Apple, Congress spar over tax: Cook testifies, lawmakers unsatisfied

Apple, Congress spar over tax: Cook testifies, lawmakers unsatisfied

Summary: Apple says it has a "what you see is what you get" approach to its taxes, but Congress disagrees, believing it sought the "holy grail of tax avoidance." Apple's Tim Cook testified.

TOPICS: Apple, Government US

<-- Later remarks from the second panel

11:56 a.m.: Phillip A. Bullock, Apple's head of tax operations, answers questions to chairman Levin. Both Cook and Bullock agree that "most" decisions are managed by its Apple U.S. headquarters.

11:55 a.m.: Cook: "I don't consider deferral to be a sham." 

11:53 a.m.: Oppenheimer also notes that it acts in the "best interests of its shareholders."

11:50 a.m.: He also notes that "half of Apple [research and development] is funded through its Ireland operations." He confirms that Irish law dictates that its Irish operations can be incorporated without being a tax resident. "The reason [that its European subsidiaries are not tax residents] does not reduce U.S. taxes at all."

11:47 a.m.: Oppenheimer dips into more details regarding the subsidiaries it has in Europe, Ireland in particular: "Our U.S. tax structure is quite simple [...] Outside the U.S., we try to provide the same industry-leading support that our U.S. customers expect. Apple must follow the laws and the regulations of where we are located."

11:44 a.m.: Cook says: "We pay all the tax we owe. Every single dollar. The U.S. tax code has not kept up to date." But he notes that with an additional but "reasonable" tax on bringing foreign earnings back to the U.S. could result in Apple paying more than it does at present.

11:38 a.m.: Cook deviates from his pre-prepared statement from yesterday and says if Apple considers itself an American company. In a stern voice: "An emphatic yes." 

11:37 a.m.: Cook and Oppenheimer take the oath and are sworn in to the hearing.

Previous remarks follow from the first round of hearings:

10:57 a.m.: Harvey asked simply: "How should technology developed in the U.S. be taxed?" 

10:53 a.m.: "Apple points out in its testimony that it only does this for its international sales," Shay says. "There's nothing preventing this from being done. Microsoft did this with its domestic sales. This is not an Apple bashing exercise."

10:33 a.m.: Stephen E. Shay, an expert from Harvard Law School, said: "The revenue lost to tax base erosion and profit shifting is hard to estimate, but there is compelling evidence the amount lost is substantial," he said. "This revenue loss exacerbates the deficit and undermines public confidence in the tax system. Restoring revenue lost to base erosion and profit shifting would support investing in job-creating growth in the short term and reducing the deficit over the long term."

10:26 a.m.: Harvey said: "Apple recorded approximately $22 billion of its 2011 pre-tax income in Ireland. As a result, 64 percent of Apple's global pre-tax income is recorded in Ireland where only 4 percent of its employees and 1 percent of its customers are located."

10:22 a.m.: J. Richard Harvey, an expert from Villanova University School of Law, giving expert opinion said: "I suspect what Apple has done is within the bounds of the international tax law." He said he almost fell off his chair when he read that Apple does not use tax "gimmicks."

10:16 a.m.: "You can apologize if you wish, but that's not what this committee is about," Levin said, and then proceeded into a raised voice string of abuses that Apple allegedly has committed. "They use our law system, they lobby here, but they don't have the right to avoid paying taxes. Avoiding paying taxes here: it's not right. This subcommittee will not apologize." Politician war of words on deck.

10:13. a.m.: Sen. Rand Paul (R-KY) steps in to defend Apple. "Tell me what Apple's done illegal. I'm offended by this hearing, and that this hearing is bullying one of America's success stories. Congress should be on trial, and the committee should apologize to Apple."

Paul suggested that in helping companies repatriate their cash from offshore units, Congress should change the rate to 5 percent, rather than the 35 percent that Apple claims it would pay.

10:11 a.m.: Apple has utilized U.S. tax loopholes to avoid taxes in the United States on $44 billion in otherwise taxable offshore income over the past four years," he highlighted.

10:10 a.m.: McCain (whose full statement can be found here) continues: "I have long advocated for modernizing our broken and uncompetitive tax code, but that cannot and must not be an excuse for turning a blind eye to the highly questionable tax strategies that corporations like Apple use to avoid paying taxes in America." 

10:08 a.m.: McCain noted that smaller companies are taking the brunt for Apple's tax strategies, by pay a higher tax rate because they can't siphon their funds or profits offshore, McCain added.

