Apple CEO Tim Cook faced scrutiny of his firm’s tax avoidance practices in a Senate hearing Tuesday, but found a champion in Kentucky Republican Rand Paul, who had apologized to Cook for the inquiry earlier in the day.
“We are proud to be an American company and equally proud of our contributions to the U.S. economy," Cook said. “We pay all the taxes we owe -- every dollar.” The stage was set for a dramatic showdown by the release of a special report yesterday that found Apple avoiding billions in taxes by shifting income offshore.
Chairman Carl Levin (D-Mich.) took a strong stance, seeking clarification of Apple’s strategy, echoing expert witness J. Richard Harvey’s concern that while Apple does not appear to have broken the law, it exploited a dysfunctional global corporate tax framework. Stephen Shay of Harvard Law School said Apple shifted 64% of its profits to an Irish shell company last year, some $22 billion dollars. Cook replied that “Apple has real operations in real places,” and is the largest U.S. corporate taxpayer, paying nearly $6 billion to the Treasury at an effective rate of 30.5%, and holds 70% of its cash offshore to support expansion in global markets.
Senator Ron Johnson (R-Wis.) earlier questioned whether the American economy, entire sectors of which are directly tied to Apple, would have been better off if it paid more income as taxes. He proposed taxation “at the shareholder level,” ostensibly a levy on capital gains.
Senator Rand Paul (R-Ky.) echoed this laissez-faire viewpoint: “I think we need to be very clear that no one here is saying Apple broke any laws,” he noted. “I don’t know of anyone on this panel who maximizes their tax burden. … Bringing in an individual company and vilifying them for doing something that is in every company’s mandate is objectionable.” After saying that successful businesses should be rewarded, he concluded that the obvious answer is lowering the corporate tax rate.
Levin obliquely accused Paul of mischaracterizing witness testimony and vilifying the basic purpose of the permanent subcommittee on investigations.
Ranking member John McCain (R-Ariz.) called Paul's conduct “offensive.” But the former 2008 presidential candidate shared his Tea Party colleagues' support of dramatic rate reduction.
Drawing an analogy to the aesthetic of simplicity that guides Apple’s product strategy, Cook recommended “a dramatic simplification of the corporate tax code” that would be revenue-neutral, eliminating loopholes and compliance costs while lowering rates. “We make this recommendation … realizing this would likely increase Apple’s U.S. taxes,” Cook said, concluding that such reform is nevertheless crucial to ensuring American competitiveness in the global economy.