Apple tax row continues as CEO appears before the Senate

22^nd May 2013

Joe Turnbull

Joe Turnbull

22 May 2013

Apple CEO Tim Cook is today appearing before the Senate Permanent Subcommittee on Investigations, accused of using what investigators called “highly questionable” tax avoidance measures.

Apple is the richest company in the world, reportedly worth a staggering $559 billion and with revenues of some $156 billion in the last tax year.

However, Apple pays a pitiful level of tax in its native US, with the committee finding that in some cases it was paying “less than one per cent”.

This is sure to create a public outcry with American taxpayers given Apple’s staggering wealth, as even the poorest Americans pay a minimum of ten per cent tax on their incomes.

Apple uses a number of measures to minimise its tax bill, such as holding its intellectual property rights, worth billions, in offshore havens. This is a common evasion tactic as intellectual property can be transported much easier than other tangible assets.

However, Apple uses other, more complex methods which were described as “unique” to Apple. One such method is having subsidiary “ghost companies” that effectively have “no declared tax residency anywhere in the world”.

Apple has three such subsidiaries, Apple Operations International, Apple Sales International and Apple Operations Europe based in Ireland, however, in tax terms they are not resident there. Apple has routed billions of dollars via these companies in order to avoid paying tax in the US.

The subcommittee found that one of these subsidiaries paid just $10 million in tax on revenues of $22 billion, a rate of only 0.05 per cent, compared to the 12 per cent which is supposed to be in place in Ireland.

The average corporation tax in Apple’s major markets, nations belonging to the Organisation for Economic Co-operation and Development (OECD), sits at 24 per cent, far above what Apple actually pays.

Tim Cook vehemently defended his company’s behaviour in a statement that was read out at the meeting. The statement read: “Apple complies fully with both the laws and spirit of the laws…it does not use tax gimmicks.”

He went on to turn the blame on the American tax system, saying he welcomed “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”. However, an expert in taxation, Richard Harvey appeared before the subcommittee and said he nearly “fell off his chair” when Cook said Apple did not use “tax gimmicks”.

Joe Turnbull