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  (Source: Reuters)
Ireland also blasts U.S. criticism of "tax sheltering"

The Democratic-controlled U.S. Senate has turned its attention to Apple, Inc. (AAPL) by focusing on the low effective tax rates paid on the profits hauled in by the tech industry's most profitable firm.  Today as Apple's CEO Tim Cook -- who once suggested Apple has more money than it knows what to do with -- was grilled by Congress on his so-called "Double Irish With a Dutch Sandwich," which allows Apple to cut taxes by directing profits through low-cost Irish subsidiaries, the Netherlands and the Caribbean. However, Irish officials and some U.S. conservatives returned fire.

I. Irish Say Senate's Numbers Are Wrong

Apple's cash pile may grow to $170B USD by the year's end which is about 1 percent of the national debt of the U.S. Officially, U.S. tax rates on corporate profits hover around 18-20 percent after deductions, but Apple is accused of paying far less via using shell companies in low tax regions.

But in an interview with Irish news agency RTE Deputy prime minister Eamon Gilmore slammed accusations of wrongdoing, remarking, "They are issues that arise from the taxation systems in other jurisdictions, and that is an issue that has to be addressed first of all in those jurisdictions." 

A spokesman for Ireland's finance department said the nation's system was fully transparent and statute based.  He stated resolutely that there was "no possibility of individual special tax rate deals for companies."

A spokeswoman for Ireland's Office of the Revenue Commissioners adds, "All companies in Ireland pay the standard 12.5 percent rate on their trading profits arising in Ireland, and they pay a corporation tax rate of 25 percent on their Irish non-trading income."

Apple Operations
Apple Operations Inc. (A.O.I.) in Cork, Ireland reportedly received $29.9B USD in profits between 2009 and 2012, and paid less than 2 percent in taxes. [Image Source: Reuters]

Irish citizens are also defensive about the country's strategy of snagging multinational companies' outposts via low tax rates.  They say the nation's unemployment issues would be worse if it were not for companies like Apple.  Comments one worker to Reuters, "We're a small country and feel we can't say no. We know they'll just go off to one of these Asian countries ... They're a law unto themselves."

Apple maintains a three-story office building in Cork, which is currently receiving a shining new glass-and-steel expansion, funneling money to local builders and contractors.  Apple also directly employs 2,800 in Cork, and has promised to add another 500 employees shortly.

But according to the 40-page Senate memo released before the hearing, Apple hides much of its income in a trio of Irish subsidiaries that have no official tax residency in Ireland.  The Senate memo claims Apple has paid an effective rate of around 2 percent for the last ten years, versus the aforementioned "official" rate of 12.5 percent.  The report claims that between 2009 and 2012 Apple affiliates funneled $29.9B USD in profits -- or roughly 30 percent of profits -- into the Cork subsidiaries.

The average tax rates of the Organisation for Economic Co-operation and Development (OECD) -- whose member states include most of the nations Apple operates in -- had an average tax rate of 24 percent in 2012, yet Apple only paid 1.9 percent that year on its $37B USD in overseas profit that year, thanks to its clever positioning.  The memo comments, "Ireland has essentially functioned as a tax haven for Apple."

Ireland's European Affairs minister Lucinda Creighton claimed the Senate's figure of a 2 percent rate in Ireland was flat-out wrong.  She comments, "There is no such deal. There is no deal for any company to pay 2 percent corporate tax in Ireland - that is erroneous."

But Apple's accounting firm Ernst & Young LLP refused to confirm or deny the number, saying it was confidential information.

II. Conservatives in the Senate Blast Hearings

Scrutiny picked up steam in April 2012, following a report in The New York Times accusing Apple of dodging millions of dollars in taxes in California and 20 other U.S. states (and dodging billions of dollars in taxes worldwide).  Over the past year, British Parliamentarians have held hearings regarding Apple's behavior.

