In a dramatic display on how multinational companies are dictating taxation polices around the world, Tim Cook warned Congress he would refuse to repatriate a total of $ 100 billion stashed offshore, unless the government reduces the corporate tax rates from 35 %. to mid twenties. The Senate committee released a report on Monday (20th May) that held Apple as an example of the legal tax avoidance permitted by the U.S. tax code. It estimates that Apple avoided nearly $ 3.5 billion in U.S. federal taxes in 2011 and & $ 1.9 billion in 2012 through its tax strategies, which includes a complex setup of Irish subsidiaries as being a key element of this strategy. Cook denied this statement released by the Senate; he said “The subsidiaries have nothing to do with the U.S. taxes. Rather, the company avoided paying the 35 percent federal tax rate made overseas by not bringing those profits back to the U.S., a common practice it shares with other Multinationals. In a strong statement he told “We pay all the taxes we owe – every single dollar” “We don’t depend on tax gimmicks”. Apple’s I-phone fuelled profits mean that it has nearly $102 billion cash stashed overseas than any other company. Cook, known for his hard talk, made the facts clear when he said Apple provides employment to nearly 600,000 people and is the largest corporate tax payer in the U.S. This was the first instance where an Apple CEO testified himself before a Senate committee. Tim Cook appeared before the committee along with CFO Peter Oppenheimer and head of tax operations Phillip Bullock.
Senator Carl Levin, chairing the hearing, said the investigation found a ‘disturbing pattern of shifting profits”. Mr. Levin opined that Apple shifted the most valuable thing in its possession “intellectual property rights”. The Michigan democrat viewed that Apple assigned its ‘crown jewels’ or intellectual property rights to three Irish subsidiaries controlled by Apple.
Apple’s Tax Strategy
Apple uses five companies which are in Ireland to carry out its tax strategy, as per the Congressional report. The companies are located at the same address in Cork, Ireland, and they share members of the board of directors. While all the five companies are incorporated in Ireland, only two of them have tax residency in that country. This means the other three are not required to pay tax in the U.S. legally as they are not managed or controlled in that country. The report further says that Apple capitalizes on a difference between U.S. and Irish rules regarding tax residency. In Ireland, a company must be managed and controlled to fall under the gambit of tax. Under U.S. law, a company is a tax resident of that country in which it was established. Therefore, Apple companies are not tax residents of Ireland, as they are incorporated in U.S. Senator demands apology for Apple
Senator Rand Paul, an anti-tax hawk, denounced the hearing, saying he was offended by a $ 4 trillion government bullying and badging of one of the greatest success stories of America. He insisted the subcommittee apologize to Apple for unfair scapegoating. Richard Harvey, a Villanova University Law Professor, told the hearing, “I suspect what Apple has done is within the bounds of international law”.
Cook urges to reduce corporate taxes in U.S.
The chief executive officer of the Californian based I-phone maker urged “A permanent change is materially better than a short term tax holiday”. Apple’s tax strategy comes at a time where there is a fevered debate in Washington on how to raise revenues to reduce the fiscal deficit. Republicans are favoring a tax cut, a wise strategy to encourage companies to invest in U.S.