News Column

Senate Scathes Apple Over Untaxed Income

May 21, 2013

Joseph Nasr, Helen Maguire, Alexandra Mayer-Hohdahl, Pat Reber

Apple Corp., one of the world's most successful technology companies, served as the scapegoat Tuesday for US senators angry about companies whose overseas earnings escape US tax authorities.

Apple chief Tim Cook calmly defended the company from charges that the technology giant uses its international presence to dodge hefty US taxes. He was grilled by a Senate subcommittee.

Flanked by his chief financial officer and head of tax operations, Cook insisted that Apple does not move intellectual property offshore, does not "stash money on some Caribbean island" and does not skirt taxes on global profits being repatriated to the US.

At issue was the fact that about 65 per cent of Apple's profits are generated and kept outside of the US, which Apple officials confirmed. Only the remaining 35 per cent of its income from North and South America is taxed within the United States.

The arrangement is legal under loopholes in US law.

"Most of your profits worldwide are sitting in three Irish companies that you control but don't pay taxes on," committee chairman Carl Levin charged. "Most of your profits worldwide are not taxed."

The committee's charges come amid a global push to curb tax evasion and have renewed debate about overhauling the US tax system.

European leaders are to tackle the issue at a summit Wednesday in Brussels intended to give fresh impetus to ministers and others who work in the complex field of taxation.

Apple's Cook argued that the arrangement with Ireland dated back to 1980, when it was a fledgling operation trying to stake a foothold in the international market. Ireland, which was on the threshold of becoming a booming IT economy, offered Apple a 2-per-cent income tax rate.

Levin repeatedly pounded Apple for formally continuing the arrangement in 2008 and 2009, when Cook and two other Apple officials signed a second agreement with Ireland.

"You continue to shift most of your crown jewels (abroad)," Levin charged.

Apple pays more corporate taxes to the US government than any other company - 6 billion dollars - and has generated 600,000 jobs in the US alone, Cook declared.

"We're an American company, and we're proud to be an American company," Cook declared. "We pay all the taxes we owe - every single dollar."

The EU rejected suggestions that member country Ireland is an offshore tax haven comparable to Bermuda and the Cayman Islands. "I don't think we would go that far, no," European Commission spokesman Michael Jennings said.

Irish Foreign Minister Eamon Gilmore took exception: "Let's be very clear about this - Ireland has a very strong, very transparent tax regime."

Apple surprised analysts recently by raising 17 billion dollars in a bond offering instead of using any of its 144-billion-dollar cash hoard. The money was used to return cash to shareholders and buy back stock.

Cook noted that it was cheaper to borrow the money in the US than to repatriate it from abroad and pay the US corporate tax rate of 35 per cent on the amount.

"The cost of capital is at an all time low, and the weighted average of borrowing we just did was less than 2 per cent," he told the committee. "We were faced with a decision to go that route or pay 35 per cent to repatriate. We felt it was in the best interest of our shareholders."

US Senator Rob Portman suggested that US companies would have more incentive to bring home profits if the US tax rate were lower. He estimated that Apple and Samsung, its main rival, pay about 14 or 15 per cent in taxes on their global operations.

"But it's worse for Apple because they can't bring (profits) home," Portman said. He and other panel members advocated an overhaul of the US tax code that would level the playing field for US companies around the world.

Cook suggested that a "single digit" US tax rate would serve that purpose.

Other committee members were not convinced. Senator John McCain, the Republican former presidential candidate, said Apple was "among America's largest tax avoiders."

"A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the US economy," he said, "should not be shifting its profits overseas to avoid the payment of US tax, purposefully depriving the American people of revenue."

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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