Apple’s Cook to Face Senate Questions on Taxes

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  • WASHINGTON (AP) — A Senate panel says Apple Inc. is avoiding paying billions of dollars in U.S. taxes, but the world’s most valuable company says it is complying with the laws and pays “an extraordinary amount” in taxes to the U.S. government.

    Apple Inc. CEO Tim Cook is scheduled to testify Tuesday on Capitol Hill to explain the company’s tax strategy.

    The Senate investigation, results of which were disclosed Monday, found Apple employs a group of affiliate companies outside the United States to avoid paying taxes.

    Apple is holding overseas some $102 billion of its $145 billion in cash, and an Irish subsidiary that earned $22 billion in 2011 paid only $10 million in taxes, according to the report issued Monday by the Senate Permanent Subcommittee on Investigations.

    The strategies Apple uses are legal, and many other multinational corporations use similar tax techniques to avoid paying U.S. income taxes on profits they reap overseas. But Apple uses a unique twist, the report found. The company’s tactics raise questions about loopholes in the U.S. tax code, lawmakers say.

    The spotlight on Apple’s tax strategy comes at a time of fevered debate in Washington over whether and how to raise revenues to help reduce the federal deficit. Many Democrats complain that the government is missing out on collecting billions because companies are stashing profits abroad and avoiding taxes. Republicans want to cut the corporate tax rate of 35 percent and ease the tax burden on money that U.S. companies make abroad. They say the move would encourage companies to invest at home.

    Apple’s chief financial officer and its tax chief are also scheduled to testify and explain the company’s tax strategy.

    They are expected to face tough questions. The subcommittee’s chairman, Sen. Carl Levin, D-Mich., and other panel members could hold up Apple as an example of a powerful company using its privileged position to avoid taxes while ordinary Americans must pay them. The subcommittee last fall derided executives from other technology giants over similar allegations.

    Apple refuted the subcommittee’s assertions in testimony prepared for the hearing and released to the public Monday evening. Apple said it employs tens of thousands of Americans and pays “an extraordinary amount” in U.S. taxes, citing the roughly $6 billion it paid in fiscal 2012.

    Apple “complies fully with both the laws and the spirit of the laws,” the testimony says. “And Apple pays all its required taxes, both in this country and abroad.”

    “Apple does not use tax gimmicks,” the statement says.

    The company has made clear that given current U.S. tax rates, it has no intention of repatriating its overseas profits to the U.S. Apple reiterated in its testimony its support for comprehensive tax reform as a way to support economic growth and boost U.S. companies’ competitiveness.

    The subcommittee also has examined the tax strategies of Microsoft Corp., Hewlett-Packard Co. and other multinational companies, finding that they too have avoided billions in U.S. taxes by shifting profits offshore and exploiting weak, ambiguous sections of the tax code. Microsoft has used “aggressive” transactions to shift assets to subsidiaries in Puerto Rico, Ireland and Singapore, in part to avoid taxes. HP has used complex offshore loan transactions worth billions while using the money to run its U.S. operations, according to the panel.

    The subcommittee’s report estimates that Apple avoided at least $3.5 billion in U.S. federal taxes in 2011 and $9 billion in 2012 by using the strategy. The company, based in Cupertino, Calif., paid $2.5 billion in federal taxes in 2011 and $6 billion in 2012.

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