Apple uses a “highly questionable” web of offshore entities to avoid paying billions in US income taxes, a Senate committee alleged on Monday.
The complex arrangement includes three subsidiaries, based ostensibly in Ireland, which appear not to be designated as tax resident anywhere, the committee said. A source on the committee called them “iCompanies – I for imaginary, invisible”.
Tim Cook, the CEO of Apple, will answer the accusations at a hearing convened by the bipartisan permanent subcommittee on investigation in Washington on Tuesday. Apple vehemently denied the charges ahead of the meeting.
During its investigations, the subcommittee found that Apple considers three key subsidiaries, all based in Ireland, to have no tax jurisdiction at all. One of those Irish affiliates, Apple Sales International (ASI), reported sales income of $74bn over four years but paid hardly any tax. In 2011 ASI had pre-tax earnings of $22bn but paid just $10m in tax, a rate of 0.05%.
“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said senator Carl Levin, the subcommittee’s Democratic chairman.
“Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed.”
Senator John McCain, the subcommittee’s ranking Republican member, said: “I have long advocated for modernizing our broken and uncompetitive tax code, but that cannot and must not be an excuse for turning a blind eye to the highly questionable tax strategies that corporations like Apple use to avoid paying taxes in America.
“The proper place for the bulk of Apple’s creative energy ought to go into its innovative products and services, not in its tax department.”
Apple released Tim Cook’s statement to the committee before the meeting. In it, he robustly defended the company, denying charges that the company uses tax gimmicks and pointing out that the company has created 600,000 jobs in the US and paid $6bn in taxes to the US Treasury in 2012. Cook also defends the Irish subsidiaries, which he says now employ more than 4,000 people.
“Apple complies fully with both the laws and spirit of the laws. And Apple pays all its required taxes, both in this country and abroad,” the statement reads.
“Apple welcomes an objective examination of the US corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy. The company supports comprehensive tax reform as a necessary step to promote growth and enable American multinational companies to remain competitive with their foreign counterparts in both domestic and international markets,” Cook said.
Cook called for an overhaul of US corporate tax laws that should be “revenue neutral” for corporations. But critics charge his solutions are likely to exacerbate the issue.
“This is one of the most profitable companies in the world, and it has been acting like a back-alley thief trying to pick the pocket of American taxpayers,” said Frank Clemente, campaign manager of pressure group Americans for Tax Fairness. He said a free repatriation would be “another mugging of the American people”.
The committee will report more details of its findings at Tuesday’s hearing. The news comes as Apple, Google, Starbucks and others face mounting criticism of their tax avoidance schemes in the UK.
Last week Margaret Hodge, the chair of the public accounts committee in the UK parliament, rounded on Google northern Europe boss Mark Brittin during a hearing on the search firm’s tax accounting. “You are a company that says you ‘do no evil’. And I think that you do do evil.” She said the group’s approach to tax in the UK was “devious, calculated and, in my view, unethical”.
“Given the intensity of the debate, not just in the UK but also in America and elsewhere, international tax law could almost certainly benefit from reform,” Google chairman Eric Schmidt told the Observer at the weekend.