News Column

Apple CEO: Offshore Units Not a 'Tax Gimmick'

May 21, 2013

Apple Inc.'s stateless subsidiaries beyond any taxing authority's reach are not a tax-avoidance trick, the U.S. company's top executive is to testify Tuesday.

"Apple does not use tax gimmicks," Chief Executive Officer Tim Cook is expected to tell the Senate Permanent Subcommittee on Investigations.

The Cupertino, Calif., technology giant released testimony ahead of his 9:30 a.m. appearance. It can be found at

Also testifying will be Apple Chief Financial Officer Peter Oppenheimer and tax operations head Phillip Bullock, the subcommittee said.

Their testimony comes a day after the panel released findings revealing the technology giant shifted at least $74 billion from the reach of the Internal Revenue Service over the past four years.

One example of Apple's "complex web" of offshore entities is a subsidiary called Apple Operations International, the panel said. The subsidiary is incorporated in Ireland but keeps its bank accounts and records in the United States and holds board meetings in California.

The United States bases corporate residency for tax purposes on where companies are incorporated, while Irish tax law considers companies residents only if they are managed and controlled in the small European country.

So Apple Operations International was able to avoid both countries' tax jurisdictions, the report said.

Because it did not technically belong to any country, Apple Operations International, founded in 1980, hasn't filed a corporate tax return anywhere in the past five years, the panel found.

"Despite reporting net income of $30 billion over the four-year period 2009 to 2012, Apple Operations International paid no corporate income taxes to any national government during that period," the report found.

Apple told the panel it considers Apple Operations International an entity that does not qualify "as a tax resident of any other country under the applicable local laws."

"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven," said subcommittee Chairman Carl Levin, D-Mich. "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."

Another Ireland-based Apple unit, Apple Sales International, which sells iPhone smartphones, iPad tablet computers, MacBook notebook computers and other products to overseas distributors, recorded $22 billion in pretax earnings in 2011 but paid just $10 million in taxes, Senate investigators found.

That works out to a corporate tax rate of about 0.05 percent. The U.S. corporate rate is 35 percent.

The investigation found no evidence Apple did anything illegal.

But senators and aides said Apple's scheme was unparalleled in its use of multiple overseas affiliates for the purpose of dodging billions of dollars in U.S. tax obligations on earnings that approached 12 figures.

Many of the subsidiaries had no employees or physical offices, the panel said.

Cook is expected to tell the panel, "Apple is likely the largest corporate income tax payer in the U.S., having paid nearly $6 billion in taxes to the U.S. Treasury" in the last fiscal year, his prepared testimony indicated.

But Sen. John McCain, R-Ariz., the second-most senior panel member, said he saw things differently.

"Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America's largest tax avoiders," McCain said.

"Apple welcomes an objective examination of the U.S. corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy," the company said in the testimony released Monday.

Apple, which reported $102.3 billion of its $145 billion in cash was held in offshore affiliates as of March 30, said it has that much money overseas "because it sells the majority of its products outside the U.S."

During his Senate appearance, Cook -- who the Los Angeles Times says is the world's highest-paid CEO, making $378 million last year -- is expected to propose a "dramatic simplification" of the corporate tax system, his released testimony indicated.

The proposed simplification "lowers tax rates and implements a reasonable tax on foreign earnings" to encourage U.S. companies to bring those earnings back home for job creation and economic investment, his written testimony said.

"Apple believes such comprehensive reform would stimulate economic growth," the testimony said. "Apple supports this plan even though it would likely result in Apple paying more U.S. corporate tax."

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Source: Copyright UPI 2013. Distributed by MCT Information Services

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