4 Ways Apple CEO Tim Cook Spins Tax Avoidance

4 Ways Apple CEO Tim Cook Spins Tax Avoidance

—By Josh Harkinson
| Tue May. 21, 2013 6:56 AM PDT

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"I've never seen anything like this and we don't know anybody who has ever seen anything like this," Sen. Carl Levin (D-Mich.) said yesterday of Apple's baroque tax avoidance strategies. But Apple CEO Tim Cook, who will testify before the Senate Subcommittee on Investigations today, is aggressively spinning what Levin called "gimmickry" as patriotic, commonsensical, and no big deal. Here are the most remarkable talking points from his pre-released Senate testimony:
1. Apple's taxes are straightforward.
Spin: "Apple does not use tax gimmicks."
Reality: Yet somehow, according to an analysis by Citizens for Tax Justice, Apple has paid almost no income taxes to any country on its $102 billion in offshore holdings. Between 2009 and 2012, Apple avoided paying US taxes on some $74 billion in income, an amount equal to the entire budget of Florida.
2. Paying American salaries through a subsidiary based in Ireland saves American jobs.
Spin: Apple and its Irish subsidiaries are engaged in a "cost sharing agreement" whereby the subsidiaries "partially fund R&D costs incurred by Apple Inc." The agreements "play an important role in encouraging companies like Apple to keep R&D efforts in the US."
Reality: This is how Apple brings back money from overseas without having to pay federal taxes on it.
3. Apple is awesome because it runs huge data centers right here in the United States.
Spin: "In 2010, Apple built one of the country's largest data centers in North Carolina, and it is in the process of constructing two additional data centers in Oregon and Nevada."
Reality: Apple only agreed to build the North Carolina data center after getting a $46 million state tax break, its local property taxes halved, and local taxes on its assets slashed by 85 percent—all for creating 50 jobs. To build its data center in deficit-plagued Nevada, it extracted an $88 million state tax break, the largest in state history. And Apple chose to build a data center in Prineville, Oregon, because Oregon has no sales tax and Prineville is in a "rural enterprise zone" that offers a 15-year property tax exemption.
4. "Apple supports comprehensive corporate tax reform."
Spin: "Apple recognizes that these and other improvements in the US corporate tax system may increase the company's taxes."
Reality: Cook wants to reduce the tax that corporations pay when they repatriate profits, which could save Apple a lot of money considering that 61 percent of its profits are earned overseas. But lowering the repatriation tax probably wouldn't benefit most Americans. After Congress enacted a one-time repatriation holiday in 2004, a study by the National Bureau of Economic Research found that 92 percent of the repatriated cash was used to pay for dividends, share buybacks, or executive bonuses.
　
　
http://www.motherjones.com/mojo/2013/05/tim-cook-spinning-apple-taxes

Apple Tax Grilling Becomes Cook’s Latest Crisis-Management Test

By Adam Satariano - May 21, 2013 9:01 PM PT


Tim Cook’s tenure at the helm of Apple Inc. (AAPL) has been a crash course in crisis management.
In almost two years since Cook became chief executive officer, Apple has lurched from one reputation-threatening public-relations predicament to the next -- from criticism of its labor practices in China, to faulty mapping software that marred the release of the iPhone 5. Most recent case in point: Cook testified yesterday before Congress to defend Apple against allegations that it dodged $9 billion in taxes in 2012.
In two hours of testimony, Cook calmly parried questions from a Senate subcommittee, urged reform of U.S. corporate tax code and even shared a laugh with Senator John McCain about the hassles of iPhone updates. Even so, continually coping with crises threatens to divert management’s attention from building better products and reversing a share slump. The accusation that Apple shifted billions of dollars to offshore affiliates to avoid paying taxes threatens to alienate consumers, said Jack Ablin, chief investment officer of BMO Private Bank in Chicago.
“There is a reputation risk,” Ablin said. “Being in the news, testifying before Congress and sound bites about avoiding billions of dollars in taxes has the potential to ruffle their customers’ feathers. This issue is on the front page, not the business page.”
That helps explain why Cook went to Washington, D.C., to face questioning by Senator Carl Levin of Michigan and other members of the Senate Permanent Subcommittee on Investigations, which said that Apple relied on loopholes and a web of offshore entities to avoid paying U.S. taxes.
Taxes Paid

