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Apple CEO Tim Cook appeared before the Senate Permanent Subcommittee on Investigations. Along with Apple’s new Head of Tax Operations, Phillip Bullock, Cook is responding to accusations that Apple is avoiding taxes.
Like many corporations, Apple has billions of dollars in offshore capital. Apple pioneered an accounting technique which involves routing profits through an Irish subsidiary, then the Netherlands, and finally through the Caribbean. This practice is so successful, it has been imitated by several corporations. Beyond the issue of offshore capital, Apple is also in the process of appealing proposed tax adjustments by the IRS.
Cook and Bullock maintain that an overhaul of the corporate tax code is necessary. Apple is actually borrowing money for domestic use, as it is less expensive than repatriating their capital and paying a 35% tax rate. They contend that decreasing the corporate tax rate will allow them to move money onshore and stimulate the economy.
Cook feels that Apple is not doing anything illegal or corrupt. He said “we not only comply with the laws, but we comply with the spirit of the laws”. Apple paid $6 Billion in taxes in 2012, at a rate of 30.5%. This does not include all of their U.S. profits, however, since they are funneled overseas. According to Bloomberg journalist Jesse Drucker, their real tax rate is more like 14%.
Apple is not the most egregious tax dodger, by far. Dozens of Fortune 500 companies pay no corporate tax, due to loopholes that favor heavy industries with fixed capital assets. Apple may be a victim of their success or their lack of influence in Washington. They have deep pockets, and Uncle Sam needs money.
Not everyone in Washington is out to get Apple. Rand Paul, a Republican well-known for his libertarian views, claims that Congress is bullying Apple. He contends that Apple is one of the greatest American success stories. It is unclear what process resulted in Apple being scrutinized, while companies that pay no taxes are ignored.
Apple, a company that has long shied away from politics, is steadily increasing lobbying efforts. In 1999, Apple only spent $180,000 on lobbying. Today, they spend $2 million. This is only a fraction of what tech giants like Microsoft and Google spend to influence policy makers. Like many companies, Apple has found that a little investment in political influence goes a long way.
Corporations keep money offshore to avoid paying taxes in the United States. Apple sells products overseas and has brick and mortar stores throughout the world. Much of the money they hold overseas is obtained through international sales, although much of it is funneled overseas with their “Double Irish” and “Dutch Sandwich” arrangement. (continue…)