US Senate accuses Apple of major tax avoidance

CONSUMER electronics giant Apple yesterday defended itself against accusations that it has avoided paying tax on tens of billions of dollars in profits.
Tim Cook said Apple created jbos for American workers. Picture: GettyTim Cook said Apple created jbos for American workers. Picture: Getty
Tim Cook said Apple created jbos for American workers. Picture: Getty

Chief executive Tim Cook told a US Senate committee that Apple paid all the taxes it owed, complying with both the law and the spirit of the law.

He claimed that last year it paid $6bn to the US Treasury – a tax rate of about 30 per cent.

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He said: “We pay all the taxes we owe – every single dollar. We don’t depend on tax gimmicks.”

Mr Cook told how his company supports 600,000 jobs and was America’s largest corporate taxpayer.

He today testified at a hearing by the Senate permanent subcommittee on investigations, which released a damning report on Apple’s tax practices on Monday.

The head of a Senate committee panel had accused Apple of exploiting an absurdity in its tax payments, branding some of the financial structures it used as the “holy grail of tax avoidance”.

The subcommittee said Apple had used “a complex web of offshore entities” to avoid paying billions of dollars in US income taxes but said there was no indication the firm had acted illegally.

The investigation into Apple’s tax payments comes as other leading global brands are under growing scrutiny over their tax methods.

Google, Amazon and Starbucks have had to answer questions about their tax affairs.

Mr Cook yesterday disputed the claim that his company avoids billions of dollars in US taxes by shifting profits to foreign affiliates.

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The Senate has said Apple paid little or no tax on tens of billions of dollars in profits it had secured in subsidiaries in Ireland.

In a 40-page memorandum, the subcommittee identified three subsidiaries that have no tax residency either in Ireland, where they are incorporated, or in the United States, where those companies are managed.

The main subsidiary, a holding company that includes Apple’s retail stores throughout Europe, has not paid any corporate income tax in the last five years, the report said.

Apple’s arrangement has allowed it to pay just 1.9 per cent tax on its $37 billion (£24bn) in overseas profits in 2012, despite the fact that the average tax rate in the countries of the Organisation for Economic Co-operation and Development, its main markets, was 24 per cent in 2012.

The report said “Ireland has essentially functioned as a tax haven for Apple”.

The Senate report said a subsidiary with a mailing address in County Cork received $29.9bn in dividends from lower-tiered offshore affiliates from 2009 to 2012, comprising 30 per cent of Apple’s global net profits.

It said it exploited a difference between Irish and US tax residency rules.

However, Apple said it did not use “tax gimmicks”. It said the existence of its subsidiary Apple Operations International in Ireland did not reduce Apple’s US tax liability, and the company would pay more than $7bn in US taxes in 2013.

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Mr Cook yesterday told the panel that a “dramatic simplification” of US tax laws was required, and said the firm believed that reform should be “revenue neutral”.

Committee member John McCain said although the action taken by Apple was legal, it could be unfair to other companies: “My question is, couldn’t one draw the conclusion that you and Apple have an unfair advantage over domestic-based corporations and companies, in other words, smaller companies in this country that don’t have the same ability that you do to locate in Ireland or other countries overseas?”

Mr Cook said he believed Apple was one of the largest taxpayers in the US, having paid $6bn in federal corporate income tax in the 2012 fiscal year.

Apple has a cash stockpile of $145bn (£95bn), but the Senate committee said $102bn of this was held offshore.