Apple CEO Tim Cook appeared in front of a Senate hearing on Tuesday to discuss the company’s use of Irish subsidiaries to avoid paying billions of dollars in taxes. Cook insisted that the tax code has not been keeping up with the digital age and it restricts the free movement of capital in comparison to tax policies in other countries. Cook asked the Senate to dramatically simplify rates and for reasonable taxes on foreign earnings.
“We pay all the taxes we owe – every single dollar with the spirit of the laws,” said Cook. “We don’t depend on tax gimmicks.”
The chairman of the panel, Senator Carl Levin (D-Mich) said that Apple is an American success story with a well-earned reputation. After admitting he has an iPhone, Levin said that does not excuse Apple’s tactics. The subcommittee found that Apple avoided paying at least $9 billion in U.S. taxes for 2012.
“Apple executives want the public to focus on the U.S. taxes the company has paid, but the real issue is the billions in taxes it has not paid, thanks to offshore tax strategies whose purpose is tax avoidance, pure and simple,” said Levin. Levin added that avoiding taxes by large U.S. companies increases the federal budget, causing average citizens to make up the difference with higher tax burdens.
Levin added that Apple is “exploiting an absurdity” that lets three of their subsidiaries in Ireland to claim that they have no responsibility to pay taxes to any country. One of the subsidiaries, Apple Operations International, has no employees and reported $30 billion in income over four years. That subsidiary has not paid taxes to any country.
Another subsidiary, Apple Sales International, has economic rights to Apple’s I.P. in Europe, Asia, and Africa. The subsidiary reported $74 billion in sales income between 2009 and 2012, but paid under 1% taxes in Ireland.
These tactics are legal through cost-sharing agreements transferring economic rights to the intellectual property used for the iPhone, iPad, MacBooks, etc.
Senator Rand Paul (R-Ky.) said that he is offended by the way that this case is being handled. He called this a “show trial” and pointed out that Corning makes the Gorilla Glass for Apple products in Kentucky.
“I?m offended by a $4-trillion government bullying, berating and badgering one of America?s greatest success stories,” said Paul. “Tell me what Apple?s done that is illegal.” He added that Congress should apologize and compliment Apple for their job creation.