WASHINGTON, May 21 (UPI) -- Apple Inc.'s top executive, Tim Cook, defended the U.S. technology giant's tax strategy in front of a Senate panel Tuesday, saying it abides by the law.
Cook, Apple's chief executive officer, testified in front of the Senate Homeland Security and Governmental Affairs Permanent subcommittee on Investigations along with Apple's chief financial officer, Peter Oppenheimer, and the head of tax operations, Phillip Bullock.
Cook told panel members Apple does not use "gimmicks" and does not "stash money on some Caribbean island."
He also said Apple pays "all the taxes we owe, every single dollar." He insisted calmly he believed the company's tax strategy was not a "sham ... or abuse in any way."
Cook was questioned about Apple's tax strategy after a committee report released Monday said Apple had established offices in Ireland that circumvented both Irish and U.S. tax laws, essentially claiming they were stateless, although they controlled tens of billions of dollars.
The report did not say Apple broke the law, but several lawmakers responded by accusing Apple of violating the spirit of the tax laws, USA Today reported.
"Apple is an American success story. Its products are justifiably well known," subcommittee Chairman Carl Levin, D-Mich., said.
But Levin's sentiments turned sharply on taxes. "What may not be so well known is that Apple also has a highly developed tax avoidance system -- a system through with it has amassed more than $100 billion in offshore cash in a tax haven," he said.
He described the company's tax dodging as, "the Holy Grail of tax avoidance."
Sen. Rand Paul, R-Ky., blamed the tax code, not the company. "What we're talking about is what every company in America does, and that's minimize their tax," he said.
Cook also said the tax code was in need or repair, calling for a revenue-neutral changes that would reduce the corporate tax rate to 25 percent and supplement that with a "single digit," rate for foreign earnings that multinational firms brought back to the United States, where it could be put to use creating jobs.
"Likely [that would] result in an increase in Apple's U.S. taxes," he told the panel.
The testimony was presented a day after the panel released findings revealing the technology giant shifted at least $74 billion from the reach of the Internal Revenue Service over the past four years.
One example of Apple's "complex web" of offshore entities is a subsidiary called Apple Operations International, the panel said. The subsidiary is incorporated in Ireland but keeps its bank accounts and records in the United States and holds board meetings in California.
The United States bases corporate residency for tax purposes on where companies are incorporated, while Irish tax law considers companies residents only if they are managed and controlled in the small European country.
So Apple Operations International was able to avoid both countries' tax jurisdictions, the report said.
Because it did not technically belong to any country, Apple Operations International, founded in 1980, hasn't filed a corporate tax return anywhere in the past five years, the panel found.
"Despite reporting net income of $30 billion over the four-year period 2009 to 2012, Apple Operations International paid no corporate income taxes to any national government during that period," the report found.
Apple told the panel it considers Apple Operations International an entity that does not qualify "as a tax resident of any other country under the applicable local laws."
"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven," Levin said. "Apple sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be [a] tax resident nowhere."
Another Ireland-based Apple unit, Apple Sales International, which sells iPhone smartphones, iPad tablet computers, MacBook notebook computers and other products to overseas distributors, recorded $22 billion in pretax earnings in 2011 but paid just $10 million in taxes, Senate investigators found.
That works out to a corporate tax rate of about 0.05 percent. The U.S. corporate rate is 35 percent.
The investigation found no evidence Apple did anything illegal.
But senators and aides said Apple's scheme was unparalleled in its use of multiple overseas affiliates for the purpose of dodging billions of dollars in U.S. tax obligations on earnings that approached 12 figures.
Many of the subsidiaries had no employees or physical offices, the panel said.
Cook's prepared testimony stated Apple "is likely the largest corporate income taxpayer in the U.S., having paid nearly $6 billion in taxes to the U.S. Treasury" in the last fiscal year.
But Sen. John McCain, R-Ariz., the second-most senior panel member, said he saw things differently.
"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.
"Apple 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," the company said in its prepared testimony released Monday.
Apple, which reported $102.3 billion of its $145 billion in cash was held in offshore affiliates as of March 30, said it has that much money overseas "because it sells the majority of its products outside the U.S."
Cook -- who the Los Angeles Times says is the world's highest-paid CEO, making $378 million last year -- said in prepared testimony he'd like to see a "dramatic simplification" of the corporate tax system.
His proposal "lowers tax rates and implements a reasonable tax on foreign earnings" to encourage U.S. companies to bring those earnings back home for job creation and economic investment.
"Apple believes such comprehensive reform would stimulate economic growth," the testimony said. "Apple supports this plan even though it would likely result in Apple paying more U.S. corporate tax."
White House press secretary Jay Carney, asked during his daily briefing with reporters about the issue of overseas corporate profits, said Levin and McCain "have done an important job in raising awareness of this issue and putting forward ideas to cut back on the abuses."
"As you know, the president has long argued that the tax code today is tilted against companies that want to create jobs in America while it rewards companies for shipping jobs and profits overseas," Carney said.
"As a result, he has long championed a set of proposals to ensure that American companies cannot use offshore profit shifting to avoid paying taxes, including a proposal for a minimum tax on foreign earnings that would provide a comprehensive solution to this problem."
