The US Senate investigation, results of which were disclosed Monday, found that Apple employs a group of affiliate companies outside the United States to avoid paying taxes.
The subcommittee's chairman, Sen. Carl Levin, D-Mich., and other panel members could hold up Apple as an example of a powerful company using its privileged position to avoid taxes while ordinary Americans must pay them. The subcommittee last fall derided executives from other technology giants over similar allegations. MAJOR REPORT UPDATE 2:08 PM EST
The subcommittee's chairman, Sen. Carl Levin is on record stating that "Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven. Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere."
Levin called Apple's strategy "an egregious and really outrageous scheme that Apple has been able to orchestrate to avoid paying taxes." Levin and McCain are proposing legislation to close loopholes in the tax code.
Apple's CEO Tim Cook who is expected to testify before the committee later today is likely to stand by an earlier statement that Apple "complies fully with both the laws and the spirit of the laws," and that "Apple pays all its required taxes, both in this country and abroad." He's also likely to state that "Apple does not use tax gimmicks."
Some of the other Sources Reporting on this Issue
Bloomberg TV Live: Follow the Committee's various testimonies on the issue of corporate taxes. Stay tuned as Apple's CEO Tim Cook and CFO Peter Oppenheimer have yet to testify (as of 11 AM EST).
Bloomberg 1: Apple CEO Cook Talks to Congress as Steve Jobs Never Did
Bloomberg 2: Apple CEO to Take on Lawmaker Statements on Tax Avoidance
The New York Times: Apple's Web of Tax Shelters Saved It Billions, Panel Finds (includes an overview video)
The Reuters: Ireland says not to blame for Apple's low tax rate
Update: CEO Tim Cook Testifies (11:42 AM EST) and CFO Peter Oppenheimer (9:50 AM EST).
The biggest issue pushed by Senator Levin, appears to be Apple holding monies, over one hundred billion, in three Irish Companies who signed agreements in 2008 and 2009 to shift profits away from the US. Intellectual Properties were also shifted to the Irish companies. These companies allegedly hold 100 billion and basically Apple is refusing to bring that money to the US until the US drops their tax rate. These three Irish companies don't pay any taxes on the base funds.
The Senator framed his argument in a way that made Apple a Company holding the US Government hostage until they pay the ransom of lowering the tax rate. Senator Levin was very dramatic in making the point that US Companies are making conscientious decisions to hide money or "shift" money offshore so as to not pay taxes yet receive R&D and other write-offs from the US. The more Apple's Oppenheimer, Cook and head of tax operations Philip Bullock spoke at this juncture, the more they sounded like they were on the ropes.
They were clearly uncomfortable with Levin pushing this issue of creating offshore entities that hold most of Apple's profits outside of the Americas. Apple's Oppenheimer tried to continually state that Apple was just continuing agreements in place for the last 30 years. Yet Levin made the point that the 2008 and 2009 decisions to renew the agreements were at a time when Apple's profits were exploding due to the advent of the iPhone. In other words, Apple's management made the decision to ensure that their new massive profits generated by the iPhone and other modern products outside of the Americas, were to remain in Ireland so as to avoid paying taxes in the US. Levin hammered home that Apple made the decision to selectively bring home profits from the Americas (Canada, Brazil, Mexico etc) yet shift profits outside of the Americas to the three Irish Companies Apple set up for the sole purpose of not paying US taxes.
Senator Levin, a Democrat, earlier stated that "Closing these kinds of unjustified loopholes could provide hundreds of billions of dollars to reduce the deficit and avert damaging budget cuts."
Senator John McCain of Arizona, the panel’s top Republican stated that in the last four years, Apple has avoided paying taxes on $44 billion in income. He called Apple "one of the biggest tax avoiders in America."
Panel number two relating to Apple concluded at 1:30 PM EST.
At the end of the day, if it were Samsung being dragged before a Korean Senate hearing for tax avoidance, most of the Apple community would be calling Samsung a sneaky company showing their true colors. But it was Apple in the hot seat at today's Senate hearing concerning offshore tax issues. So what does the Apple community have to say about this issue now that Apple has spoken? Send in your comments.
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