Apple’s Tax Strategy: ‘Think Different’

As Apple CEO Tim Cook answers questions before the Senate’s Permanent Subcommittee on Investigations about its “unusual tax structure,” a quick look over at OpenSecrets.org reveals that 92 percent of company lobbyists (25 out of 27) have been through the revolving door.

A government report (PDF) released yesterday says that Apple kept billions of dollars in profits in an offshore tax haven that made it possible for them to avoid paying taxes in any country. Reuters reports:

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.

In Cook’s prepared testimony (PDF), he states that Apple already pays an “extraordinary” amount in U.S. taxes and “does not use tax gimmicks.” Cook explains that the U.S. corporate tax system has “not kept pace with the advent of the digital age and the rapidly changing global economy” and that the company “welcomes an objective examination of the U.S. corporate tax system.”

Interesting comments from a CEO whose company spent a total of nearly $3 million on lobbying in 2012, including more than $300,000 on five revolving door lobbyists from Capitol Tax Partners, which according to its website is “Washington’s largest independent consulting firm specializing in tax legislative and regulatory matters… offering intimate knowledge of the tax-writing and rulemaking process.”

The Sunlight Foundation blog notes that of all the issues Apple lobbies Congress about, taxes tops the list. One of the pieces of legislation that Apple lobbied on last year was the Freedom to Invest Act, a bill sponsored by Rep. Kevin Brady (R-Texas) that would “allow U.S. companies to bring home some of the cash they hold overseas without facing tax on it.” Despite Apple and other companies employing an “army of over 160 lobbyists” to persuade Congress to pass the Freedom to Invest Act, the bill never made it out of committee.

Cook insisted in his prepared remarks that Apple is a powerful jobs creation engine that has “created or supported approximately 600,000 jobs in the U.S.” including 50,000 at Apple and about 550,000 in related areas, such as engineering, manufacturing and software development. Over 300,000 of the jobs grew out of the so-called “App Economy.” He says that Apple carefully manages overseas accounts in the best interests of Apple shareholders.

You can watch Cook deliver his prepared remarks and hear senators’ questions at C-Span and The Guardian live blog.

But, as Matt Iglesias notes this morning in Slate, the “showdown” between Senator Carl Levin, the chair of the Permanent Subcommittee on Investigations, and Cook is unlikely to amount to much beyond good theater. He writes:

The unfortunate thing here is that Carl Levin, the Senator with the interest in this matter, chairs this investigations committee rather than, say, the Finance Committee. There really isn’t a great deal to “investigate” here. It’s not like it turns out that Apple minimized its tax bill by blackmailing IRS agents by secretly reading their iPhone emails. The issue here is with the tax code not with Apple. Portraying it as a showdown between the Senate and a CEO makes for better television, but the actual issue here is one of legislators versus legislators. Apple has its favorite tax strategies and General Motors has its favorite tax strategies. It’s a question of public policy how much revenue we want to raise via corporate income tax and what sectors do we want to coddle with loopholes.