost sharing periodic adjustment regulations are not limited by any statute of limitations, and appear to be accompanied by additional tax violations, including violations of the economic substance doctrine, and the regulations governing the taxation of effectively connected income.

Keywords: Transfer Pricing, Auditing, Forensic Economics, Tax Compliance and Tax Enforcement

JEL Classification: F23, H26, H32, H83, K34, M42

Suggested Citation

Curtis, Stephen L, Apple's Cost Sharing Arrangement: Frankenstein's Monster (August 16, 2021). 172 Tax Notes Federal, p. 1049 (Aug 16, 2021) [Part 1] and p. 1217 (Aug 23, 2021) [Part 2], Available at SSRN: or

Stephen L Curtis (Contact Author)

Cross Border Analytics, Inc. ( email )

4600 South Syracuse, 9th Floor
Denver, CO 80237-2719
United States
720-370-3546 (Phone)
720-370-3548 (Fax)


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