Apple Inc has called for US corporate tax rates to be reduced to “single digits” after it admitted sheltering at least US$30 billion of international profits in Irish subsidiaries that pay no tax at all.
In a dramatic display of how threats from multinational corporations are driving down taxes across the world, Apple Inc chief executive Tim Cook warned the US Congress that he would refuse to repatriate a total of US$100 billion stashed offshore unless it acted to slash the 35 percent US corporate tax rate.
He also revealed that Apple had struck a secret deal with the Irish government in 1980 to limit its domestic taxes there to 2 percent.
Three subsidiaries based in Ireland are also used to shelter profits made in the rest of Europe and Asia but are not classed as resident in any country for tax purposes.
Cook’s testimony to a US Senate subcommittee investigating multinational tax practices largely confirmed its findings that Apple had taken tax avoidance to a new extreme by structuring these companies so they did not incur tax liabilities anywhere.
Phillip Bullock, the California-based company’s head of tax, estimated that just one of these subsidiaries — Apple Operations International — had channeled US$30 billion in global profits over the last five years without filing a single income tax return.
The only taxes paid were on the interest earned by the cash pile and small sums in local markets. Senate investigators allege a total of US$70 billion has been sheltered this way in four years.
Despite heated exchanges with committee chairman Carl Levin, Apple largely shrugged off criticism, insisting it was acting “in the letter and the spirit of the law.”
An independent tax professor, Richard Harvey, testified that its tax avoidance was “probably legal” and could have been much more aggressive.
The Apple chief used his appearance to renew lobbying for the US Congress to cut a deal with multinationals to encourage them to bring back, or repatriate, the billions of dollars kept offshore to avoid tax.
Cook said he had no plan to bring back the US$102 billion built up by Apple.
“I have no plan to do so at the current tax rates,” he said.
“Unlike some technology companies, I am not proposing a zero rate,” he added. ”
Cook was even defended by some members of the committee who accused Levin and Republican John McCain of “bullying” Apple.
“I am offended by the tone and tenor of this hearing,” fellow Republican and presidential hopeful US Senator Rand Paul said.
The hearing was seen as a watershed in the increasing tense clashes between governments and multinationals, particularly technology groups such as Apple, Amazon.com Inc and Google Inc.
“Apple is not an outlier in its efforts to produce ‘stateless income’ — income that is taxed neither in the United States nor in the countries where its foreign customers are located — but it is an outlier in the baldness of its strategies. Apple shifted tens of billions of dollars of income without even breaking into a sweat,” said Edward Kleinbard, professor of law at USC Gould School of Law.
Corporate tax expert Jennifer Blouin at University of Pennsylvania’s Wharton business school said the Apple revelations were “extraordinary but not surprising.”
“We have seen versions of this with Microsoft [Corp] and with Google,” she said. “I hope it gooses the notion that we need to fix the worldwide system.”
She said Apple was working within the law but that the law was written before huge profits could be made by companies that trade not in goods and manufacturing but in ideas.
“I have worked in this area for years and it’s been largely an obscurity. But it’s at the forefront now, and it needs to get fixed,” she added.