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Apple to tell Senate it pays every cent of its taxes

Dan Moren | May 21, 2013
Tim Cook's taking on the tax man. On Tuesday, the Apple CEO will appear before the U.S. Senate's permanent Subcommittee on Investigations to discuss that body's look into multinational companies and how they pay taxes. As a special preview to those who really can't wait to hang on Cook's every word, Apple on Monday released its head honcho's testimony.

Tim Cook's taking on the tax man. On Tuesday, the Apple CEO will appear before the U.S. Senate's permanent Subcommittee on Investigations to discuss that body's look into multinational companies and how they pay taxes. As a special preview to those who really can't wait to hang on Cook's every word, Apple on Monday released its head honcho's testimony.

Those searching for even the merest hint of Apple's future plans will want to find another tree up which to bark: the 18-page testimony deals almost exclusively the relatively dry subjects of Apple subsidiaries, the company's corporate structure, and its broad suggestions for overhauling the federal tax system. Given that, it's no surprise that Cook will be joined by Peter Oppenheimer, the company's CFO, and Phillip Bullock, Apple's head of tax operations.

In its testimony, Apple begins by stressing that as one of the largest companies in the U.S., it provides a huge benefit to the economy. Included in the numbers the company tosses around are estimates of how many jobs it supports or has created in the U.S. (approximately 600,000, including 50,000 of its own employees and around 290,000 related to the company's so-called "App Economy"), the large sums it's paid out to app developers (more than $9 billion), and the company's fiscal year 2012 tax bill (almost $6 billion, which it estimates will rise to more than $7 billion for fiscal year 2013). The last, Apple says, likely makes it the largest corporate income tax payer in the U.S.

Apple strenuously asserts that it pays every cent it owes, both to the U.S. government and to the governments of other countries in which it does business. The most significant of those is Ireland, in which Apple has five--count 'em, five--subsidiaries, each of which the company says adhere to the letter and spirit of the law; Apple says it doesn't use tax gimmicks, such as offshore accounts in the Cayman Islands or Caribbean nations, and its large foreign holdings are simply due to the fact that the majority of its revenue--61 percent last year--are generated internationally.

Those Irish subsidiaries take up a lot of time in Apple's testimony; the earliest of them, Apple Operations International (AOI), was founded in 1980, and features cost-sharing agreements made in that year that allow Apple to fund research and development jobs in the U.S. However, the company staunchly avows that AOI and its other subsidiaries do not reduce Apple's U.S. tax liability.

Throughout, the company stresses that all the decisions it has made are done to better serve its shareholders, both in terms of letting it easily (and cheaply) use foreign money to fund overseas operations, as well as by returning more money to its shareholders through its capital return program, which it recently expanded. In particular, the company addresses its much-criticized decision to issue a bond and take on debt to fund its ambitious capital return, rather than bringing its overseas cash back into the U.S.:

 

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