Lawmakers questioned Apple's CEO Tim Cook on tax matters yesterday. Felix Salmon explains (below) the details of the complicated tax scheme involving subsidiaries in Ireland and various contractual relationships that are legal but devised to lower the corporations' taxes.
And, why not? Since when do corporations live to maximize taxes and minimize profits? What CEO would survive that sort of behavior?
Apple's method of avoiding US taxes is a good argument for eliminating corporate taxes altogether. What do you think?
Tim Cook's Improbable Victory In Washington
By Felix Salmon
When Apple CEO Tim Cook appeared in front of Carl Levin on Tuesday, I was hoping for an epic showdown, as presaged by Levin’s highly aggressive press release from Monday. I was sorely disappointed — although I did end up with a newfound admiration for Tim Cook’s ability to acquit himself with dignity and intelligence and integrity in the toughest of situations.
The Apple (AAPL) executives at the hearing spent most of their time politely listening to various senators pontificate about taxes. But every so often, in response to a rare direct question, they would try to explain why they didn’t think they were evading billions of dollars in taxes.
The Levin report is very long and dry, so let me oversimplify a little. Apple revenues basically end up in one of two places: California, for sales in the Americas; and Ireland, for sales everywhere else. Apple pays US taxes on the money, which ends up in California, but only pays US taxes on the interest on the money, which ends up in Ireland. Which isn’t very large.
A lot of the hearing was taken up, unhelpfully, with senators asking whether Apple pays taxes on the income from sales made in the US, and Apple saying yes. (Although, as Tim Fernholz points out, “between 2009 and 2011, the company told investors it was setting aside $13.7 billion to pay federal taxes—but it has actually paid only $5.3 billion.” The amount the government receives is significantly lower than we had all been given to believe from Apple’s SEC filings.)
The more interesting questions concern Ireland, the money flowing in there, and the degree to which those enormous sums of money constitute tax avoidance on a massive scale.
There are two parts to this question…
Keep reading: Tim Cook's Improbable Victory In Washington – Seeking Alpha.
Tim Cook picture credit: Haotian0905, Wikipedia.
In Apple Dodged Billions In Taxes, The Onion shares some common reactions:
“Well, at least they’re the only company doing it.”
Dale Blum –
Unemployed
“That must be how they keep their prices so low.”
Victor Totos –
Maple Syrup Maker
“You get ’em, Congress. Just because you created loopholes doesn’t mean companies should take advantage of them!”
Amanda Turnbull –
Film Cutter
