Cook defends use of offshore tax shelter

Apple chief executive Tim Cook has defended his company’s use of offshore tax shelters before US senators who castigated the most-valuable technology company for avoiding $9bn and more in payments.

“We pay all the taxes we owe — every single dollar,” Cook said in testimony yesterday to the Senate Permanent Subcommittee on Investigations. “We not only comply with the laws, we comply with the spirit of the laws.”

Senator Carl Levin used the hearing to say Apple used “loopholes” to avoid paying $9bn (€7bn) in US taxes in 2012.

“Apple executives want the public to focus on the US taxes the company has paid, but the real issue is the billions in taxes it has not paid,” said Levin, a Michigan Democrat.

Apple employs “offshore tax strategies whose purpose is tax avoidance, pure and simple,” he said.

Yesterday’s hearing was called to air accusations the iPhone, iPad and iPod maker has created a web of offshore entities to avoid paying US taxes. Other large US companies also keep profits offshore, but Apple was the focus of the Senate probe.

Apple, in written testimony, denied any wrongdoing and said the company was one of the largest taxpayers in the US, having paid $6bn last year. Cook called for a simplified US corporate tax code that would allow capital to flow back to the US, “fully recognising that this would likely result in an increase in Apple’s US taxes.”

In almost two hours of testimony, Cook sat before television cameras and fielded questions from senators, at times sparring with them.

“You point out, and accurately so Mr Cook, that 95% of the creativity that goes into those products is in California,” Levin said. “But two-thirds of the profits, in Ireland.”

Apple CEO Tim Cook said The skills of Apple’s 4,000 people in Ireland are fundamental for understanding the European market and for reselling.

“Senator, we’re proud that all of our R&D or the vast majority is in the United States,” Cook said.

“I know, but the profits that result from it are sitting in Ireland in corporations that you control that don’t pay taxes,” Levin said. “You ought to be proud!”

In the last four years, Apple has avoided paying taxes on $44bn in income, said Senator John McCain, the panel’s top Republican.

Three entities set up in Ireland hold 60% of Apple’s profits and claim to be tax residents “nowhere in the world,” McCain said. “It’s completely outrageous.”

Senator Rand Paul, a Kentucky Republican, said Apple was dealing with an “awful” tax code.

Apple shares dropped $3.27 or 0.7%, to $439.66 at 4pm New York time. Some of the largest U.S.-based companies expanded their untaxed offshore stockpiles by $183bn in the past year, increasing such holdings by 14.4%.

Microsoft, Apple and Google Inc. each added to their non-US holdings by more than 34% as they expanded on prior tax manoeuvres to earn and park profits in low-tax countries.

Apple’s relationship with the offshore affiliates isn’t arms’ length, the probe found. Apple has $102 billion in offshore accounts and shifted billions in profits out of the U.S. into affiliates based in Ireland, where it negotiated a tax rate of less than 2%, according to a report by the panel. Levin yesterday labelled them ghost companies.

- Bloomberg