Apple CEO Tim Cook has defended his company against charges of aggressive tax avoidance in a hearing in front of a Congressional committee in the US Senate.
In a report, the Senate Permanent Subcommittee on Investigations claimed that Apple avoided paying $9bn in taxes in 2012 alone using three offshore entities with no "residence" for tax purposes.
Further reading
Apple 'avoids paying billions of dollars in tax', say US senators Apple supplier Pegatron to hire 40,000 staff to make budget iPhone Apple avoids over $9bn in US taxes through debt deal
In total, the Senate investigation indicated that Apple had "used technicalities" in Irish and US tax law to pay next-to-nothing in corporate tax on some $74bn "over the past four years".
In a similar manner to the arrangement by which coffee chain Starbucks "exports" profits made in the UK to a low-tax jurisdiction by making its UK operation pay a royalty for using the Starbucks name to a company in Luxembourg, one of the major issues at the heart of Apple tax avoidance claims is the value assigned to intellectual property. That intellectual property is held in low-tax Ireland, rather than by Apple's parent company in Cupertino, California.
"Apple wasn't satisfied with shifting its profits to a low-tax offshore haven," said Democrat Senator Carl Levin. "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."
Apple's entire use of offshore entities is solely aimed at avoiding taxes, he asserted.
But in front of Congress, Cook hit back saying that his company paid nearly $6bn in tax to the US government in 2012, and that "we expect to pay even more this year". Indeed, added Cook, Apple accounts for 2.5 per cent of all US corporation tax, while paying a further $2bn in other taxes.
The Irish unit, he added, was a tax efficient way for the company to manage cash that had already been accrued, accounted for and taxed elsewhere. "We pay all the taxes we owe, every single dollar we owe. We don't just comply with the law, we comply with the spirit of the law," he said.
Cook called for a "dramatic simplification of the tax code", which in the US includes high headline rates of corporation tax - among the highest in the world - which is mitigated by a series of deductions that companies skilfully use to reduce their overall tax rate.
However, Peter Oppenheimer, Apple's chief financial officer, was asked to explain how the company's cost-sharing research and development deal with its Irish subsidiary worked, with more than half of Apple's R&D costs funded by Apple Ireland, despite the centre of its R&D work being in Cupertino, California.
Yet in a written submission to the Committee, Cook admits that "most of Apple's amazing innovations happen in a single postcode: Cupertino, California".