According to their figures Apple pocketed £6B ($9.50B USD) in profit from the British market last year, but paid only £10M ($15.8M USD) in taxes.  Apple in a statement denied it engaged in "tax gimmicks" and said it would pay $7B USD in the U.S. in taxes in fiscal 2013.

The Congressional hearing took place this afternoon.

In the hearing Tim Cook -- accompanied by Apple's Head of Tax Operations Phillip A. Bullock -- admits, "I have no current plan to bring them back at the current tax rate."

On Apple Operation Int'l, Tim Cook said, "[A.O.I.] is nothing more than a holding company — it’s not an operating company.  [A.O.I.] is nothing more than a company that has been set up to provide an efficient way to manage Apple’s cash from income that’s already been taxed.  In my view A.O.I. does not reduce U.S. taxes at all."

Tim Cook
Apple CEO Tim Cook defended his company at the hearing. [Image Source: Reuters]

He says Apple pays tax on profit from every single product it sells in the U.S.

Senator Carl Levin (D-Mich.) remarked, "The only reason you’re not bringing them home is because they were transferred to these three Irish companies.  That’s the reason why they’re there. It’s your decision not to bring those profits home, so now $100 billion plus is stashed away in those three Irish companies that you control but is nonetheless in their legal name. The question is, will you bring them home?"

He points to an Apple subsidiary to paid only $5B USD back to Apple's U.S. operations, but received a reported $74B USD in profit -- a net tax loss of almost $70B USD in taxable income for the U.S.

Sen. Levin suggests Congress should play debt collector, trying to recoup the lost taxes from Apple's cash pile.  And he believes it is possible to do so under the current law.  He comments, "It is possible to penetrate an entity’s corporate structure for tax purposes and to collect U.S. taxes on its income, [if it is shown that a foreign subsidiary is] nothing more than instrumentality of its parent company, a sham."

Some conservatives joined in the fray.  Sen. John McCain (R-Ariz.), a former Republican presidential nominee, remarked that, "Apple has violated the spirit of the law if not the letter of the law."

John McCain
Sens. John McCain (R, right) and Levin (D, left) were not satisfied with Mr. Cook's answers.
[Image Source: AP]

He argued, though, that the onus was on Congress to perform "comprehensive reform" of the tax system.

III. Sen. Paul Wants Apology From Congress, Reform

But Senator Rob Portman (R-Ohio), countered that Apple's South Korean rival Samsung Electronics Comp., Ltd. (KSC:005930) pays the same effective rate as Apple globally -- 14 percent.  But he comments that the real problem is the high tax rate in the U.S. -- he points out that South Korea's lower tax rate allows it to return its profits home.

Villanova University Law School Professor J. Richard Harvey Jr. seemed to echo this perspective in testimony as an expert witness.  While he accused Apple of dodging $7.7B USD in U.S. taxes, he complained that the U.S. tax code makes returning money onerous.  He suggested a "long term solution" of lowering the tax rate on overseas profits returned to the U.S. to 15 percent.

Tim Cook agrees.  In his testimony, he comments, "Unfortunately the tax code has not kept up with the digital age."

One of Mr. Cook's biggest defenders was Sen. Rand Paul (R-Kent.).  He said Apple should be cheered for, not "vilified", remarking, "Money goes where it is welcome.  Everybody talks about tax reform. Just do it."

Sen. Rand Paul
Sen. Rand Paul defended Apple and said Senate Democrats -- as well as some Republicans like Sen. McCain should be ashamed and owe Apple a big apology. [Image Source: The NYT]

On Twitter he posted:

While the debate is unlikely to be laid to rest easily, it should be noted that many other companies like Microsoft Corp. (MSFT) and Google Inc. (GOOG) also shelter money in Ireland.  Google recently came under fire for dodging about $1.6B USD USD (£1B) in taxes by way of the island Bermuda. Google sent £6B ($9.6B USD) through Bermuda over the course of last year, which halved its 2011 tax bill.

