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Apple boss faces inquiry on taxes


Apple has been accused of avoiding US taxes

Apple has been accused of avoiding US taxes

PA Archive/Press Association Images

Apple has been accused of avoiding US taxes

Apple's CEO has disputed assertions by a Senate panel that the company avoids billions of dollars in US taxes by shifting profits to foreign affiliates.

Tim Cook testified at a hearing on Tuesday by the Senate Permanent Subcommittee on Investigations, which released a report on Monday attacking Apple's tax practises.

"We pay all the taxes we owe - every single dollar," Mr Cook said. "We don't depend on tax gimmicks."

Mr Cook, who is more accustomed to commanding a stage in front of investors and techies than facing a congressional committee, took a defensive tone with his opening statement. He punched out words when stressing the 600,000 jobs that the company supports while adding that Apple is the nation's largest corporate taxpayer. Mr Cook advocated an overhaul of the US tax code.

At the same time, Mr Cook said he was happy to appear in the spotlight of a congressional hearing to be able to give Apple's side of the story. "I'm saying it's who we are as people. ... Wherever we are, we're an American company," Mr Cook insisted when asked about Apple's use of affiliate companies in Ireland.

The six billion dollars (£3.9 billion) in taxes that Apple says it paid in fiscal 2012 works out to 16 million dollars (£10.5 million) a day. The subcommittee's report estimates that Apple avoided at least 3.5 billion dollars (£2.3 billion) in US federal taxes in 2011 and nine billion dollars (£5.9 billion) in 2012 by using its tax strategy, and described a complex set-up involving Irish subsidiaries as being a key element of this strategy.

But Mr Cook said the Irish subsidiaries do not reduce the company's US taxes at all. Rather, they manage cash earned overseas. If that cash were to be repatriated to the US, it would be subject to US taxes. Like other multinationals, Apple chooses to keep cash overseas so as not to pay the 35% US corporate tax rate. Apple is holding overseas 102 billion dollars (£67 billion) of its total 145 billion dollars (£95 billion) in cash.

Mr Cook reaffirmed Apple's position that given current US tax rates, it has no intention of repatriating its overseas profits to the US. He appeared with Apple CFO Peter Oppenheimer and head of tax operations Phillip Bullock.

Senator Carl Levin, the panel's chairman, said Apple's use of loopholes in the US tax code is unique among multinational corporations. Apple uses five companies located in Ireland to carry out its tax strategy, according to the report. The companies are located at the same address in Cork, Ireland, and they share members of their boards of directors. While all five companies were incorporated in Ireland, only two of them also have tax residency in that country. That means the other three are not legally required to pay taxes in Ireland because they are not managed or controlled in that country, in Apple's view.

The report says Apple capitalises on a difference between US and Irish rules regarding tax residency. In Ireland, a company must be managed and controlled in the country to be a tax resident. Under US law, a company is a tax resident of the country in which it was established. Therefore, the Apple companies are not tax residents of Ireland nor of the US, since they were not incorporated in the US, in Apple's view. "Apple is exploiting an absurdity," Mr Levin said at the start of the hearing.