Apple CEO Tim Cook and several other executives were not shaken by inquiries from the US Senate over their company's $100 billion in overseas profits that aren't taxed in the US, defending the strategy in a high-profile hearing in Washington, DC, today. "I'm not an unfair person, that's not who we are as a company or who I am as an individual," Cook said after questioning from Senator John McCain (R-AZ).
"We pay all the taxes we owe, every single dollar."
Cook and Apple's head of tax operations Phil Bullock fielded the majority of the inquiries into Apple tax strategy from Senator McCain and Senator Carl Levin (D-MI), the leaders of the Senate subcommittee hearing. The Apple executives, along with chief financial officer Peter Oppenheimer, argued that their company was not only following US tax code to the letter, but that it was actually the leader in paying corporate taxes in the US.
"We pay all the taxes we owe, every single dollar," Cook said, reading from his prepared testimony, later adding "Apple pays 30.5 percent of its profits in taxes in the United States," and that it paid the rest of the taxes it owed on products sold abroad. Cook and Bullock pointed out that most of the Apple subsidiaries, including the Ireland-based holding company Apple Operations International (AOI), had been set up in the early '80s, decades before even the iPod was launched, and they were designed to comply with all international and US regulations. "AOI is nothing more than a holding company that has been set up as an efficient way to manage Apple's cash," Cook said.
But Senators were looking at AOI and two other Apple subsidiaries that each paid no corporate income taxes in the US, and which only paid a small percentage of taxes under Irish law. Levin repeatedly asked whether these subsidiaries were "functionally managed and controlled in the US," and Cook and Bullock both agreed that they were. The disagreement seemed to be over whether Apple was in its rights to keep money under its the names of its subsidiaries overseas, when most of the employees and management were located in the US, specifically Cupertino, California, where Apple is headquartered.
Cook countered that one Apple subsidiary had over 4,000 employees in Ireland, and that a "significant amount of decisions" were made by these employees about Apple's European operations. Overall, Cook appeared calm and confident in Apple's strategy, and even offered the company's help to the US government on reforming the US corporate tax code to lower the effective tax rate but also incentivize Apple and other lucrative companies to bring more money back to the US, where they would end up paying more than they do now. "I'd really like for comprehensive tax reform to be passed this year, and any way Apple can help do that we're ready to help," Cook said.
"why the hell [do] I have to keep updating the apps on my iPhone all the time?"
There was a brief moment of levity from McCain, who asked Cook: "What I really wanted to ask was, why the hell I have to keep updating the apps on my iPhone all the time, and why you don't fix that?" Cook responded: "Sir, we're trying to make them better all the time."
Cook was also asked by Senator Kelly Ayotte (R-NH), what he would recommend in terms of reforming the tax code. Cook responded that he thought the US corporate tax rate should be in the "mid-20s" percent, and that the rate for bringing overseas earnings "would need to be a single-digit number," in line with Senator Rand Paul's (R-KY) plan to tax foreign earnings at five percent. Currently, the top US corporate tax rate is 35 percent, even for foreign earnings brought back to the country.
Levin pushed Cook and Bullock about Apple's global accounting, pointing to the fact that Apple did pay US corporate income taxes on all North American profits, including those generated from product sales in Canada and Mexico. But he also observed that Apple paid no such US corporate income taxes on European and Asian sales.
"All of the profit on all the products we sell in the United States is taxed in the United States," Cook countered. Cook's portion of the hearing concluded around 1:30 pm EDT, but without any sense from the Senate that they would move to act on his suggestions for reforming US tax policy. But Cook and Apple's executives succeeded in driving home the point that it was US tax code, not their company, that is the real issue behind the tax dispute. The ball is back in lawmakers' court for now.