Senators Carl Levin (D-Mich.) and John McCain (R-Ariz.) said on Monday that Apple is funneling funds through its subsidiaries in Ireland so that the company isn't required pay billions in taxes. Now Apple CEO Tim Cook must appear before Congress on Tuesday to talk about the company's taxes and offshore profits.
According to the press release, a bipartisan investigation by the Senate Permanent Subcommittee on Investigations has discovered that Apple has used a "complex web" of offshore entities to avoid paying billions of dollars in U.S. income taxes. Three of these foreign subsidiaries are not tax resident in any regain, Apple claims.
"The subcommittee, which previously explored tax avoidance by other multinational corporations using offshore subsidiaries, found similar practices at Apple," the Senators said. "In addition, the subcommittee review discovered an unusual tax scheme: Apple’s claim that two key offshore companies are not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies. One of those Irish subsidiaries has paid no income taxes to any national tax authority for the past five years."
Sen. Levin said that Apple "sought the Holy Grail of tax avoidance" by creating "offshore entities holding tens of billions of dollars" that Apple claims to be "tax resident nowhere". The Senate intends to highlight that gimmick and other Apple offshore tax avoidance tactics so that tax-paying, working American families understand how offshore tax loopholes raise their tax burden, and add to the federal deficit.
"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," said Sen. McCain. "A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue."
Meanwhile, Apple has already acknowledged that it has a subsidiary in Ireland, but it doesn't use "tax gimmicks" to save a buck.
Apple isn’t the first American corporation to come under fire for avoiding taxes by pushing funds offshore. A September 2012 hearing explored how Microsoft and Hewlett-Packard used "dubious" strategies to avoid billions in U.S. taxes. The Senate's Permanent Subcommittee on Investigations said that tax avoidance is running rampant in the technology sector. Tech companies like Microsoft and HP have reportedly stashed away their intellectual properties, royalties and licensing fees in "overseas tax havens" to skirt government taxes.
Microsoft supposedly shifted $21 billion to offshore accounts from 2009 to 2011, almost half of its U.S.-based retail sales revenue. Thus, the Redmond company saved up to $4.5 billion USD in taxes on goods that were sold here in the States. The company reportedly even moved royalty revenue of units to low-tax nations to avoid paying billions to the U.S.
The Senators claim that Apple is using a "cost sharing agreement" to transfer valuable intellectual property assets offshore and shift the resulting profits to a tax haven jurisdiction. It's also accused of negotiating a tax rate of less than 2-percent with the government of Ireland and using Ireland as the base for its extensive network of offshore subsidiaries. That's significantly lower than that nation’s 12-percent statutory rate.