Apple CEO Tim Cook Will Propose Corporate Tax Overhaul, Report

Apple CEO Tim Cook will be using his time in a Congressional hearing to propose an overhaul to the U.S. corporate tax system. News that Mr. Cook would appear in the hearing broke early Thursday morning, but the leader of the world's richest corporation told The Washington Post that he will propose changes that make it easier for U.S. companies to bring profits back to the U.S. rather than holding them offshore.

The hearing is called "Offshore Profit Shifting and the U.S. Tax Code," focusing on the estimated US$1.7 trillion being held in offshore tax havens by the richest U.S. companies.

Apple alone has roughly $100 billion held offshore. If it were to bring that money back to the U.S., it would pay 35 percent in taxes. Wall Street doesn't fancy the idea, which is why so many companies keep overseas profits overseas.

Apple went as far as to borrow $17 billion from the bond markets against those overseas funds. The company will use that money in an accelerated program to buy back shares and pay a higher dividend. It was orders of magnitude less expensive for Apple to borrow the money than it would have been to repatriate those profits and pay the taxes it would then owe.

That is effectively what this Congressional hearing is about, and Mr. Cook is set to propose changes that would reset the rules.

“If you look at it today, to repatriate cash to the U.S., you need to pay 35 percent of that cash. And that is a very high number,” Mr. Cook told The Post. “We are not proposing that it be zero. I know many of our peers believe that. But I don’t view that. But I think it has to be reasonable."

He added, "Apple has a very strong moral compass, and we believe in really good corporate citizenship. You can see this in the number of jobs we create in the U.S. and how much we invest in the U.S."

Some pundits, corporate executives, think tanks, tycoons, and others have argued that the tax rate for profits earned overseas be eliminated, often arguing that it accounts to double taxation. U.S. corporations theoretically are paying local taxes on those profits already, they argue, and shouldn't have to pay again when they bring the money back home.

The reality, of course, is much more complicated. Companies have found ways to use complicated networks of subsidiary companies that they base in offshore tax havens and then have foreign operations pay those much of their income to those subsidiaries—often in the form of licensing fees—so that their local tax burdens are minimized. A zero percent tax on foreign profits wouldn't change that.

Apple itself has been called a pioneer in this area, being credited with inventing the Double Irish With a Dutch Sandwich technique of moving money around.

Mr. Cook didn't offer The Post the details of what he would propose, but he won't be advocating a zero percent tax on foreign profits. He also noted that Apple pays a lot of taxes in the U.S. as it is.

"You may not know this, but Apple likely is the largest corporate taxpayer in the U.S.," he said. "When you combine state and federal, Apple is paying approximately $1 million an hour in just domestic income taxes."