By Patrick Temple-West and Poornima Gupta
WASHINGTON/SAN FRANCISCO May 20 Using an
unusual global tax structure, Apple Inc has kept
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 said 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.
Apple said in a comment posted online on Monday it does not
use "tax gimmicks." It said the existence of its subsidiary
"Apple Operations International" in Ireland does not reduce
Apple's U.S. tax liability and the company will pay more than $7
billion in U.S. taxes in fiscal 2013.
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.
Lawmakers globally are closely scrutinizing the taxes paid
by multinational companies. In Britain, Google faces regulatory
inquiries over its own tax policies, while Hewlett-Packard Co
and Microsoft Corp have been called to Capitol
Hill to answer questions about their own practices.
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.
In submitted testimony ahead of Tuesday's hearing, Apple
said any tax reform should favor lower corporate income tax
rates regardless of revenue, eliminate tax expenditures and
implement a "reasonable tax on foreign earnings that allows free
movement of capital back to the US."
"Apple recognizes these and other improvements in the U.S.
corporate tax system may increase the company's taxes," it said.
Large U.S. companies boosted their offshore earnings by 15
percent last year to a record $1.9 trillion, avoiding hefty tax
bills by keeping the profits abroad, according to research firm
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.
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. At a
news conference on Monday, Levin said his bill should pass
independent of any broader tax reform push in Congress.
McCain, the top Republican on the subcommittee, told the
joint news conference he would co-sponsor Levin's bill, the
first Republican to support the bill. He called Apple's tax
practices "egregious, and (a) really outrageous scheme."
Similar legislation has been introduced in the House of
Government tax officials from the Internal Revenue Service
and Treasury Department also are scheduled to testify before the
subcommittee on Tuesday.