Apple CEO Tim Cook tells Senate: Tiny tax bill isn’t our fault – it’s yours

Tech giant ‘avoided’ paying more than $1m every hour due to use of international loopholes

New York

Apple “avoided” more than $1m (£650,000) in US taxes every hour last year, a senior Washington lawmaker said as the tech giant found itself the centre of the debate over loopholes in international tax laws.

Known worldwide for its innovative gadgets, the business was criticised for employing a fiendish corporate structure that, according to Carl Levin, the Democratic head of the US Senate’s Permanent Sub-Committee on Investigations, included three “ghost companies” that “exist nowhere” for tax purposes – “not in Ireland, where they are incorporated, and not in the United States, where the Apple executives who run them are located.” Apple was also accused of using other methods to cut its tax bill, and criticised for keeping billions of dollars worth of profits outside the US.

Tim Cook, who succeeded the late Steve Jobs as Apple’s CEO in 2011 and who is more accustomed to being celebrated for the success of the products, was forced to defend the business at a hearing before Senator Levin’s Sub-Committee, saying: “We pay all the taxes we owe – every single dollar. We not only comply with the laws, but we comply with the spirit of the laws.”

The Apple boss recommended, however, that Washington reform the tax code, arguing that the county’s corporate tax rate of 35 per cent should be reduced. He also proposed the introduction of a more “reasonable” tax on foreign earnings to allow the “free movement of capital back to the US.”

Although the company is not accused of doing anything illegal, a Sub-Committee memorandum published ahead of the hearing claimed that Apple had exploited loopholes to “avoid US taxes on $44bn in otherwise taxable offshore income over the past four years” – or about $10bn per year.

The spotlight on Apple’s finances comes as lawmakers on both sides of the Atlantic probe the way large multinational corporations manage their tax liabilities. In the US, the Senate panel has in the past looked into both Microsoft and Hewlett-Packard.

British MPs, meanwhile, have over the past year grilled executives from Starbucks, Amazon and Google. Last week, Margaret Hodge  accused Google of “devious, calculated and, in my view, unethical behaviour in deliberately manipulating the reality of your business in order to avoid paying your fair share of tax.”

In Apple’s case, the most surprising revelation to emerge from the Senate’s scrutiny was the existence of subsidiaries that were not tax resident anywhere. The companies, including one called Apple Operations International (AOI), which Senator Levin said sits at the top of Apple’s offshore corporate network, are incorporated in Ireland (a country that Senator Levin labelled a “tax haven”). That puts them outside the purview of the US taxman. However, these companies are not managed or controlled in Ireland, which only considers companies to be tax resident in its territory if they are thus controlled and managed. This , Senator Levin said, means that AOI is “magically neither here nor there.”

Apple, in written testimony defending its position, denied that it used any gimmicks. The company, which said its international operations accounts for 61 per cent of its revenue last year, instead highlighted how it had been, in its own words, “a powerful engine of job creation in the US”. Moreover, it said, “Apple pays an extraordinary amount in US taxes. Apple is likely the largest corporate income tax payer in the US... These payments account for $1 in every $40 in corporate income tax the US Treasury collected last year,” the company claimed.

Irish connection: ‘Ghost companies’

Apple is accused of exploiting a gap in US and Irish tax laws to set up subsidiaries – Apple Operations International (AOI), Apple Operations Europe and Apple Sales International – that are not tax resident in either country. AOI sits at the top of Apple’s offshore corporate tree, according to the panel, and “is the ultimate owner of most of Apple’s offshore entities”. AOI itself is owned by Apple Inc.

The three companies are incorporated in Ireland, where laws consider a company to be tax resident if it is managed and controlled locally. US laws, on the other hand, look at where a company is incorporated. This, according to Senator Carl Levin, means that “Apple has arranged matters so it can claim that these ghost companies, for tax purposes, exist nowhere.”

newsAnother week, another dress controversy on the internet
Life and Style
Scientist have developed a test which predicts whether you'll live for another ten years
Life and Style
Marie had fake ID, in the name of Johanna Koch, after she evaded capture by the Nazis in wartime Berlin
historyOne woman's secret life as a Jew in wartime Berlin
news... and what your reaction to the creatures above says about you
Life and Style
ebookNow available in paperback
ebookPart of The Independent’s new eBook series The Great Composers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Gadgets & Tech

    Ashdown Group: Systems Administrator - Lancashire - £30,000

    £28000 - £30000 per annum: Ashdown Group: 3rd Line Support Engineer / Network ...

    Recruitment Genius: Graduate Web Developer

    £26000 - £33000 per annum: Recruitment Genius: A Web Developer is required to ...

    Ashdown Group: PeopleSoft Developer - London - £45k

    £45000 per annum: Ashdown Group: PeopleSoft Application Support & Development ...

    Recruitment Genius: Web Hosting Support Agent

    Negotiable: Recruitment Genius: One of the North West's leading web hosting pr...

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn