Apple CEO Tim Cook calmly defended Apple’s tax practices before Congress Tuesday afternoon, denying the company uses overseas “tax gimmicks” to duck its domestic financial obligations.
“We are proud to be an American company and equally proud of our contributions to the American economy,” said Cook in his opening remarks. He claimed Apple has “created or supported” an estimated 600,000 American jobs and was “likely” the largest corporate taxpayer in the United States.
Sen. John McCain (R-Ariz.) preempted Cook’s claims. “Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America’s largest tax avoiders,” McCain said in an earlier statement.
Cook, flanked by Apple CFO Peter Oppenheimer and head of tax operations Phillip Bullock, made a rare appearance before the Senate Permanent Subcommittee on Investigations after it called upon Apple for questioning on the company’s overseas tax practices. Apple paid little to no taxes on $74 billion in revenue over the last four years through technicalities in American and Irish tax law, according to a committee investigation released just prior to Cook’s testimony.
The true purpose of the hearing was not to punish Apple, but rather to gather ammunition for a larger debate over corporate tax reform.
“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,” said Sen. Carl Levin (D-Mich.) in a statement preceding the hearing.
Cook himself used the opportunity to propose tax reforms that are revenue neutral, eliminate all corporate tax loopholes and place a “reasonable” tax on foreign earnings.
“Unfortunately, the tax code has not kept up with the digital age,” “Unfortunately, the tax code has not kept up with the digital age,” said Cook. It was an expected but nonetheless interesting move considering neither Apple nor Cook have a notable public policy presence.
McCain used the hearing to grill Cook about Apple’s three Ireland-based subsidiary holding companies, focusing on Apple Operations International (AOI). AOI, according to the Senate report, has no tax residence and thus has not paid taxes to a national government for five years. The Apple representatives later explained Apple has received tax benefits from Ireland in exchange for job creation since the 1980s when it first set up shop there as the company’s first overseas operation.
“Does that seem logical to you?” asked McCain when raising that point with Cook, who became flustered for the first and perhaps only time during his testimony.
Cook confirmed that AOI has no national tax residency, but defended AOI by claiming it “does not reduce our U.S. taxes at all.”
Sen. Claire McCaskill (D-Mo.) later asked Cook for his general advice on reforming the American corporate tax code. His answer? Simplify the tax code and drastically reduce the rate at which repatriated funds are taxed, currently sitting at 35%.
“Then many companies would bring back capital to invest in the United States,” said Cook.