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Apple CEO rejects 'tax evasion' charges

Tim Cook tells US Senate hearing that Apple does not use 'tax gimmicks' to avoid paying more taxes.

Last Modified: 21 May 2013 22:51
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The chief executive of Apple has defended his company's tax practices over claims it is among the largest tax avoiders.

In a testimony before the US Senate on Tuesday, Tim Cook said that Apple paid nearly $6bn to the US treasury last year.

"We pay all the taxes we owe," Cook said. "Every single dollar. We not only comply with the laws, but we comply with the spirit of the laws."

A defiant Cook also rejected accusation that his company used "tax gimmicks" to avoid paying more in taxes.

"We don't move intellectial property offshore and use it to sell our poducts back to the US to avoid taxes," he said.

According to a report issued on Monday by the Senate Permanent Subcommittee on Investigations, Apple is holding almost $102bn of its $145bn in cash overseas.

The report also found that an Irish subsidiary that earned $22bn in 2011 paid only $10m in taxes.

Eamon Gilmore, Ireland's deputy prime minister, said on Tuesday that the country is not to blame for the low rate of tax paid by Apple because they were "not issues that arise from the Irish taxation system".

"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."

Tax burden

While Apple claims to be the biggest US corporate taxpayer, it is also "among America's largest tax avoiders," said Senator John McCain, the panel's senior Republican.

Republicans want to cut the corporate tax rate of 35 percent and ease the tax burden on money that US companies make abroad, saying the move would encourage companies to invest at home.

The strategies Apple uses are legal, and many other multinational corporations use similar tax techniques to avoid paying US income taxes on profits they reap overseas.

But the report found that Apple uses a unique twist, and politicians are raising questions about loopholes in the US tax code.

The report estimates that the California-based company avoided at least $3.5bn in US federal taxes in 2011 and $9bn in 2012 by using the strategy. It paid $2.5bn in federal taxes in 2011 and $6bn in 2012.

Apple uses five companies located in Ireland to carry out its tax strategy, according to the report.

While all five companies were incorporated in Ireland, only two also have tax residency in that country, allowing three companies to not be required legally to pay taxes in Ireland.

Shifting profits

The report says Apple capitalises on a difference between US and Irish rules regarding tax residency.

In Ireland, a company must be managed and controlled in the country to be a tax resident. Under US law, a company is a tax resident of the country in which it was established.

The subcommittee said Apple's strategy of not declaring tax residency in any country could be unique among corporations.

"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven," Senator Carl Levin, the subcommittee's chairman, said in a statement.

The subcommittee report also noted that Apple has been setting aside billions for tax bills it may never pay.

As previously reported by the AP news agency, the overlooked asset that Apple has been building up could boost its profits by as much as $10.5bn.

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