A U.S. Senate subcommittee has found that Apple Inc. (NASDAQ: APPL) has avoided paying billions of dollars in U.S. income tax over the past four years. According to the Permanent Subcommittee on Investigations, Apple used a series of offshore subsidiaries to shuffle money and avoid paying taxes. Three of the foreign subsidiaries claimed to be subject to taxation in no nation.
In response to the bipartisan subcommittee's findings, Apple CEO Tim Cook is heading to Washington to attend a hearing Tuesday alongside several other high-ranking Apple executives. Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., will chair the hearing.
“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,” said McCain. “A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue. It is important to understand Apple’s byzantine tax structure so that we can effectively close the loopholes utilized by many U.S. multinational companies, particularly in this era of sequestration.”
The subcommittee’s exploration found that Apple relied heavily on subsidiaries based in Ireland to offset its tax burden. The subsidiaries Apple Operations International, Apple Sales International and Apple Operations Europe appear to be the biggest offenders.
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Ireland-based Apple Operations International has no offices or employees (though it keeps financial records in America), but reported a total income of $30 billion between 2009 and 2012 without filing taxes in either the United States or Ireland. Similarly, Apple Sales International struck up a special tax rate with Ireland of five hundredths of 1 percent on its $74 billion 2011 income.
McCain believes that Apple’s extensive tax avoidance schemes are indicative of why the United States must update its tax code. He says corporations like Apple must be held responsible for properly paying their taxes.
“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,” McCain said. “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.”