Apple’s CEO Tim Cook has defended his company’s tax avoidance tactics, Cook faced a grilling by US lawmakers accusing the tech-behemoth of sham subsidiaries and convoluted strategies to shift profits offshore, however Cook strenuously denied the company used gimmicks to avoid paying taxes. Cook told a US Senate committee Apple paid all the taxes it owed, complying with not only the law, but the spirit of the law.
He said last year it paid $US6 billion to the US Treasury, a tax rate of about 30%.
The high level US Senate committee investigating corporate offshore tax avoidance has accused Apple of shifting billions of dollars in profits to avoid paying US taxes on a massive scale. It found Apple avoided paying $9 billion in tax in 2012. Earlier, Panel chairman Senator Carl Levin accused Apple of “exploiting an absurdity” in its tax payments.
Mr Cook told the hearing that Apple lives up to its tax obligations and more, but some lawmakers expressed outrage over findings of the panel’s probe that the tech-behemoth avoided taxes by using a web of foreign subsidiaries, some without any tax jurisdiction ::::
Senator Levin said the investigation found a disturbing pattern of shifting profits, despite denials by Cook and other Apple executives.
“Of course you shifted something, the most valuable thing you have, the intellectual rights of your company,” Levin told Cook and two other Apple executives called before the Senate Permanent Subcommittee on Investigations. “Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven. Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.”
Senator Levin said the report showed Apple shifted profits to offshore entities which were “a sham and a mere instrumentality of the parent”.
The Michigan Democrat said the report showed Apple assigned its “crown jewels,” or intellectual property rights to three Irish subsidiaries controlled by Apple, which collected profits on much of Apple’s global profits. “About 70 per cent of the profits you own end up with those three Irish corporations,” he said.
Republican Senator John McCain echoed the sentiment, saying, “It is completely outrageous that Apple has not only dodged full payment of US taxes, but it has managed to evade paying taxes around the world through its convoluted and pernicious strategies.”
Adobe, Microsoft and Apple have all appeared recently – March 2013 – in front of Australian politicians to answer questions about their dubious pricing policies. Australia’s parliamentary inquiry into consumer electronics and IT pricing has heard testimony from Apple, Microsoft and Adobe, the testimony however failed to impress.
In the UK tech-giants are facing the same barrage of questions. Last week Google’s executive chairman Eric Schmidt defended the company’s tax affairs after it came in for heavy criticism this week. Google’s sales in the UK are worth £3.2 billion, but most are routed through Ireland. In 2011 it paid £6 million in UK corporate tax.
Mr Schmidt said Google “has always aspired to do the right thing”, but added that “international tax law could almost certainly benefit from reform”.
Two days prior to Cooks fronting the senate committee, Apple released a statement – above – In the 17 page statement, Apple highlights that it’s created hundreds of thousands of jobs in the US, that the company paid nearly $6 billion in taxes in 2012 and expects to pay $7 billion in 2013.
The company also says Apple “does not use tax gimmicks”, pushing back against reporting in The New York Times that examined Apple’s international tax strategies.
During his grilling Mr Cook maintained that the tax issue was “complex” and often misunderstood.
“The way I look at it is that Apple pays 30.5 per cent of its profits in taxes in the United States,” Mr Cook said. “We do have a low tax rate outside the United States but this tax rate is for products we sell outside the United States. We paid nearly $6 billion in cash to the US Treasury. That’s more than $16 million each day.”
Mr Cook says Apple expects to pay even more this year. He said he was “proud of our contributions to the American economy” and said Apple complied with laws and taxes wherever it operates, dismissing the talk of shell companies.
“Apple has real operations in real places with Apple employees selling real products to real customers,” Mr Cook told the Senate Committee. “We pay all the taxes we owe, every single dollar. We don’t depend on tax gimmicks. We don’t move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don’t stash money on some Caribbean island.”
Apple chief financial officer Peter Oppenheimer, also appearing at the hearing, said that while its Irish-based holding company pays little or no taxes, “the profits have already been taxed by foreign governments where the income is earned.”
Mr Cook acknowledged that Apple keeps a large amount of cash offshore, and said that the top corporate tax rate of 35 per cent discourages the company from repatriating the funds. This situation, he said, highlights the need for a “dramatic simplification of the corporate tax code,” in which rates would be lowered and loopholes closed.
Mr Cook said that even though this would mean Apple would pay more in taxes, he supported “a reasonable tax rate that allows the free flow of capital back to the United States”.
The hearing comes with many US firms under pressure in Europe on tax issues, notably Amazon, Starbucks and Google, for how they account for their profits in each country.
Colourful Senator Calls For APPology
Senator Rand Paul, meanwhile, denounced the hearing, saying he was “offended by a $4 trillion government bullying and badgering one of America’s greatest success stories”.
“I think the Congress should be on trial for creating a bizarre and byzantine tax code,” Senator Paul said. “What we need to do is apologise to Apple, compliment them for the job they have done and get on with our business.”
Professor Richard Harvey, a Villanova University law professor, told the hearing, “I suspect what Apple has done is within the bounds of international law”.
But he said that when he heard Apple’s comment that it did not use “gimmicks” to reduce taxes, “I about fell off my chair”. He said his analysis showed Apple shifted 64 per cent of its 2011 income into Ireland into a “shell corporation” which had “no employees, no real activity, basically an entity on paper”.
Apple Has Welcomed A Corporate Tax Review
Apple said in a statement it “welcomes an objective examination of the US corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy”. The California based maker of iPhones and iPads said it “pays an extraordinary amount in US taxes” and is “likely the largest corporate income tax payer in the US, having paid nearly $6 billion in taxes to the US Treasury” in the past fiscal year.
The Senate report said Apple used a “cost-sharing agreement” to transfer intellectual property assets offshore and shift profits to a tax haven jurisdiction.
One subsidiary “reported net income of $30 billion, but declined to declare any tax residence, filed no corporate income tax return, and paid no corporate income taxes to any national government for five years,” the report said.
The panel said Apple also negotiated a tax rate of less than 2 per cent with the government of Ireland, lower than the 12 per cent statutory rate, to use Ireland as the base for its network of offshore subsidiaries. Ireland has denied having any such deal with the company.