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Apple defends offshore decisions that result in low taxes

Grant Gross | May 22, 2013
The company pays every tax dollar it owes, Tim Cook tells senators during a hearing.

When Apple released testimony saying it used no tax gimmicks, "I almost fell out of my chair when I read that," added Richard Harvey, a tax professor at the Villanova University School of Law School and former official with the Treasury Department and the U.S. Internal Revenue Service.

The current U.S. tax system allowing Apple to arbitrarily shift about two-thirds of its profits to the Irish subsidiaries needs to be fixed, added Senator Carl Levin, a Michigan Democrat and subcommittee chairman.

"We can't continue a system where a multinational company as phenomenally successful as yours ... can make a decision as where the profits are going to flow," Levin told the Apple executives. "You made a unilateral decision [about] where these profits are going to be taxed or not taxed."

Cook also called for tax reform in the U.S. The U.S. tax system is too complex and a high tax rate of 35 percent discourages U.S. companies from bringing foreign earnings back into the country, he said. "The tax system handicaps American corporations, in relation to our foreign competitors, who don't have such constraints on the free movement of capital," Cook said.

Congress should lower the U.S. corporate tax rate and allow a "reasonable" tax in the single-digit percentages on foreign earnings brought back into the U.S., Cook said.

Some subcommittee members defended Apple, saying executives have a responsibility to shareholders to maximize profits and minimize taxes paid.

"Frankly I'm offended by the tone and tenor of this hearing," said Senator Rand Paul, a Kentucky Republican. "I'm offended by a $4 trillion government bullying, berating and badgering one of America's greatest success stories. Tell me one of these politicians up here who doesn't minimize their taxes."

The purpose of the hearing wasn't to embarrass Apple, but to show the need for tax reform, Levin countered. Cook said he testified voluntarily in an effort to push for tax reform and didn't feel bullied by senators.

 

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