Cook hits back at tax critics, says Apple pays its fair share

Apple CEO Tim Cook offers impassioned rejoinder to critics claiming the company uses gimmicks and tax loopholes.

Apple CEO Tim Cook testifying before Congress. Getty Images

Last updated at 10:33 a.m. PT.

After stewing in silence for a couple of hours as a parade of senators and professional experts took turns portraying his company as a tax freeloader, CEO Tim Cook offered an impassioned defense of Apple as a solid corporate citizen.

Apple has become the largest corporate income tax payer in America," Cook told the Senate Permanent Subcommittee on Investigations on Tuesday. He added that last year the company paid almost $6 billion in cash to the U.S. Treasury, or more than $16 million per day.

He said Apple pays "the taxes it owes. Every single dollar."

Cook also denied that Apple uses tax gimmicks. "We don't stash money on some Caribbean island," he said.

That was a pointed rebuttal to some of the comments made by several people earlier in the hearing, which kicked off with both Democrats and Republicans sharply criticizing Apple's tax avoidance policies. On Monday, Congressional investigators said that Apple had escaped paying billions of dollars in taxes by virtue of its use of a network of overseas subsidiaries.

PDF of Apple's written testimony.

Cook, whose voice at a couple of points appeared to break, fiercely portrayed the company as patriotic and a contributor to American job growth, even citing a quote from former President John F. Kennedy's, "to whom much is given, much is required."

Peter Oppenheimer, the company's chief financial officer and senior VP, backed up his boss as he offered the senators a closer look at the company's operations. He said Apple was in "full compliance with all laws and regulations."

As the Q&A got underway, committee Chairman Carl Levin (D-Mich.), who also quoted Kennedy on another occasion decrying corporate tax avoidance, engaged in a bit of verbal jujitsu. Levin then pressed Apple's representatives on details about its Irish subsidiary, AOI, and the amount of corporate tax it paid.

The ranking Republican on the committee, Sen. John McCain, then asked Cook whether he felt bullied -- a suggestion made earlier by Sen. Rand Paul. Cook avoided giving a direct answer but said that he wanted to be helpful and that no, he had not been dragged before the panel. "I think it's important that we tell our story and I'd like for people to hear it from me," he said. "I didn't get dragged here."

Apple's Peter Oppenheimer testifies before Congress, May 21, 2013
Apple's Peter Oppenheimer testifies before Congress this morning. C-Span/Screenshot by CNET

Cook and McCain sparred at length over the import of Apple's Irish subsidiary, with McCain suggesting it was being used as a tax dodge. Cook disagreed, describing AOI as "just an efficient way to manage cash that has already been taxed in other jurisdictions."

"Sir, I see this as a very complex topic," Cook said. "I'm glad we're having the discussion but honestly I don't see this as unfair. I'm not an unfair person...I wouldn't preside over that.

The question of offshore holdings and how U.S. multinationals account for their taxable earnings has always been a hot-button issue, perhaps even more so these days in the aftermath of the budget sequester and the debate in Washington over taxes and spending.

Apple is not the only tech company using a network of complicated -- even byzantine offshore holdings -- to minimize its taxable income. But because of Apple's sizeable public footprint, it has become the most visible practitioner of how a company takes advantage of existing loopholes in current tax law to move capital around the globe for its advantage.

Call for new tax repatriation rate
"We're an an American company. And we're proud to be an American company," he said, denying any intention to consider incorporating anywhere outside of the United States. At the same time, Cook took advantage of his appearance in Washington to call for a rethink of current tax code. He did not get specific beyond saying that the U.S. ought to consider a more "reasonable tax on bringing money home" from overseas. That rate is now taxed at a 35 percent rate.

In any rethink associated with a reform of tax codes, Cook said that multinationals would likely welcome a "single-digit tax" on bringing back foreign earnings. "Some companies may pay a bit more, and I think we would be one of those," he said, adding that "it would be great for growth in this country."

What followed was a tax geek's idea of heaven as Cook's various interlocutors on the panel got into an involved discussion of taxes with Apple's chief, as well as with Oppenheimer and Phillip Bullock, who head's Apple's tax operations.

Apple's Phillip Bullock testifies before Congress, May 21, 2013
Apple's Phillip Bullock testifies before Congress this morning. C-Span/Screenshot by CNET

But as the hearing headed toward its close, the first big drama of the day broke out as Levin bore down on Apple's decision to keep most of its profit to offshore havens that don't pay U.S. taxes. "We can't continue a system where a multinational company as phenomenally successful as yourself, and deservedly so, can make a decision sitting down in 2008 or 2009, about where the profits are going to flow...where profits are shifted where they are not available to the American tax man. Everyone agrees we've got to change that system."

Levin said that the upshot had been "a huge loss of revenue to the United States."

"Folks, it's not right," Levin said.

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