Apple to Senate: We Comply with the Law - Change the Law

A brief note: The following piece of analysis is about politics and Apple. Technology and politics intersect all the time, and this has only grown as Apple has become more successful. If you are the sort who doesn't want to read about politics on a Mac site, just stop here, close the page, and move along. Go ahead, I'll wait until you're gone...

If you're still here you realize that Apple's top execs were testifying on Capitol Hill about taxation, and commentary about that appearance necessarily and by definition involves politics. You are welcome to disagree with my opinion, but do not waste anyone's time telling me I shouldn't talk about politics.

Apple CEO Tim Cook and CFO Peter Oppenheimer had a straight-forward and direct message for a Senate subcommittee questioning the company about its tax practices: we comply fully the law, we don't hide profits from the U.S., and if you don't like what we're doing, change the law.

In his opening statement, Mr. Cook said:

"Apple has real operations in real places, with Apple employees selling real products to real customers. We pay all the taxes we owe – every single dollar. We not only comply with the laws, but we comply with the spirit of the laws. We don’t depend on tax gimmicks.

We don’t move intellectual property offshore and use it to sell products back into the U.S. to avoid U.S. taxes. We don’t stash money on some Caribbean island. We don’t borrow money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.

Be the change you want to see

Tim Cook was emphatic on these issues. He spoke with passion and conviction, and he emphasized that if the subcommittee wanted to see change in the way multinational companies do business, they need to change the laws that govern corporate taxes and how foreign profits are taxed.

Examining Apple's Taxes

“Unfortunately, the tax code has not kept up with the digital age,” Mr. Cook said. “The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free movement of capital.”

He added, "It is in this spirit that we recommend a dramatic simplification of the corporate tax code. We strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth."

Mr. Cook spoke emphatically about Apple's role as an innovator, too, and he argued that his company takes its responsibilities as a taxpayer in the U.S. very seriously. He was less emphatic about Apple's role outside the U.S.

To that effect, Apple was met with a mixed reception in the hearing. While Senators Carl Levin (D-MI) and John McCain (R-AZ) accused Apple of hiding profits from the U.S. Treasury, other senators from both sides of the aisle spent their time asking for Apple's input on how to right the system.

In addition, most of the participants praised Apple and/or its products, including Senators Levin and McCain.

And then there was that thing that one guy said...

I should add that much ado has been made out of comments Senator Rand Paul (R-KY) made in defense of Apple. Those comments were made before the questioning even got started, and the philosophy behind those comments were at odds with the message that Tim Cook was there to deliver.

In my opinion, it would be wrong to make too much of those comments. Senator Paul was grandstanding; he was using the platform of the committee on which he sits to demonize the government in which he works, harnessing Apple's brand in his efforts to do so.

In the meanwhile, Tim Cook's message was that with great success comes great responsibility, something quite at odds with Senator Paul's Tea Party-centric philosophy. Mr. Cook stated more than once that his proposed changes to the tax code would result in Apple paying more in taxes, but that he thought the results would be better for Apple, better for business, and better for America.

From Mr. Cook's opening comments:

Apple is a company of strong values. We believe our extraordinary success brings increased responsibilities to the communities where we live, work and sell our products.

We enthusiastically embrace the belief, as President Kennedy said, “To whom much is given, much is required.” In addition to creating hundreds of thousands of American jobs and developing products that deeply enrich the lives of millions, Apple is a champion of human rights, education and the environment. Our belief that innovation should serve humanity’s deepest values and highest aspirations is not going to change.

Apple is also a company of strong opinions. While we have never had a large presence in Washington, we are deeply committed to our country’s welfare. We believe great public policy can be a catalyst for a better society and a stronger economy.

There was lots of grandstanding in today's hearing on both sides of the aisle, but Mr. Cook's message stands in stark contrast to Senator Paul's argument that the big bad government owed Apple an apology.

There's always more room for grandstanding

There will be even more grandstanding on the part of many institutions, advocacy groups, and politicians in the days and weeks to come, much of it aimed at or derived from Apple's role in this hearing. On Tuesday afternoon, for instance, I heard a representative from a left-leaning advocacy group state on CNBC that Apple was lobbying to maintain the status quo when it comes to corporate taxation.

Which is, of course, precisely the opposite of what Apple is actually doing.

None of the CNBC talking heads corrected him, either, which was very disappointing considering that I watched the hearing on the same network.

As I noted in earlier coverage of this topic, it is clear the U.S. corporate tax system is broken. Trillions of dollars are being held offshore. Apple recently sold $17 billion in bonds in order to finance a higher dividend and an accelerated share buyback plan.

That it was orders of magnitude cheaper for Apple to borrow the money than to bring in some of the $100 billion earned and held offshore is the proof in that particular pudding. How, or even if, it gets resolved remains to be seen.