Transfer Pricing Associates

Apple CEO testifies regarding tax strategy

post Tuesday May 28, 2013

Apple Inc.’s ability to minimize their United States tax bill has been widely recognized for quite some time. The New York times wrote a broadly distributed article focusing on how Apple “avoids” paying their due taxes.This article created substantial frustration and angst among American taxpayers and lead to a large number of individuals calling for substantial corporate tax reform in the United States. The United States Senate Permanent Subcommittee on Investigations recently announced that Apple avoided paying at least $9 billion in domestic taxes in the U.S.

In an appearance before the Permanent Subcommittee on Investigations, Apple CEO Tim Cook responded to the wide-ranging criticism and accusations of his company and the corporate tax strategy that has resulted in an allegedly unfair tax position. He stated that, “We pay all the taxes we owe…We don't move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don't stash money on some Caribbean island.” Mr. Cook’s response is obviously expected and he continues to work to convince the U.S. Senate subcommittee that there is no wrongdoing being committed by Apple. Mr. Cook did add that he is for extensive corporate tax reform, even if it resulted in Apple paying more than their most recent tax bill of roughly $6 billion.

The apparent need for major tax policy reform in the U.S. is further confirmed by a recent study by research firm Audit Analytics. In the study by the firm, it is asserted that total U.S. corporate profits stored offshore has risen to $1.9 trillion. The staggering number has led to an increased desire among legislators to bring improvement to U.S. corporate tax law.

Apple is able to achieve a low effective tax rate by employing a variety of permitted business practices. Some of the most useful tools utilized by Apple is transfer pricing, cost sharing arrangements and the implementation of subsidiary holding companies. Additionally, Apple employed “check the box” methods and “look through” elections to legally minimize the amount of domestic taxes that were due. It is clear that a growing number of Americans, including lawmakers, expect reform to U.S. tax policy and eventually, a limitation on the location of intellectual property as well as foreign earnings.
Source: Reuters
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