Apple released the testimony CEO Tim Cook will submit to a Congressional hearing on Tuesday, including some of the details of a proposal to overhaul the U.S. corporate tax system. In a 16 page PDF, Apple asked that Congress eliminate all corporate tax loopholes, lower the corporate income tax rates, and to implement a "reasonable tax" on foreign earnings.
Apple CEO Tim Cook and CFO Peter Oppenheimer are scheduled to testify on Tuesday at a hearing titled "Offshore Profit Shifting and the U.S. Tax Code." The hearing is investigating how multinational companies manage their money vis á vis U.S. income tax laws.
Apple, the world's most valuable company and holder of the biggest corporate nest egg of more than US$145 billion, is obviously of interest to the committee conducting the hearing. Apple holds roughly $100 billion of its cash offshore, but in the testimony PDF released Monday, Apple made it clear that it doesn't use shell games to hide its profits from the U.S. tax man.
From the document:
Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands.
The company stressed these points repeatedly through its PDF. Apple explained that it has so much money offshore because it earned that money offshore. It further explained that it keeps it offshore because paying the current 35 percent income tax rate on repatriating foreign profits is too burdensome. which is the impetus behind the proposed tax overhaul.
We should note, however, that Apple has been accused of using a complicated scheme of foreign subsidiaries outside the U.S. to minimize its tax burden in other countries. Apple has been called the inventor of the "Double Irish With a Dutch Sandwich" technique of moving money around.
Specifics
Apple did not propose a specific tax rate for U.S. corporations, nor did it propose a specific rate for its "reasonable tax on foreign earnings." That said, the company acknowledged that it could pay more U.S. taxes as a result of its proposal, and said that doing so would be worth for a tax system that allowed multinational companies to have more flexibility in moving money back to the U.S.
"The Company believes the current system, which applies industrial era concepts to a digital economy, actually undermines US competitiveness," Apple wrote.
The document also took the opportunity to brand its proposal as uniquely Apple, saying, "Apple has always believed in the simple, not the complex. This is evident in the Company’s products and the way it conducts itself. In this spirit, Apple has recommended to the Obama Administration and several members of Congress – and suggests to the Subcommittee today – to pass legislation that dramatically simplifies the US corporate tax system."
Apple argued that it is probably the largest U.S. tax payer, having ponied up $6 billion in federal income taxes in fiscal 2012, with another $7 billion expected in fiscal 2013.
Just to drive the point home, the document argues, "Expressed differently, Apple paid $1 out of every $40 of corporate income taxes collected by the US Treasury last year."
Apple also paid $327 million in the employer's share of payroll taxes for U.S. employees in 2012, and another $830 million in state income taxes. Apple also paid or remitted more than $1.3 billion in U.S. and state sales taxes and use taxes.
From the document:
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 US companies propose. As both a pioneer and participant in the American innovation economy, Apple looks forward to working with the Subcommittee on its efforts to encourage comprehensive reform of the US corporate tax system. Apple appreciates the opportunity to appear before the Subcommittee to contribute constructively to this important debate.
There is much more in the full document.