Apple CEO Cook makes no apology for company’s tax strategy

“Apple Inc Chief Executive Tim Cook made no apology on Tuesday for the iPad maker saving billions of dollars in U.S. taxes through Irish subsidiaries and told lawmakers that his company backs corporate tax reform, even though it may end up paying more,” Patrick Temple-West and Kevin Drawbaugh report for Reuters. “The Senate Permanent Subcommittee on Investigations has found that Apple in 2012 alone avoided paying $9 billion in U.S. taxes, using a strategy involving three offshore units with no discernible tax home, or ‘residence.'”

“Cook, in his first congressional testimony since becoming Apple CEO in 2011, said his company is a major taxpayer, handing over nearly $6 billion in cash to the U.S. government in 2012,” Temple-West and Drawbaugh report. “‘We expect to pay even more this year,’ Cook said. ‘We pay all the taxes we owe.'”

Temple-West and Drawbaugh report, “Cook said Apple did not depend on tax gimmicks. ‘We don’t move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don’t stash money on some Caribbean island,’ he said… Senator John McCain praised Apple as a success story, but he said the company’s tax strategy reflected a ‘flawed’ tax system… Cook said Apple agreed with those in Congress who want to reform corporate taxes and called for changes that include lower corporate income tax rates and a reasonable tax on foreign earnings. ‘Apple recognizes these and other improvements in the U.S. corporate tax system may increase the company’s taxes,’ he said in prepared testimony.”

Read more in the full article here.

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16 Comments

    1. Sorry but its NOT a loophole. Apple pays taxes on sales in other countries. I does not bring that money back to the USA cause we are greedy and want taxes on money earned elsewhere.

      This is not a loophole…. Each country tends to get greedy and wants money that it does not deserve. So the tax code gets crazy complicated. NOT APPLE’s fault.

  1. The onus is on the U.S. Government to change it’s laws and it would be irresponsible of Tim Cook to it’s investors not to seek the least tax liability it has to pay as every company does for this or other reasons (not to mention individuals who need as much money as possible to funnel back into their families).

    It’s not a workable system (if the Senators had half a brain or moment to analyze this) to wish that the wily-nily vaporous “spirit” of the law should enable voluntary tax contributions from corporations. Apple is forced to do the things it does if it can legally unless the laws are changed. So simple a child could figure it out. No surprise our elected leaders cannot.

    1. Tim’s testimony was that Apple created these three companies in Ireland in 1980 when Apple was growing it’s international operations and needed to streamline the situation regarding currency exchange rates, duplicated accounting systems across every national selling entity, and the desire to aggregate profits into a single, larger fund that could be more efficiently managed. It really had nothing to do with US corporate tax strategy. Apple Operations International entered into a research and development risk sharing agreement with Apple Computer, Inc. (it was still called that then), which allowed Apple’s operations internationally to fund the R&D back in Cupertino while being able to profit from the outcome of that R&D. Yes, it has a consequence in US tax law that means overseas profits earned by AOI are not taxable by the US. But that wasn’t why Apple set it up (regardless of how much Senator Levin wanted to paint it that way).

      So during repeated questioning, Tim stuck to his message that he wouldn’t “characterize” the creation of these three entities as a way to shift profits out of the US taxing authority reach.

      1. Why is it we commoners here at MDN understand the logistics of how this whole thing works better than our elected Senators paid by us to research and understand these things?

        When Senators get to the age of fossils (Levin & McCain), and don’t keep up with the world, they need to go.

  2. If Congress is unhappy about the way Apple handles its profits, change the tax code. I looked over Cook’s proposals and think they are reasonable and likely very effective at getting US companies to “repatriate” their foreign profits.

  3. Since roughly the 16th century, the world’s economic system has been based on corporations and similar limited liability companies. They allow investors to share in the profits of an enterprise while limiting their exposure if the deal goes south. They can lose their investment, but that is all. This is because the corporation is treated as an entity completely distinct from its owner/shareholders. The company isn’t subject to the owners’ personal debts and the owners aren’t personally liable for the company’s debts.

