Apple's boss defends tax strategy during Senate grilling

Apple CEO Tim Cook testifies on Capitol Hill in Washington. Photo / AP
Apple CEO Tim Cook testifies on Capitol Hill in Washington. Photo / AP

The United States Senate sharply questioned the chief executive of Apple, the world's most valuable company, over allegations that its Irish subsidiaries help it to avoid billions in taxes, and Tim Cook declared: "We pay all the taxes we owe, every single dollar."

The Senate Permanent Subcommittee on Investigations released a report on Tuesday that held up Apple as an example of the legal tax avoidance made possible for companies by the US tax code. It estimates Apple avoided at least US$3.5 billion ($4.3 billion) in US federal taxes in 2011 and US$9 billion in 2012 by using its tax strategy and described a complex setup involving Irish subsidiaries.

Even if additional tens of billions from Apple began flowing into the US Treasury, the money would barely put a dent in the US$642 billion federal budget deficit. But Apple as a symbol resonates with politicians seeking to make the case that a powerful corporation should not be excused from paying its fair share oftaxes.

The subcommittee has also examined the tax strategies of Microsoft, Hewlett-Packard and other multinational companies, finding that they too have avoided billions in US taxes by shifting profits offshore and exploiting weak, ambiguous sections of the tax code.

The spotlight on Apple comes at a time of heated debate over whether and how to raise revenues to help reduce the high US deficit.

Many Democrats say the Government is missing out on billions of dollars because companies are stashing profits abroad and avoiding taxes. Republicans want to cut the corporate tax rate of 35 per cent and ease the tax burden on money that US companies make abroad. They say the move would encourage companies to invest at home.

Cook reaffirmed Apple's position that given the US tax rate, it had no intention of bringing that cash back to the US. Like other companies, it had a responsibility to shareholders to pay as little as possible in taxes. Cook added that Apple was the nation's largest corporate taxpayer.

Thanks largely to the iPhone, Apple is also one of the world's most profitable companies. It earned US$41.7 billion in calendar year 2012. It is neck and neck with ExxonMobil as the world's most valuable company.

Apple's enormous profits mean it has more cash stashed overseas than any other company - US$102 billion.

Senator Carl Levin, the panel's chairman, said Apple's use of loopholes in the US tax code was unique among multinational corporations.

Apple uses five companies in Ireland to carry out its tax strategy, according to the report. The companies are at the same address and share members of their boards of directors.

While all five companies were incorporated in Ireland, only two have tax residency in that country. That means the other three are not legally required to pay taxes in Ireland because they are not managed or controlled in that country, in Apple's view.

The report says Apple capitalises on a difference between US and Irish rules regarding tax residency. In Ireland, a company must be managed and controlled in the country to be a tax resident. Under US law, a company is a tax resident of the country in which it was established. Therefore, the Apple companies are not tax residents of Ireland or the US, in Apple's view.

"Apple is exploiting an absurdity," Levin said.

Cook argued that the Irish subsidiaries did not reduce the company's US taxes. Rather, the company avoided paying the 35 per cent federal tax rate on profits made overseas by not bringing those profits back to the US, a practice he said it shared with other multinationals.

The US tax code contains provisions designed to force companies that sell their products overseas to pay US taxes on the profits from those sales. But loopholes allow companies to legally bypass those provisions.

The Irish subsidiaries are set up to take advantage of those loopholes, according to the committee's report.

Apple's stock fell US$3.27, or less than 1 per cent, to close at US$439.66 yesterday.

Levin also called Ireland a "tax haven", an appellation Irish Prime Minister Enda Kenny rejected when speaking in Parliament in Dublin yesterday.

He also denied the assertion in the subcommittee's report that Apple had negotiated an Irish corporate tax rate of less than 2 per cent.

All companies paid the standard rate of 12.5 per cent on profits from Irish operations, the Prime Minister said.

- AP

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_n1 at 28 Jul 2014 20:24:46 Processing Time: 630ms