Cash-rich Apple's balance sheet may please shareholders, but Congressional investigators are less than happy, claiming that the firm has avoided paying billions in tax.
An investigation into Apple's tax practices which revealed the creation of a complex web of subsidiaries worldwide in order to avoid paying tax is expected to result in an interesting confrontation between CEO Tim Cook and lawmakers today, as reported by the New York Times.
Investigators found that rather than taking the usual route of companies that wish to lower their tax bills -- such as opening accounts in tax havens -- Apple created a number of subsidiaries that contained no staff apart from top executives. Although run from the iPad and iPhone maker's headquarters in Cupertino, Calif., subsidaries were officially located in countries such as Ireland. This, in turn, meant that each offshore entity was effectively stateless -- and therefore exempt from taxes, record-keeping and the need to file tax returns.
Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations which is holding Apple's hearing, commented:
"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven. Apple successfully 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."
Lawmakers say that Apple used "gimmicks" and "schemes" to avoid paying billions in tax to the U.S. government. However, the tech giant denies these claims, and within Apple's full testimony (.pdf), the company says that it contributes much to the U.S. economy, and welcomes tax reform in the United States. Apple says that reformation is necessary to promote growth and competition, and says that current legislation "has not kept pace with the advent of the digital age and the rapidly changing global economy."
Apple argues that it must keep vast amounts of cash away from U.S. shores due to the unreasonably high amount claimed by the system -- 35 percent -- and as 61 percent of the company's revenue last year came from international sales, foreign funds have to be used for expansion, acquisitions and "expenses required by its overseas operations."
The iPad and iPhone maker makes one key point: the company does pay U.S. taxes; nearly $6 billion in 2012 alone. If the U.S. government believes this amount is too low, then the system needs to be changed.
In contrast, investigators say that Apple has taken at least $74 billion away from the hands of the U.S. Internal Revenue Service.
Apple's comments come as other companies face enquiries over tax avoidance; the U.K. parliament is currently scrutinizing the financial practices of Google, Starbucks and Amazon, whereas over in India, Infosys, Google, Samsung and Nokia have been hit with tax demands by the Indian government following tax evasion claims.