10:03 a.m.: Sen. John McCain (R-AZ) said the situation "reflects a flawed corporate tax system," after applauding Tim Cook, the late Steve Jobs, and Apple's products and services. He also said Apple was the country's biggest tax payers in the U.S.

"Apple is one of the biggest tax avoiders in the U.S.," he added. 

10:01 a.m.: Citing President Ronald Reagan: "Individuals and corporations who are not paying their fair share or, for that matter, any share," adding: "These abuses cannot be tolerated."

9:58 a.m.: Apple shifted $36 billion in worldwide sales away from the U.S., Levin said, and paid "no U.S. tax on any of it," avoiding $9 billion in U.S. taxes.

9:53 a.m.: $AAPL is down 1.5 percent just after the Senate hearing began.

9:52 a.m.: Apple uses a "cost-sharing agreement in which Apple's U.S. headquarters develops the technologies and products, and its offshore units get the marketing rights and the profits for international sales. Apple's profits are shifted offshore, leading Apple to pay "almost no income tax." Apple on Monday said it paid $6 billion last year, and will pay more than $7 billion this year.

9:51 a.m.: "Most of the profits are assigned to [Apple's subsidiaries in] Ireland," Levin said, before pointing the finger at the Irish government for "negotiating" terms in which Apple pays less than 2 percent tax in the country. 

9:46 a.m.: "Our legal system has a preference to respect the corporate form." He said that it was a "sham" that AOI and ASI [Apple Sales International] don not owe any U.S. taxes.

9:38 a.m.: Sen. Carl Levin (D-MI), the committee's chair, says he carries an iPhone in his pocket. But he reiterates his comments from yesterday that Apple sought the "holy grail" of tax avoidance by setting up companies in various locations without employees. (His full statement can be found here. Some key parts are below.)

Displaying a chart of Apple's offshore corporate structure, Levin explains that their "activities are entirely controlled by Apple in the United States," but did not appear to have any tax residency in any particular country.

Levin noted that its operations unit, Apple Operations International (AOI), is neither an Irish tax resident, nor is it technically based in the U.S. "It's neither here nor there," he says. Apple Operations International (AOE), "also has no tax home," he says, regarding tax residency. Apple is "exploiting" a tax absurdity, he says. 

9:29 a.m.: Reuters is reporting that Ireland's EU affairs minister Eamon Gilmore said that the Ireland was "not to blame" for Apple's low global tax payments, following claims by the U.S. Senate investigators that the company created subsidiaries in the country.

Topics: Apple, Government US

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  • Face off - I've seen that film

    Isn't that the one where the good guy wins?

    My guess is that the US Government has neither the intellect; integrity nor determination to succeed. (The UK Government doesn't either, in case you were thinking this was a nationalistic comment.)

    Unfortunately this is not Hollywood - it's real life :-(

    "Fix the system." Oh boy how I'd like to.
    Has the US Government ever levied 'windfall taxes'.
    How about, instead of taking money from individual Cyprus account holders, we just plunder the coffers of global corporates?
    • Interesting you use the word "plunder"

      You seem to imply that the government is the good guy here. And then you use the word "plunder" (i.e. "The violent and dishonest acquisition of property"). So you either acknowledge that arbitrarily taking money from corporations (or anyone) is dishonest - or you have no problem with violently taking money from those who rightfully earned it.

      Taxation is legalized plunder, make no mistake about it. While "greedy" corporations must convince customers to spend their money on their products, the "good guy" government uses tax agents with guns to forcibly separate you from your money.

      Tax "avoidance" is not immoral. It's not even illegal as long as the law is followed. The government sets up the rules and then has the audacity to chastise those that follow it?

      Given the recent events showing how corrupt our government is, keeping more of your own money and out of the hands of the government may be one of the most patriotic things we can do right now.
      • Absolutely!

        I agree with you Marcel, 100%!
      • So is devaluing labor and using predatory means to destroy comptition

        Like price wars, which also drive down wages... or using illegals, or engaging in H1B fraud.

        You too make assumptions - that no corporation can ever do wrong.
        • Umm

          Who did this? I see no assumptions made. I see general statements about taxation. Besides, it's not the job of government to use taxation to punish anyone, although the current (and yes, past) administrations like to do so. It's in the regulation and penalty areas that you punish wrong-doing after due process. Using the government to somehow "right great wrongs" is part and parcel for the Left. It also betrays their loathing for freedom. Freedom cannot be accomplished through government. Freedom is the absence of tyranny via government.
          • well

            "via" should be "from."
          • How about discourage?