“It’s important to tell our story -- and I’d like people to hear it from me,” Cook said in testimony. “We pay all the taxes we owe -- every single dollar.”
The remarks exemplified how Cook has handled other crisis - - quickly and personally -- when they crop up for Cupertino, California-based Apple.
“They are happening in every dimension of the business, whether it’s taxes, offshore production or product design,” said Stephen Diamond, a law professor at Santa Clara University who has worked with technology companies and studies corporate governance. “He’s had to dive in personally and manage these.”
While management can shrug off perceived missteps when the going is good -- as was often the case under co-founder Steve Jobs -- Apple’s leadership has lately had to cope with a stock price that’s declined 37 percent since reaching a record on Sept. 19. The shares are falling amid concern that the company won’t quickly be able to produce a blockbuster gadget that can build on the success of the iPhone and iPad.
Einhorn, China

“Investors are struggling to see what’s next, and you didn’t have that problem with Steve Jobs,” said David Walker, a technology analyst at Trillium Asset Management, which has about $1.3 billion under management, including Apple shares.
Before taxes took center stage, Cook was forced to respond to investors such as hedge fund manager David Einhorn who wanted the company to return some of its cash to shareholders. Cook also issued a public apology after Chinese regulators criticized the company’s warranty policies, and he oversaw a management shakeup that included firing senior executives Scott Forstall, who oversaw the company’s mobile software, and retail head John Browett.
Then there was the botched introduction of the company’s mapping software -- another episode that elicited a public apology from Cook.
Apple makes for an easy target because it’s big and popular. Apple was for a time the world’s most valuable company, surpassing Exxon Mobil Corp. Apple’s iPhone and iPad are among the best-selling products in their respective categories.
‘Nose Punched’

Focusing on Apple can attract greater attention to an arcane issue, such as tax reform, said Santa Clara’s Diamond. Apple was singled out in Congress for practices used by many companies, he said.
“If your nose is particularly big on an issue that they care about, your odds go up to get punched,” he said. “They got punched in the nose on this one.”
Cook is attempting to put a fresh public face on Apple after the 2011 death of Jobs, said Regis McKenna, a marketing consultant who worked with Apple through several crises in the past.
“The company has put its mark on so many social and economic aspects of life,” said McKenna. “It’s a huge, huge job. I think he’s the right person for the moment.”
Cook will probably have the opportunity to play that role again, said Daniel Diermeier, professor at Kellogg School of Management at Northwestern University.
“Apple is such an iconic brand that they are more exposed,” said Diermeier, who has studied reputation management. “This is part of the repertoire that a CEO has to deal with, and if you have a more high-profile position then there is more of that.”
To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
　
　
http://www.bloomberg.com/news/2013-05-22/apple-tax-grilling-becomes-cook-s-latest-crisis-management-test.html

EUROPE NEWS
May 21, 2013, 10:59 p.m. ET
Multinationals' Scanty Tax Pay Angers U.K.

