Apple denies tax 'gimmicks' as criticism mounts

Apple chief executive Tim Cook denied Tuesday using "gimmicks" to dodge corporate taxes as the tech giant came under attack from US lawmakers for using "sham" subsidiaries and "convoluted" strategies to shift profits offshore. Cook told a congressional panel he was "proud of our contributions to the American economy" as he sought to deflect criticism stemming from a Senate investigation on shifting of profits offshore. "We don't depend on tax gimmicks," Cook told a Senate Permanent Subcommittee on Investigations hearing. "We don't stash money on some Caribbean island. He said Apple's international subsidiaries have "real operations with real products" and pay required taxes in the countries where they operate. Facing questions on the panel's investigation showing Apple funneled profits to subsidiaries with no declared tax jurisdiction, Cook said the issue was "complex" and often misunderstood. "The way I look at it is that Apple pays 30.5 percent of its profits in taxes in the United States," he said. "We do have a low tax rate outside the United States but this tax rate is for products we sell outside the United States." Apple chief financial officer Peter Oppenheimer, also appearing at the hearing, said that while its Irish-based holding company pays little or no taxes, "the profits have already been taxed by foreign governments where the income is earned." Senator Carl Levin, chairing the hearing, said the investigation by the panel found a disturbing pattern of shifting profits through a complex network of subsidiaries. Levin said the report showed Apple shifted profits to offshore entities which were "a sham and a mere instrumentality of the parent." "Apple is a great company but no company should be able to determine how much they should pay in taxes," Levin told the hearing. Republican Senator John McCain echoed those sentiments, saying, "It is completely outrageous that Apple has not only dodged full payment of US taxes, but it has managed to evade paying taxes around the world through its convoluted and pernicious strategies." Cook acknowledged that Apple keeps a large amount of cash offshore, and said that the top corporate tax rate of 35 percent discourages the company from repatriating the funds. This situation, he said, highlights the need for a "dramatic simplification of the corporate tax code," in which rates would be lowered and loopholes closed. Cook said that even though this would mean Apple would pay more in taxes, he supported "a reasonable tax rate that allows the free flow of capital back to the United States." The hearing comes with many US firms under pressure in Europe on tax issues, notably Amazon, Starbucks and Google, for how they account for their profits in each country. Senator Rand Paul meanwhile denounced the hearing, saying he was "offended by a $4 trillion government bullying and badgering one of America's greatest success stories." "I think the Congress should be on trial for creating a bizarre and byzantine tax code... what we need to do is apologize to Apple, compliment them for the job they have done and get on with our business." Richard Harvey, a Villanova University law professor, told the hearing that "I suspect what Apple has done is within the bounds of international law." But he said that when he heard Apple's comment that it did not use "gimmicks" to reduce taxes, "I about fell off my chair." He said his analysis showed Apple shifted 64 percent of its 2011 income into Ireland into a "shell corporation" which had "no employees, no real activity, basically an entity on paper." Apple said in a statement it "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 California maker of iPhones and iPads said it "pays an extraordinary amount in US taxes" and is "likely the largest corporate income tax payer in the US, having paid nearly $6 billion in taxes to the US Treasury" in the past fiscal year. Apple said it "has substantial foreign cash because it sells the majority of its products outside the US," with 61 percent of Apple revenue coming from overseas last year. The Senate report said Apple used a "cost sharing agreement" to transfer intellectual property assets offshore and shift the resulting profits to a tax haven jurisdiction. One subsidiary "reported net income of $30 billion, but declined to declare any tax residence, filed no corporate income tax return, and paid no corporate income taxes to any national government for five years," the report said. The panel said Apple also negotiated a tax rate of less than two percent with the government of Ireland, lower than that the 12 percent statutory rate, to use Ireland as the base for its network of offshore subsidiaries.