A US Senate investigation has found that Apple avoided billions of dollars in taxes through a complex scheme of subsidiaries scattered around the globe, some with no employees and run by top execs back in its Cupertino headquarters.
"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven," said Senator Carl Levin, The New York Times reports. "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 is a Democrat from Michigan, but the Apple excoriation was bipartisan. "Apple claims to be the largest US corporate taxpayer," said Arizona Republican John McCain, "but by sheer size and scale, it is also among America's largest tax avoiders."
McCain also said that Apple is "purposefully depriving the American people of revenue" by using a "byzantine" tax structure, according to ABC News.
According to the NYT, in 2011 one of Apple's subsidiaries, located in Ireland, paid a mere 0.05 per cent in tax on $22bn in revenues. Another subsidiary did not even file tax returns – anywhere. The NYT reports that group "paid almost nothing on $30 billion in profits since 2009."
Also according to the NYT, the investigators from the rather ominously named Senate Permanent Subcommittee on Investigations, which Levin chairs, say that Apple's tax strategy moved "at least $74 billion" out of the reach of the IRS between 2009 and 2012.
Apple's cash reserves stood at over $145bn as of its last financial report, about $100bn of which is held offshore.
The investigators' findings come one day before Apple CEO Tim Cook is scheduled to appear at a hearing of the Subcommittee, and on Monday Apple released the text of the statement he will deliver at that hearing. Needless to say, Apple defines its tax activities in terms somewhat less harsh than do Levin and McCain.
"Apple ... employs tens of thousands of Americans, creates revolutionary products that improve the lives of tens of millions of Americans, and pays billions of dollars annually to the US Treasury in corporate income and payroll taxes," Cook will tell his inquisitors.
"Apple complies fully with both the laws and spirit of the laws," the statement reads. "And Apple pays all its required taxes, both in this country and abroad."
That statement goes on to describe Apple as a "powerful engine of job creation in the US," one that "pays an extraordinary amount in US taxes," "does not use tax gimmicks," and is "an American success story."
Concerning the Irish question specifically, the statement says, "Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US to avoid US tax, nor does it use revolving loans from [Controlled Foreign Corporations] to fund its domestic operations."
So what's the problem, then? We'll learn more at Tuesday's hearing, most likely, after Monday's traditional "Let's fight it out in the press first" dueling press releases, statements, and leaks.
But one thing is certain through all this back-and-forth: the US corporate tax code – hell, the entire US tax code – is broken. Riddled with loopholes, obfuscated in thousands of pages of legalese, and larded with well-paid-for special-interest exemptions, the tax-law morass makes the Augean stables – the clean-up of which having been Hercules' fifth labor – look as immaculate as a surgically sterilized operating room.
In fact, this entire corporate-tax dust-up – about which Google Eric Schmidt has also weighed in – is a prelude to the real battle: modifying the tax code to make it more business-friendly – or, as Cook will tell the Subcommittee on Tuesday, "to dramatically [simplify] the US corporate tax system."
To that end, Cook will tell the hearing that a new tax code should:
• Be revenue neutral;
• Eliminate all corporate tax expenditures;
• Lower corporate income tax rates; and
• Implement a reasonable tax on foreign earnings that allows free movement of capital back to the US.
Referring to Apple's use of "stateless" subsidiaries to avoid US taxes, one tax-law expert told the NYT, "There is a technical term economists like to use for behavior like this. Unbelievable chutzpah." ®