Apple is Still Rotten to the Core

Apple's CEO Tim Cook testified yesterday before a U.S. Senate panel probing corporate tax avoidance. Apple is now parking $102.3 billion in cash overseas, deftly using tax havens to sidestep billions in state and federal corporate taxes.

Last week, in advance of his Senate appearance, Cook made the media rounds for a pre-emptive strike against his accusers, saying “Apple has a very strong moral compass.” In fact, the unapologetic CEO added, “Apple is paying approximately $1 million an hour in just domestic income taxes.” That sounds fairly impressive — until you realize that Tim Cook alone, in his first year as Apple’s CEO, grabbed a personal pay package worth $378 million, more than $1 million per day. 

Mr. Cook appeared before the same Senate Permanent Subcommittee on Investigations which had taken Hewlett-Packard and Microsoft to task over their tax policies at earlier hearings. 

From the Wall Street Journal: Senator Carl Levin (D., Mich), who chaired the committee, has taken issue with the tax loopholes that he asserts allow companies to "avoid paying taxes they rightfully owe." Apple has urged Congress to lower corporate-tax rates, reduce the tax on bringing back cash earned overseas, and expand H-1B visas.

Outsourcing jobs, low wages, unsafe working conditions, child labor, worker's suicides, H-1B visas and labor camps weren't mentioned by the Wall Street Journal.

The New York Times recently reported that Apple Inc avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen.

Some of Apple’s subsidiary companies had no employees, and were run by top executives from Apple's headquarters in California; but by "officially" locating them in places like Ireland, Apple was able to make these shell companies stateless — exempt from all taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.

Apple was able to largely sidestep taxes on tens of billions of dollars it earned outside the United States in recent years. Last year, international operations accounted for 61 percent of Apple’s total revenue. Apple’s tax avoidance efforts shifted at least $74 billion from the reach of the Internal Revenue Service between 2009 and 2012.

• A law professor at UCLA: “There is a technical term economists like to use for behavior like this, 'Unbelievable chutzpah.'"
• Senator Carl Levin: “Apple successfully sought the holy grail of tax avoidance.”
• Senator John McCain: “Apple claims to be the largest U.S. corporate taxpayer, it is also among America’s largest tax avoiders.”

Because of these tax strategies, Washington is forced to rely more heavily on payroll taxes and individual income taxes to finance the government’s operations. In 2011, individual income taxes contributed $1.1 trillion to federal coffers, while corporate taxes only added up to $181 billion.

And Apple wants lower tax rates for repatriated foreign income, but a study by the National Bureau of Economic Research found that 92 percent of the repatriated cash is used to pay for dividends, share buybacks or executive bonuses.) 

In another New York Times article: Edward D. Kleinbard, the former chief of staff at the Congressional Joint Committee on Taxation, and now a law professor at the University of Southern California, says Apple's CEO Tim Cook is "asking for is a reward for having gamed the system". Last year, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S& P companies.

The Wall Street Journal: Senator Carl Levin accused Apple of employing "alchemy" and "ghost companies" to escape tax collectors in the U.S. and Ireland. Aides to his subcommittee have said they have never seen a company use a subsidiary that didn't owe corporate income taxes to any country.

• Apple Operations International hasn't filed a corporate tax return anywhere in the past five years, the Senate panel found. The unit is the main holding company for Apple's business outside of the Americas.
• Another Ireland-based Apple unit, Apple Sales International, recorded $22 billion in pretax earnings but paid just $10 million in taxes --- a rate of about .05%.
• A third Apple subsidiary, Apple Operations Europe, also maintains its corporate profits aren't taxable by any country, according to the investigation.

Some senators on the Senate investigative panel went out of their way to note how much they enjoy using Apple's products. When Apple's CEO introduced himself to Senator Kelly Ayotte (R-N.H.), the one who voted against gun background checks, she kissed his ass and responded, "Nice to meet you. I have an iPad!"

My related Apple posts:

How Apple Screwed the U.S. Middle-Class

iLove Apple but iHate Tax Cheats

Apple Inc. is Rotten to the Core

Steve Jobs, the 'Boss', and the Wrecking Ball