Bobbing Apple: Cook Defends Apple's Offshore Tax Policy

May 21, 2013 -- Apple and congressional investigators both tried to get in a preemptive kidney-punch or two in advance of Apple CEO Tim Cook's testimony later today in Washington on the way Apple avoids paying U.S. taxes on money it earns overseas.

Apple released an advance copy of Cook's testimony Monday night. Its 17 pages of self-defense are clear, blunt, unambiguous: Apple, Cook declares, "does not use tax gimmicks." It pays "an extraordinary amount" in U.S. taxes -- nearly $6 billion last year, making it "likely the largest corporate income tax payer in the U.S." Its effective tax rate last year, he says, was approximately 30.5 percent.

Cook implies that Congress, intent on removing a speck (figuratively speaking) from Apple's eye, may perhaps have overlooked the 2-by-4 in its own: an outdated tax code.

"Apple," he says, "welcomes an objective examination of the U.S. corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy."

He then goes on to recommend reforms.

Referring to the way Apple manages to lessen its U.S. tax bill by moving money around overseas, he concludes: "While some Subcommittee members may have differing views on these tax policy matters, Apple hopes the Subcommittee will see that these recommendations aim to create meaningful change and go well beyond what most U.S. companies propose."

As for the Subcommittee, on Monday night it released a 40-page memorandum, which, after a 16-page highlights-reel, gets down to business, asserting that Apple has used a variety of "offshore structures, arrangements, and transactions to shift billions of dollars in profits away from the United States and into Ireland, where Apple has negotiated a special corporate tax rate of less than 2 percent."

"One of Apple's more unusual tactics," says the Subcommittee, has been "to establish and direct substantial funds to offshore entities that are not declared tax residents of any jurisdiction."

These entities are, in effect, corporate men-of-the-world.

One such entity, Apple Operations International, says the memo, is currently sauntering about with $30 billion in its pocket. Yet, during the four years during which it earned that sum, it "paid no corporate income taxes to any national government."

While the subcommittee stops short of accusing Apple of having broken any U.S. law, it finds the company to have circumvented the U.S. Tax Code's Subpart F, whose purpose is "to prevent multinational corporations from shifting profits to tax havens to avoid U.S. tax."

So adroitly has Apple peeled Subpart F, says the memo, that from 2009 to 2012, it managed to avoid "$44 billion in taxes on otherwise taxable offshore income."

On Monday, ABC News quoted Sen. John McCain as saying: "Apple claims to be the largest U.S. corporate tax payer, but by sheer size and scale, it is also among America's largest tax avoiders."

Subcommittee chairman Sen. Carl Levin, speaking Monday with reporters, said that while Apple might be a golden goose, it had played fast and loose with some of its eggs.

"It's like saying you haven't shifted the golden eggs offshore," Levin said, "after you've shifted the golden goose offshore."