The hearing of the Senate Permanent Subcommittee on Investigations started off with some flashes of anger. Republican Sen. Rand Paul of Kentucky had some sharp words after chairman Democratic Sen. Carl Levin delivered his opening statement, saying: "Apple executives want to focus on the taxes it has paid, but the real issue is the billions that Apple has not paid."
Paul declared the subcommittee's objective seemed to be "to bully one of America's greatest success stories. [...] If anyone should be on trial here, it is Congress." He also said "I frankly think the committee should apologize to Apple." All through Paul's comments Levin could be seen becoming increasingly angry. He ultimately told Paul "you are free to apologize if you wish."
Upon release of the report about Apple's dodging taxes Monday, Levin said:
"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. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed."For the most part, senators seemed more into getting their names in the press than asking probing questions, not a habit confined to this particular subcommittee.
No senator accused Apple, which employs tens of thousands of people and paid $6 billion in U.S. taxes in 2012, of breaking any laws. That's one of the problems with the tax code. What the company and dozens of other multinationals do is perfectly legal and the accounting practices are of the sort that causes glazing over among citizens who might otherwise be motivated to press for change.
At the crux of the government's report? Apple's offshore entity, Apple Operations International, is formally based in Ireland. But most of its business is conducted in the United States. From 2009 to 2001, the government report stated, even though AOI's made up 30 percent of Apple's worldwide net income, it paid no U.S. taxes. Please continue below the fold for more on this story.
Brendan Sasso reported:
Apple also used the distinction in Irish and U.S. tax laws to minimize its taxes through two other subsidiaries: Apple Operations Europe and Apple Sales International. In 2011 for example, Apple Sales International paid just $10 million in global taxes on $22 billion in income.Two tax experts, Richard Harvey and Stephen Shay, testified that some better, more balanced and equitable means should be found to deal with what in the business is called "ocean income" that has no tax residence and provides the companies with ways they can simply make profits for tax purposes disappear. Shay noted that changes should be made in ways that are complementary to European tax regulations in order to avoid more tax shifting.
The company also used cost-sharing agreements to shift billions of dollars in economic intellectual property rights to its offshore subsidiaries. But the legal rights to its intellectual property remained in the U.S., allowing the company to take advantage of strong U.S. legal protections, the investigators said.
For some reason, Cook dabbled in patriotism by saying he has always considered Apple to be an American company. And he said he hoped the hearing would lead to comprehensive tax reform because the system has kept up with the digital age, an assessment scarcely anyone can disagree with.
But other his comments rang hollow. David Kocieniewski took a few of these apart at BITS. Among his criticisms:
1) “We don’t rely on tax gimmicks.” The precise definition of the word “gimmick” may be debatable, but Apple’s use of two Irish entities, which it claims are stateless (and help it sidestep $10 billion per year in taxes, according to the Congressional report) would seem to qualify.As have many others, Cook's recommendations for the "repatriating" of billions of dollars in foreign profits (or profits designated as having been earned abroad) is to lower the U.S. corporate tax rate overall and give special consideration when taxing those offshore profits, many of which are offshore in name only. Proving once again that innovative plutocrats are still plutocrats.
2) “We don’t move its intellectual property into offshore tax havens.” Apple’s intellectual property is held by its Irish subsidiary, Apple Operations International, which has no employees or physical presence in Ireland, has received $30 billion in income since 2009 and paid no income tax to any government for the past five years, according to Congressional investigators. [...] What’s more, Apple’s unique agreement hinges on its ability to take advantage of a wrinkle in Irish tax law that allows it to avoid Irish taxes by holding a fraction of its ownership in a shell company called Baldwin Holdings Ltd. in the British Virgin Islands.