Illustration by Min-kyun Son /Courtesy of Apple Korea

Apple's Korean subsidiary, Apple Korea, has confirmed that it paid all of its revenue from last year to its U.S. headquarters as dividends. Last year, Apple Korea's operating profit decreased by about half compared to the previous year, but the dividends sent to the headquarters increased by about three times. On the other hand, corporate taxes fell by 59% due to the decrease in operating profit. This has raised concerns that Apple Korea is inflating its cost of goods sold to lower its operating profit and corporate tax while repatriating the profits earned in Korea to its headquarters.

According to the audit report on Apple Korea for fiscal year 2024 (October 2023 to September 2024) submitted to the Financial Supervisory Service on the 14th, the company's operating profit for 2024 is expected to be 301.3 billion won, a 46% decrease from the previous year's 559.9 billion won. However, the dividends have increased to 321.5 billion won, which is 2.85 times higher than the previous year's 112.8 billion won. Effectively, more than 100% of the operating profit earned by Apple Korea last year has been allocated as dividends.

Apple Korea's dividends are sent entirely to Apple’s U.S. headquarters, as it is wholly owned by the U.S. parent company. An IT industry source noted, “Apple Korea operates under the pretext of acting as a distributor for Apple in Korea, sending all revenue to the U.S. headquarters.” Over the past four years (2020 to 2024), Apple Korea has sent a total of 1.43 trillion won in dividends to the U.S. headquarters.

Notably, while Apple Korea's revenue for 2024 is expected to be 7.8376 trillion won, a roughly 4% increase from the previous year (7.5240 trillion won), its operating profit is set to decline by more than 40%. The selling and administrative expenses for 2024 are estimated at 309.5 billion won, marking a 9% increase compared to the previous year's 283.7 billion won.

Despite the substantial increase in selling and administrative expenses, the significant drop in operating profit has led the IT industry to speculate that Apple Korea has raised its cost of sales ratio (the proportion of the cost of goods sold compared to total sales), resulting in a decrease in operating profit compared to the previous year. The cost of goods sold refers to the expenses incurred by Apple Korea for purchasing devices like iPhones and iPads from the U.S. headquarters. As the ratio of this cost to total sales increases, operating profit decreases, which in turn lowers corporate taxes.

Based on the sales figures from the audit report released by Apple Korea, last year, the company's cost of sales ratio was 92.22%, an increase of about 3.5 percentage points compared to 88.7% in 2023. Last year's cost of goods sold totaled 7.2267 trillion won, leading to a cost increase of approximately 252.9 billion won based on the 3.5% rise. The drop in operating profit last year compared to 2023 was 258.6 billion won, while the cost of goods sold increased by 252.9 billion won.

Historically, Apple Korea has maintained a cost of sales ratio in the 90% range. Following discussions at the National Assembly's audit in 2022, which highlighted suspicions that Apple Korea was avoiding corporate taxes by lowering its operating profit through a high cost of sales ratio, this figure temporarily dropped from 95.29% in 2022 to 88.7% in 2023. Consequently, the corporate tax paid increased from 50.2 billion won in 2022 to 200.6 billion won in 2023, roughly a fourfold increase.

However, this was merely a temporary measure. Apple Korea increased its cost of sales ratio back to 92.22% last year while reducing its corporate tax. The corporate tax paid by Apple Korea last year was 82.5 billion won, a 59% decrease from 200.6 billion won in 2023. A tax industry source stated, “Among IT corporations with over 7 trillion won in sales in the country, it seems that Apple Korea is the only one paying less than 100 billion won in corporate tax.” Similar companies such as Naver (sales of 9.6706 trillion won) and Kakao (sales of 8.1058 trillion won) paid corporate taxes of 49.63 billion won and 24.17 billion won, respectively, in 2023.

An adjunct professor at Chung-Ang University, Seong Jeong-sang, stated, “Compared to the cost of sales ratio of over 55% at Apple’s U.S. headquarters, the gap in cost of sales ratios with the Korean subsidiary is quite large,” adding, “It’s difficult to escape the suspicions of tax avoidance by increasing the cost of sales ratio.” He noted, “Approximately 30% of the revenue from in-app purchases on platforms like iPhone and iPad goes to Apple as fees, and this part is attributed directly to Apple’s headquarters, not Apple Korea, hence it does not appear in domestic audit reports.” He added, “If the revenue earned from in-app purchases in Korea were accurately reflected, the scale of taxes avoided would be even greater.”

An Apple Korea representative stated, “It is impossible to provide specific answers regarding the contents presented in the audit report.”