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.”

Life and Style
ebookNow available in paperback
ebooks
ebookA delicious collection of 50 meaty main courses
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Gadgets & Tech

    Recruitment Genius: 3rd Line Virtualisation, Windows & Server Engineer

    £40000 - £47000 per annum: Recruitment Genius: A 3rd Line Virtualisation / Sto...

    Recruitment Genius: Partner Manager - EMEA

    £50000 - £100000 per annum: Recruitment Genius: A Partner Manager is required ...

    Recruitment Genius: Regional Sales Manager - OTE £100,000

    £45000 - £100000 per annum: Recruitment Genius: A Regional Sales Manager is re...

    Recruitment Genius: IT Support Engineer

    £18000 - £22000 per annum: Recruitment Genius: The company provides IT support...

    Day In a Page

    Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

    ‘We won’t stop until Syria is back to normal’

    Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
    The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

    The inside story of how Bill Clinton built a $2bn global foundation...

    ... and how it may undermine Hillary's chances in 2016
    12 best olive oils

    Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

    Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
    Sepp Blatter resignation: The beginning of Fifa's long road to reform?

    Does Blatter's departure mean Fifa will automatically clean up its act?

    Don't bet on it, says Tom Peck
    Charles Kennedy: The baby of the House who grew into a Lib Dem giant

    The baby of the House who grew into a Lib Dem giant

    Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
    Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

    The harrowing testament of a five-year-old victim of Syria's endless civil war

    Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
    The future of songwriting: How streaming is changing everything we know about making music

    The future of songwriting

    How streaming is changing everything we know about making music
    William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

    Recognition at long last

    Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
    Beating obesity: The new pacemaker which helps over-eaters

    Beating obesity

    The new pacemaker which helps over-eaters
    9 best women's festival waterproofs

    Ready for rain: 9 best women's festival waterproofs

    These are the macs to keep your denim dry and your hair frizz-free(ish)
    Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

    Wiggins worried

    Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back