Other top companies like Starbucks Corp. (SBUX) and, Inc. (AMZN) also are accused of using Caribbean, European, or Asian tax havens.  Of course, such tactics could be argued to actually be performing a key duty to shareholders -- minimized taxes under the law and maximizing profits.

Sources: The New York Times, Reuters

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

By cactusdog on 5/22/2013 11:08:02 AM , Rating: 1
Its so typical how all these conservatives come to the defence of these irresponsible corporations who are ripping off society. Changing the topic to blaming the government(again). US corporations are paying very little tax.

GE (general electric) one of the biggest of them all pay around 1.6% tax. Apple, Google and most US corporations are paying similar amounts, no where near the tax they claim.

In the 1950's ( you know the good old conservative days) corporations used to pay 60% towards government revenue...AND they provided jobs for the masses. Today, corporations contribute 6% to government revenue and all the manufacturing is done off shore, mainly in China. So not only have their wages bill been slashed to next to nothing, they pay no tax too. Then the conservatives tell us its all the government's fault??...and debt is the result of all those liberal food stamps? What a joke. Its the biggest con going around.

Then you have these conservative frauds like Rand Paul and the tea party, pretending to be a libertarian when they are just bought and paid Koch brothers agents spreading disinformation and anti-government rhetoric for the sake of their corporate masters.

Americans are being conned. The US has been running with conservative policy since the 1980's, and even with all these corporate benefits, welfare and deregulation, the country is still going down the drain economically, that lead to a total collapse of the economy in 2008.

This happened in a country with a non-existant welfare system, no universal healthcare and corporations that don't have to pay tax. Meanwhile in other countries like in Europe, with a full welfare system and universal healthcare, debt levels, unemployment etc is in better shape in countries like Germany and france.

Whats the message out of the US?? Screw the masses even more, start taking away their social security, medicare etc etc. What a joke.

The problem is most Americans are ignorant of the rest of the world, and they get drip fed this right-wing propaganda that makes them think they have the best system in the world. Well you don't. No country on earth wants to emulate the US health system. No country on earth wants to emulate the US political system of the "corporate states of America" Where the corporations buy the politicians and the people come last.

As an example Americans are brainwashed to think private health is "freedom", even though millions cant afford it, and even if you can afford it, you could go broke if you get a terminal illness like cancer.
I live in a country with a universal healthcare system and a private healthcare system, working side by side. People have a choice which one they want to use. That's true freedom to me.

I support capitalism, but the US gives capitalism a bad name. Apple are sitting on BILLIONS of dollars they don't know what to do with but the conservatives think they need more help and breaks.Everyone has a responsibility and everyone needs rules. I hope the people wake up to the conservative lies and propaganda before its too late.

RE: crime
By BRB29 on 5/22/2013 11:28:24 AM , Rating: 2
I think the irony here is that the politicians were paid off to make all these laws and loopholes. Now it created so many problems and they blamed the same people that paid them. So who is to blame? It's easy to point your finger at a scapegoat but the reality is everyone is to blame.

RE: crime
By Dorkyman on 5/22/2013 11:36:44 AM , Rating: 2
I think what we have here is a "parallel-universe" thing going on. So many errors in fact and logic in one statement. I appreciate the earnestness of your point of view, but strongly suggest a broadened reading list.

RE: crime
By PontiusP on 5/22/2013 12:49:12 PM , Rating: 2
Europe is imploding on itself financially, so they are not a model to follow.

Before 2010, you couldn't get 5 minutes into a conversation with a smug progressive without hearing the words "But Europe does [insert welfare program here]".

After the true cost of their cradle to grave welfare state was laid bare for all to see, such comments became more and more scarce. Too funny.

Having to pay for free stuff for moochers isn't freedom, rather, it's slavery.

RE: crime
By half_duplex on 5/23/2013 10:34:01 AM , Rating: 2
Your nonsense doesn't even warrant a response, but I'll humor you.

How much in taxes do the millions of high paying jobs that these corporations create contribute to the US? If not for them, who would be paying for all the duck penis research?

"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch

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