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May 21, 2013

Apple under U.S. Senate Microscope for Questions about its Tax Payments

By Ed Silverstein, TMCnet Contributor

Is Apple (News - Alert) taking unfair advantage of U.S. tax loopholes or is it just following the law when it set up foreign subsidiaries?

An influential Senate subcommittee claims Apple worked around the U.S. Tax Code's Subpart F, which prevents “multinational corporations from shifting profits to tax havens to avoid U.S. tax."

“Apple Inc. has used a complex web of offshore entities – including three foreign subsidiaries the company claims are not tax resident in any nation – to avoid paying billions of dollars in U.S. income taxes,” a Senate subcommittee alleges.

Yet, Apple CEO Tim Cook tried to put Apple in the best light in prepared testimony he was to deliver Tuesday before the U.S. Senate Permanent Subcommittee on Investigations.

“Apple complies fully with both the laws and spirit of the laws. And Apple pays all its required taxes, both in this country and abroad,” Cook claims in a prepared statement that was released on Monday night.

In addition, Cook contends Apple has created or supported some 600,000 jobs in the United States, which include about 50,000 jobs at Apple and about 550,000 jobs at other companies. Also, Cook claims that “Apple is likely the largest corporate income tax payer in the US, having paid nearly $6 billion in taxes to the US Treasury in FY2012.”

“Apple does not use tax gimmicks,” Cook added. “Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands.”

He explained that dividends for Apple’s international affiliates, including Apple Operations International (AOI) – based in Ireland – are “not subject to US corporate income tax.”

AOI earned some $30 billion over four years but "paid no corporate income taxes to any national government," according to a committee statement.

“Under US tax law, these foreign intercompany payments are not taxable,” Cook responded in his statement.

“As a result of its international success, Apple has accumulated significant amounts of cash outside the US,” Cook said in the testimony. “Apple carefully manages this foreign, post-tax income to support its foreign operations through a corporate structure that protects and promotes the interests of its shareholders.” Cook also wants to see tax reform enacted.

Among those supporting Apple was U.S. Sen. Rand Paul (R-Kentucky), who said he was “offended by a $4 trillion government bullying, berating and badgering one of America's greatest success stories.”

“If anyone should be on trial here, it should be Congress,” Paul added in his statement. “I frankly think the Committee should apologize to Apple. I frankly think Congress should be on trial here for creating a bizarre and byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn't compete with the rest of the world.”

On the other hand, U.S. Senator Carl Levin (D-Mich.) argued before the subcommittee that “Apple effectively shifts billions of dollars in profits offshore, profits that under one section of the tax code should nonetheless be subject to U.S. taxes, but through a complex process avoids those taxes.”

“Sending valuable intellectual property rights offshore together with the profits that follow those rights is at the heart of Apple’s tax-avoidance strategy,” Levin added in his statement. “The key to offshore tax avoidance is transferring the profit-generating potential of that valuable

Edited by Rich Steeves
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