On Tuesday, Tim Cook, the CEO of Apple, sat before a committee in Congress to defend Apple’s practices of tax evasion, where they were accused of dodging about $9 billion in taxes from more than $44 billion in income.
Cook insisted that for American sales, Apple pays 30.5% of its profits in taxes, and that they are abiding by all U.S. laws. But Senator Carl Levin from Michigan had “just issued a 40-page report on how the company shifts money around the world in order to avoid paying American corporate tax rates,” reports The New Republic.
According to the report, Apple had been using corporate loopholes in order to pay almost no tax on their profits funneled through shell companies in Europe — most of the companies being in Ireland. According to the New York Times, “Apple subsidiaries — based in Ireland but spanning other regions around the world — had helped the company pay as little as one-twentieth of 1 percent in taxes on billions of dollars in income.”
These ghost companies have no employees and are run by Apple’s upper management, and because so many of Apple’s products are digital, they can be shifted around to avoid tax codes that were design for industrial corporations that sell tangible products. By keeping its subsidiaries “in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.”
In addition, “about two-thirds of Apple’s global pretax income in 2011 was recorded in Ireland, yet only 4 percent of its employees and 1 percent of its customers were located there.” However, Apple consistently denied being involved in any “tax gimmicks.”
The craziest thing is that none of this is exactly illegal, which means that technically Apple isn’t doing anything wrong. Apple is just taking advantage of something called a “tax shelter,” which many large corporations also take advantage of.
Businessweek writes that Amazon also redirects a lot of its cash outside of the U.S. so that they can avoid taxes. But unfortunately for Amazon, it had stashed a lot of its cash in Europe and when the European economy tanked, so Amazon ended up recording a huge loss of $338 million. Apple hasn’t had this problem, so at the moment it’s still only paying taxes at about a 30% rate, which seems ridiculous for a company that has hundreds of billions in cash.
What do you think? Should Apple pay up, or should Congress back off?