Apple to Congress: We do not use 'tax gimmicks'

Summary:Ahead of a Congressional hearing on Tuesday, the iPhone and iPad maker sets out Apple chief executive Tim Cook's testimony. The company is clear: "what you see is what you get," but will Congress buy it?

Apple on Monday posted its full testimony that it will later this week present to Congress, explaining in detail how it arranges its financial affairs, such as how and where it pays tax.

The document, 16 pages in length [PDF], was posted by the Cupertino, Calif.-based technology giant on its website ahead of Apple chief executive Tim Cook's presence in the U.S. Senate on Tuesday.

The U.S. Senate Permanent Subcommittee on Investigation is looking into a number of tax avoidance schemes and strategies by major technology firms. It comes as companies,  not limited to Google and Amazon , have faced the wrath of the U.K. parliamentary select committees on public finance.

Apple takes to multiple pages to trumpet its contribution to the U.S. economy, as well as others in which the company has major offices, such as in Ireland.

"Apple welcomes an objective examination of the US corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy," the testimony reads.

The company said it "supports comprehensive tax reform as a necessary step to promote growth and enable American multinational companies to remain competitive with their foreign counterparts in both domestic and international markets."

But the iPhone and iPad maker stressed certain points, seemingly pointing the finger at other companies, albeit without naming names. It noted one key point: it pays U.S. tax, and if Congress doesn't believe it is paying enough then it should try to fix the system.

"Apple is likely the largest corporate income tax payer in the US, having paid nearly $6 billion in taxes to the U.S. Treasury in [the fiscal year of 2012]," the testimony read. According to the firm, "these payments account for $1 in every $40 in corporate income tax the U.S. Treasury collected last year."

Printed in bold text: "[We] do not use tax gimmicks," it said. Apple explained that it does not move its intellectual property portfolios to offshore tax havens, nor does it use it to sell products back into the U.S. to avoid paying tax in the country. It "does not hold money on a Caribbean island," and it "does not have a bank account in the Cayman Islands."

Amid the seriousness of the situation, Apple was actively pointing the finger at other firms that do. In recent weeks, British Prime Minister David Cameron sent a letter its overseas territories, including the Cayman Islands, stressing the need to "get our own houses in order" by sealing the tax loopholes exploited by behemothic firms.

Apple's testimony continues to argue that the reason why it does not bring its vast amount of offshore cash back to the U.S. is that it could lose more than one-third of the cash pile's value.

Apple said that 61 percent of Apple's revenue for last year came from international sales, and amounted to two-thirds of its revenue in its last earnings call, its fiscal second quarter.

"Apple uses its foreign cash for business operations, geographic expansion, acquisitions and capital investments, and to fund other expenses required by its overseas operations, such as the capital-intensive construction of retail stores in Europe and Asia and the purchase of customized tooling equipment." 

But the company warned that if it "repatriated" those funds, "they would be reduced by a 35 percent U.S. corporate tax rate."

As Apple still has shareholders to consider, it cites its investors as its sole reason for keeping its vast wealth overseas. "Apple serves its shareholders by keeping these funds overseas where they can be deployed efficiently to fund international operations at a lower cost."

"As Apple's recent bond issuance demonstrates, [we] can return capital to shareholders using debt at a far lower cost than through repatriation of foreign cash."

Cook told Politico last week that the company "unequivocally [...] does not funnel its domestic profits overseas." He reiterated that Apple "pay[s] taxes on all the products we sell in the U.S., and we pay every dollar that we owe."

Topics: Apple

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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