The U.S. Securities and Exchange Commission's investigation into Apple's tax practices is complete, and the conclusion is that the Mac, iPhone and iPad maker isn't breaking any laws. Congress pulled Apple in for hearings earlier this year over accusations that it was intentionally keeping money outside the United States to avoid paying taxes.
SEC: Apple didn't violate U.S. tax laws
The investigation revealed that the majority of Apple's overseas earnings are held in Ireland and that the money will be staying outside of the U.S. The SEC report stated,
Substantially all of the Company's $40.4 billion in undistributed international earnings intended to be indefinitely reinvested in operations outside the U.S. (as of September 29, 2012) was generated by subsidiaries organized in Ireland, which has a statutory tax rate of 12.5 percent. The Company supplementally advises the Staff that most countries in which the Company operates have tax rates lower than that of the U.S.
Since so much of Apple's wealth outside the U.S. is held in Ireland, the SEC advised the company to add more information to its Federal reports that identify where its money is held and what risks that poses instead of simply referring to foreign holdings. Apple agreed to the request and will note what possible impact any changes to Ireland's tax laws could have on the company's bottom line.
Apple CEO Tim Cook and CFO Peter Oppenheimer were called before Congress in May to testify on the company's tax practices. Senator Carl Levin (D-MI), said at the time, "Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven. Apple sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere."
Mr. Cook firmly disagreed stating,
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.
When Congress suggested Ireland should change its tax laws to be more in line with the U.S., the country's Minister for Jobs (as in employment, not Apple's co-founder) said "[Companies] play the tax codes one against the other; that is tax planning, and I think we do need international cooperation through the OECD to deal with the aggressive nature of that."
Ireland ultimately decided it didn't need to conduct an investigation of its own into Apple's tax practices.
According to Apple, 61 percent of its net sales happen outside of the United States, and much of that money will be used to promote the company -- just not in the U.S.
The real issue isn't whether or not Apple is sheltering money outside the U.S. to avoid paying taxes. Instead, it's Congress seeing the laws it created working exactly as designed: Favoring holding money outside the country to avoid hefty taxes. Bringing its offshore cash into the United States, regardless of where it was earned, would cost Apple about 33 percent, and taking that kind of a hit would be fiscally irresponsible to share holders.
Instead, it costs Apple less to borrow money for ventures like its stock buyback program than bringing its own money into the country.
Congress could change U.S. tax laws to make Ireland less attractive to companies, or it could change laws to make it less expensive to bring money into the States. Instead, it chose to spend U.S. tax dollars to investigate Apple's practices and determine the company is fully complying with current laws -- something that seemed fairly obvious before the investigation began.
Maybe Congress should've spent more time looking at reforming tax laws instead of targeting Apple only to show that Mr. Cook was right when he said his company pays all the taxes it owes.
[Thanks to the LA Times for the heads up]