WASHINGTON May 20 Using an unusual global tax
structure, Apple Inc has held billions of dollars in
profits in Irish subsidiaries to pay little or no taxes to any
government, a U.S. Senate report on the company's offshore tax
structure concluded on Monday.
In a 40-page memorandum released a day before Apple CEO Tim
Cook is scheduled to testify before Congress, the Senate's
Permanent Subcommittee on Investigations identified three
subsidiaries that have no "tax residency" in Ireland, where they
are incorporated, or in the United States, where company
executives manage those companies.
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 subsidiary, which has a Cork, Ireland, mailing address,
received $29.9 billion in dividends from lower-tiered offshore
Apple affiliates from 2009 to 2012, comprising 30 percent of
Apple's total worldwide net profits, the report said.
"Apple has exploited a difference between Irish and U.S. tax
residency rules," the report said.
Ahead of Tuesday's hearing, Apple said on Monday it does not
use "tax gimmicks" and that the company will pay more than $7
billion in U.S. taxes in fiscal 2013.
Apple defended the main subsidiary highlighted by the
subcommittee's report, saying it does not reduce Apple's U.S.
tax liability, the company said in a comment posted online as
part of Tuesday's prepared remarks.
Subcommittee staffers said on Monday that Apple was not
breaking any laws and had cooperated fully with the
CODE OVERHAUL SOUGHT
Tuesday's hearing is the second to be held by Senator Carl
Levin, a Michigan Democrat and chairman of the subcommittee, to
shed light on the weaknesses of the U.S. corporate tax code.
Levin has sought to overhaul the code in Congress.
In September, the subcommittee scrutinized the offshore tax
structures of Microsoft Corp and Hewlett-Packard
. Committee staffers said they did not find similar
subsidiaries set up for stateless tax bills at those two
Apple also uses two conventional offshore tax practices
typical of multinational companies' tax-avoidance strategies,
the report said.
Multinational corporations value goods and services moving
across international borders from one corporate unit to another.
Known as "transfer pricing," these moves are frequently managed
to reduce corporations' global tax costs.
Corporations must pay the top U.S. 35-percent corporate tax
on foreign profits, but not until those profits are brought into
the United States from abroad. This exception is known as
corporate offshore income deferral.
Apple's tax structure highlights flaws in the U.S. corporate
tax code so that Congress "can effectively close the loopholes
used by many U.S. multinational companies," Arizona Senator John
McCain, the subcommittee's top Republican, said in a statement
Levin, who announced he will retire at the end of 2014,
introduced legislation in February to close tax loopholes. So
far, the bill does not have any Republican co-sponsors. Similar
legislation has been introduced in the House of Representatives.
Government tax officials from the Internal Revenue Service
and Treasury Department also are scheduled to testify before the
subcommittee on Tuesday.