    For example, the owners of Dow Chemical didn’t have any personal liability when the company gassed half the people in Bhopal, India. If they had, it would have bankrupted thousands or millions of shareholders. With limited exceptions, the owners of a corporation don’t have any more liability for the corporation’s taxes than for any of its other financial obligations. They can lose their investment if the tax liability exceeds the company’s assets, but nothing more. If that were not the case, no reasonable person would ever accept open-ended liability by investing in any enterprise… and world commerce would grind to a halt.

    Under these principles, the owner/shareholder of Apple Operations International is not liable for that corporation’s debts (including its tax liabilities), and AOI is not liable for the owner’s debts. Why should AOI, as an Irish corporation with headquarters in Ireland, owe U.S. taxes for income held in European banks that was earned by selling products made in China to consumers outside America? Why should Apple, Inc. owe US taxes on undistributed income earned by an overseas corporation just because Apple owns the stock in that corporation? If it were liable, then U.S. shareholders in BP (which is ultimately controlled from Britain) should equally be responsible for paying UK taxes on its undistributed income. Now, Apple is obviously liable for taxes on any funds transferred back to the US parent company from the subsidiary, just as BP shareholders have to pay taxes on any dividend income, but that just recognizes that the two entities are entirely separate for tax purposes.

    Taking advantage of the law in this way isn’t tax evasion, any more than it is for individuals to buy their homes because mortgage interest is deductible while rent isn’t, or for people to get married because unmarried partners can’t average their income for tax purposes by filing a joint return.

  4. There still is the question not addressed by Cook. How is a sale in France say, treated different than one in a South American country, say in Brazil? That was what McCain was trying to get at. To me that is the real question. Too many companies use the Ireland ploy, not just Apple. But it is a dodge non the less.

    1. “Senator Carl Levin’s Entirely Bizarre Thoughts On Apple’s Cash Taxes Paid”

      “Well, yes, of course there were differences. And larger differences as time went on too. Because Apple’s profits were growing strongly in this period.

      The thing to understand here is that the corporate income tax is paid in arrears. After the end of the tax year of the company concerned: to a large extent the actual cash paid in taxes in any one year refers to the profits made in the previous year. ”

      http://www.forbes.com/sites/timworstall/2013/05/22/senator-carl-levins-entirely-bizarre-thoughts-on-apples-cash-taxes-paid/

    2. The idiots in the Senate used 2009 to 2011, Apple reported 2010 to 2012 to the shareholders. We expect screw-ups from the Senate.

      As for the Huffington Post, we are used to their bullshit too.

  5. The point intentionally being missed by the conservative crowd is that Apple did nothing illegal. Otherwise, they, Apple would not be in front of Congress, rather they would be undergoing an audit, paying fines, going to jail as well as dealing with bad press.

    Apple as well as many other US corporations legally take advantage of current tax laws in the US and aboard that allows them to pay lower taxes even as they rake in billions; more, more more…

    Conservatives are always promoting the individual, are now falling over themselves in standing up for corporations especially Apple. Anytime a conservative can stand against taxes, there you’ll find him. Apple and conservatives love playing word games as with “tax gimmicks”.

    When it come to paying your taxes, it is either legal or illegal, illegal gets you audited, fines and jail time, while doing things legally allows, in this case Apple to pay much less taxes.

    Think about that the next time you as an individual you pay your taxes and see if you have such tax laws, tax loopholes or tax gimmicks to take advantage of so you pay less taxes. Meanwhile Apple is using existing tax laws at home and aboard to pass less taxes and at the same time as asking the US to lowers it’s tax burden as it has its products made by modern day slaves in Asia.

    MDN restricts free speech.

    1. The “conservative crowd” here, as you put it, are the ones making the very point you seem to think we’re missing. (At least, the TRUE conservatives.)

      Those who think there’s something wrong with Apple’s tax-related behavior have two choices:

      1) Prove it, using the US Tax Code, in a court of law.

      2) Shut up.

      If you want to press it as a moral issue, that’s fine; only be prepared to publish your own tax return, highlighting the sections where you KNOWINGLY AND PURPOSELY paid more taxes than the law requires, simply because you (or someone else) thought that you had too much money.

      And if there’s a person out there that can create or support over 600,000 USA jobs (read: taxpayers), I’d say that giving them all the incentive I can to create even MORE jobs is a much better use of the tax code than simply raising taxes on them..

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