Leaders of a US Senate subcommittee looking into Apple's offshore cash holdings of over $100 billion began a hearing today featuring Apple CEO Tim Cook by blasting his company's strategy, which they likened to tax avoidance. "By engaging in these elusive corporate strategies aimed at deferring and reducing tax payments, Apple’s tax department has given new meaning to the company’s old slogan: ‘think different,'" said Senator John McCain (R-AZ.), reading from his prepared testimony this morning. Cook and Oppenheimer are testifying now, watch a live stream here.
Both McCain and Senator Carl Levin (D-MI), chairman of the Senate Permanent Subcommittee on Investigations and the architect of the hearing, pointed to three different Apple offshore entities as evidence for their point that Apple was deliberately trying to use loopholes in the US corporate tax code to avoid paying billions on its profits from technology created primarily by people in the US. The three entities — Apple Operations International, Apple Operations Europe and Apple Sales International — claimed no tax residence anywhere in the world.
ASI only paid a small fraction of taxes, less than one percent, to Ireland, despite being primarily managed and run by US-based Apple employees, according to documents collected by the Senate subcommittee. "In 2012 alone, Apple avoided the payment of $9 billion in US taxes, which works out to avoiding $25 million a day, more than $1 million an hour, in taxes," Levin said. Levin and McCain are hoping that the hearing will serve as evidence of why the full Congress needs to pass new laws reforming the US tax code — but lawmakers disagree on whether it should be stricter or looser.
"Instead of Apple executives, we should have brought in here a giant mirror."
Senator Rand Paul (R-KY), for one, launched in to a vigorous defense of Apple, criticizing the hearing and the "byzantine" US tax code itself. "Tell me what Apple's done that is illegal," Paul asked, rhetorically, later adding "if anyone should be on trial here, it should be Congress...I say instead of Apple executives, we should have brought in here a giant mirror, so we can look at the reflection of Congress, because this problem is solely and completely created by the awful tax code." Paul said Congress should vote on his legislation to allow companies to bring back overseas profits at a 5 percent tax rate, and Paul's official Twitter account also posted quotes from his address during the hearing.
To US Senate: I say, instead of Apple executives, you should have brought in a giant mirror if you want to see who is responsible.— Senator Rand Paul (@SenRandPaul) May 21, 2013
To the Apple executives here, I apologize for this theater of the absurd.— Senator Rand Paul (@SenRandPaul) May 21, 2013
Levin immediately countered Paul, raising his voice as he said: "No company should be able to determine how much it's going to pay in taxes, how many profits they are going to keep offshore, how they are going to bring them back home, using all kinds of gimmicks to avoid paying the taxes that should be paid to this country. They make use of this country, they use our law system, they have a right to lobby here for whatever they want to do, and they do lobby here plenty...this subcommittee is not going to apologize to Apple."
"This subcommittee is not going to apologize to Apple."
In fairness, the Senators convening the hearing did not accuse Apple of doing anything illegal, just improper, and many even took time to praise Apple for its innovation and economic contribution. "I think it's important that all of us make it very clear the admiration that we hold for Apple," McCain said, "The incredible changes that Apple has caused in our lives, and the spread of information and capabilities to share information and knowledge throughout the world has been phenomenal, both by Mr.Cook and his predecessor, Mr. Jobs." But they pointed to Apple as an example of the broader problem of other large corporations using tax loopholes to perform similar profit sheltering. Whether or not they can come to any agreement on how to fix it will be a matter for later in the hearing, as Cook is expected to provide his and Apple's ideas for more pro-corporate tax code reform.