            Or maybe setting tax rates to whatever the market will bear (maximizing revenue)?
            John L. Ries
        • A=A

          Price wars are good business competition. Using illegal alien invaders for labor is, by definition, against the law. Would that the federal government enforce our border laws as well as hiring laws. Fraud is, again, fraud and therefore illegal.

          A corporation cannot do wrong, in doing *business*. But, illegal practices in business are no different than illegal practices by private citizens. But, illegal practices are not business.
          The problem comes in where government oversteps the authority ceded it by the people. If, say, the gov't demands that companies provide health care for employees, or that companies sell the same amount of a product to any customer, or create regulations which favor one specific business or general industry over another, such as the war on oil vs the "green energy" aspect of the environmental religion being foisted upon us in violation of the 1st Amendment, then companies are right and justified in doing everything in their power to evade the arrogant overstepping of the authority ceded to government.

          Sir Thomas More: "Listen, Meg, God made the angels to show Him splendor, as He made animals for innocence and plants for their simplicity. But Man He made to serve Him wittily, in the tangle of his mind. If He suffers us to come to such a case that there is no escaping, then we may stand to our tackle as best we can, and, yes, Meg, then we can clamor like champions, if we have the spittle for it. But it's God's part, not our own, to bring ourselves to such a pass. Our natural business lies in escaping." - A Man for all Seasons

          The government has no "right" to tax dollars (in fact, it has no "rights" whatsoever). The natural order for Americans is for citizens and their businesses to keep the benefits of their talent, skill and industry. Only the barest minimal amount necessary for the government to perform its Constitutionally allotted tasks should ever be granted to government.

          Government's don't exist for their own sake; they exist for the benefit of the citizenry. For the common defense, there is the war department. To settle disputes, there is the judicial system. To maintain cultural cohesion, there is the state department. That's it.
          The government doesn't exist to provide for my needs, or to protect me from my own foolishness, or above all, to counterbalance another's prosperity with my own.
          Apple's prosperity did not come from the coffers of government but from the creativity and industry of its employees, and in particular the genius of its founder. In avoiding paying more than the $6 billion in taxes they already pay, all Apple is doing is keeping the fruits of their talent, industry, skill and creativity from a parasite that did nothing that Apple could not do for itself, and could not possibly spend as responsibly or productively as Apple.

          Francisco D'Anconia: "Blood, whips, chains... or dollars.Take your choice; there is no other. And your time is running out" - Atlas Shrugged pt 2
          • Well said!

            Your comment is right on the mark! These hearings show that the real unscrupulous greed is on the part of the US tax and spend (Democrat) Senators and Congressional representatives. They concentrate on taking more and more, when they should be working to get spending under control. They fail or refuse to understand the proven fact, that lower tax rates result in a stronger and more active economy that generates higher profits and mare dollars in taxes even at lower tax rates!
        • ???

          Does the union actually sign your paycheck or something ??? WHACKO
      • Theres always the old way steel blood buring villiges etc.

        Tax is the government it must exist for government to exist or else pound steel and build longboats.
      • Are you suggesting?

        That government be funded solely from voluntary contributions? I think even the Libertarian Party dropped that plank from their platform some years ago.
        John L. Ries
        • Ridiculous

          Taxpayers have an obligation to pay the tax they're legally required to, nothing more.

          Govt creates the tax legislation, full of loopholes to appease favoured interest groups, then complains when these are used; feigning moral outrage. Their hypocrisy is sickening.
          Richard Flude
          • I'll accept that

            But his claim was that taxation was legalized plunder, which is an entirely different argument.
            John L. Ries
      • Agree!

        Well said!
  • USA is close to be flat broken

    So the government has two option:
    a) to force taxes over big business.
    b) to force taxes over small business and citizen.

    Since b) is in progress then a) its a matter of time.
    • Option three

      stop the out of control spending.
      • Agreed !!!

        Funny, how many bullets and drones a bankrupt government can buy, isn't it?
        • The FED

          Got all the money then now and forever. Bankrupt government is silly thing to say after all it still has citizens. The Fed cant go bankrupt it is not possible with fractional reserve banking.
          • The money it prints can become worthless.

            It has happened many times throughout history. If confidence in the value of the money drops to near nothing then yes, the government in essence becomes bankrupt.