Top executives of American technology giant Apple faced intense questioning from U.S. lawmakers about the company's use of off-shore entities that allow it to shield billions of dollars in global profits from federal taxes. Apple’s chief executive admitted to no wrongdoing, but urged an overhaul of the U.S. tax code.
Apple’s high-tech consumer products are seemingly everywhere, as noted by Democratic Senator Carl Levin at a hearing of the Permanent Subcommittee on Investigations. “Just like millions around the world, I carry an iPhone in my pocket," he said.
Levin said Apple’s successful business model involves shielding profits from federal taxes. “Apple has sought the Holy Grail of tax avoidance: off-shore corporations that it argues are not for tax purposes resident anywhere in any nation," he said.
Levin said U.S. corporations hold more than $1 trillion in off-shore profits and harm the nation in the process. “They off-load Apple’s tax burden onto other taxpayers, particularly onto working families and small businesses. The lost tax revenue feeds a budget deficit," he said.
Republican Senator John McCain sounded equally dismayed. “It is completely outrageous that Apple has not only dodged full payment of U.S. taxes, but has managed to evade paying taxes around the world through its convoluted and pernicious strategy," he said.
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Apple’s chief executive, Timothy Cook, defended his company’s practices. “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. We do not depend on tax gimmicks," he said.
But Cook urged an overhaul of America’s astonishingly complex tax code, even if doing so would incur a higher tax burden for Apple.
“We recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate tax rates, and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the United States," he said.
Some Republican senators objected to the congressional grilling of Apple over its compliance with a tax code crafted on Capitol Hill.
Senator Rand Paul said, “I am offended by a $4 trillion government bullying, berating and badgering one of America’s greatest success stories. If anyone should be on trial here, it should be Congress.”
That brought a sharp reply from Senator Levin. “Apple is a great company. But no company should be able to determine how much it is going to pay in taxes, how many profits they are going to keep off-shore," he said.
The United States has one of the world’s highest corporate tax rates at 35 percent. But loopholes and special deductions allow many large firms to pay a significantly lower share of profits. Most tax reform proposals call for lowering corporate tax rates while eliminating loopholes, yielding a simpler and fairer tax code for all commercial entities.