Apple’s CEO is disputing assertions by a Senate panel that the company avoids billions of dollars in US taxes by shifting profits to foreign affiliates.
Tim Cook testified at a hearing on Tuesday by the Senate Permanent Subcommittee on Investigations, which released a damning report on Monday on Apple’s tax practices.
“We pay all the taxes we owe – every single dollar,” Cook said. “We don’t depend on tax gimmicks.”
Cook, who is more accustomed to commanding a stage in front of investors and techies than facing a congressional committee, took a defensive tone with his opening statement.
“We don’t move our money from our foreign subsidiaries to fund our US business in order to skirt the repatriation tax,” said Cook.
Phillip Bullock, Apple’s head of tax operations testified that the company’s subsidiary in Ireland, AOI, received 30 (b) billion US dollars over the last five years, but was not required to pay taxes on it in the United States.
The subcommittee’s report estimates that Apple avoided at least 3.5 (b) billion dollars in US federal taxes in 2011 and 9 (b) billion in 2012 by using its tax strategy, and described a complex setup involving Irish subsidiaries as being a key element of this strategy.
But Cook said the Irish subsidiaries don’t reduce the company’s US taxes at all. Rather, they manage cash earned overseas. If that cash were to be repatriated to the US, it would be subject to US taxes.
Like other multinationals, Apple chooses to keep cash overseas so as not to pay the 35 percent US corporate tax rate. Apple is holding 102 (b) billion of its total 145 billion dollars in cash overseas.
Cook reaffirmed Apple’s position that given current US tax rates, it has no intention of repatriating its overseas profits to the US.
Senator Carl Levin, a Michigan Democrat and the panel’s chairman, said Apple’s use of loopholes in the US tax code is unique among multinational corporations.
Apple uses five companies located in Ireland to carry out its tax strategy, according to the report.
The companies are located at the same address in Cork, Ireland, and they share members of their boards of directors.
While all five companies were incorporated in Ireland, only two of them also have tax residency in that country.
That means the other three aren’t legally required to pay taxes in Ireland because they aren’t 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 aren’t tax residents of Ireland nor of the US, since they weren’t incorporated in the US, in Apple’s view.
The spotlight on Apple’s tax strategy comes at a time of fevered debate in Washington over whether and how to raise revenues to help reduce the federal deficit.
Many Democrats complain that 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 percent and ease the tax burden on money that US companies make abroad.
They say the move would encourage companies to invest at home.
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