By CHARLES FORELLE and CASSELL BRYAN-LOW

LONDON—The storm brewing over Apple Inc.'s AAPL -0.74%tax practices in the U.S. has already rained down hard in the U.K., where multinationals including Starbucks Corp., SBUX +0.66%Amazon.com Inc. AMZN +0.46%and Google Inc. GOOG -0.17%have drawn public scorn for the paucity of taxes they pay here.
But while the opprobrium has dented the companies' reputations, and the U.K. government has pledged to take up tax avoidance with international bodies such as the Group of Eight leading nations, little has yet been done to change the rules.
That makes plain the hurdles to tackling global tax. Doing so requires corralling recalcitrant offshore jurisdictions, or broadly reshaping national tax codes. The European Union is mounting a crackdown on tax evasion and aggressive tax avoidance, but it is hampered by rules that require unanimous agreement among the 27 member states on much tax legislation. And low-tax countries, such as Ireland, aren't eager to lose the business their rates attract. Indeed, the U.K.'s Conservative government is proudly lowering corporate tax rates.
Still, much of Europe is in a frenzy of budget austerity brought on by its debt crisis. That has meant cuts in public services and hikes in taxes paid by individuals. And that has sharpened the focus on corporate taxes.
"For the public this is a crisis quite literally of the state, because if the state can't charge taxes on these companies it has lost its power," said Richard Murphy, a tax expert who advises unions and aid groups. Speaking to a parliamentary committee on Tuesday, Mr. Murphy said that he believed the problem lies with the global taxation system, which he described as "not working."
Some of the same tactics cited by the U.S. Senate Permanent Subcommittee on Investigations' examination of Apple—such as the use of Irish entities to accumulate profit from a whole region—are in wide employ by global companies in Europe.
The Senate report, citing an interview with Apple's chief tax official, said Apple negotiated a "special" tax deal with Ireland that resulted in a rate near 2%. Tuesday, Ireland's prime minister, Enda Kenny, told lawmakers there was no such special treatment. "Ireland doesn't do, let me repeat, doesn't do special tax [reliefs] for companies," he said.
The U.K. parliament's public-accounts committee has held closely followed hearings on whether large—and apparently successful—companies are paying enough tax. According to testimony of corporate officials and written statements they supplied, the numbers are small. Starbucks has paid £8.6 million ($13.1 million) in U.K. corporation tax since 1998. Amazon paid £1.8 million in corporation tax in 2011; that year, it had £3.35 billion in U.K. sales. Google had more than $12 billion in U.K. revenue between 2010 and 2012; in November it said it paid £10 million ($15 million) in corporation tax in the past three years. .
Google has faced particular scrutiny. During a tense two-hour appearance before parliament's Public Accounts Committee last week, politicians grilled Matt Brittin, a top executive for Google in Europe.
Mr. Brittin testified that U.K. sales are actually completed in Ireland, where the company has its European headquarters and where the tax rate is 12.5%, rather than the 23% in the U.K.
Margaret Hodge, a lawmaker in the opposition Labour Party, said people she described as whistleblowers had provided information that appeared to show that "the entire trading process and sales process took place in the U.K."
Said Ms. Hodge to Mr. Brittin: "You're a company that says it does no evil and I think you do do evil."
Mr. Brittin defended Google's practices. "Tax isn't a matter of choice, it's a matter of following the laws that are there internationally," Mr. Brittin said. "I think it's important to note that we comply with relatively complicated international tax laws that are set by politicians."
The dance between politicians and executives can be awkward.
Google's executive chairman, Eric Schmidt, wrote in a column in the U.K.'s Observer newspaper over the weekend that the company tried to "do the right thing" on taxes and supported "meaningful tax reform." Mr. Schmidt is a member of British Prime Minister David Cameron's business-advisory group, which met Monday. Mr. Cameron talked about taxes but didn't discuss Google's case or ask Mr. Schmidt about the issue, a spokeswoman for the prime minister said.
Anti-tax-avoidance protesters have also latched on to Starbucks and demonstrated outside its stores. In December 2012, the company said it would take the highly unusual step of volunteering to pay around £10 million in extra tax in 2013 and in 2014.
The British government says it believes this tax area is an issue for international, rather than domestic, law and has been pushing to make it part of the international agenda. "The Government is committed to creating the most competitive corporate tax system in the G-20; but this commitment goes hand in hand with our call for strong international standards to make sure that global companies, like anyone else, pay the taxes they owe," a spokeswoman for the U.K. Treasury said.
Apple's U.K. tax practices have been comparatively low-profile. But it, too, takes advantage of Ireland. Apple's retail stores in the U.K. are operated by Apple Retail U.K. Ltd., based in London. According to the Senate report, Apple's European retail subsidiaries—such as Apple Retail U.K.—buy Apple products from an Irish entity at a "substantial markup," then sell them to consumers.
The result: In the U.K., according to Apple Retail U.K.'s corporate filings, Apple Retail U.K. had sales of £860 million in the year ended Sept. 24, 2011, but recorded the cost of what it sold as £675 million. Operating expenses, chiefly pay and benefits for staff, reduced its taxable income to £31 million, on which it recorded £8.6 million in tax. Another Apple entity in the U.K., Apple (U.K.) Ltd., recorded £5 million in tax that year, and a third, Apple Europe Ltd., booked a tax credit of £2.1 million.
An Apple spokesman, Josh Rosenstock, declined to discuss any aspect of Apple's U.K. operations.
　
　
http://online.wsj.com/article/SB10001424127887324787004578497322412520166.html

Of Course Apple Avoids Billions in Taxes—and It Should


The big reveal here is two-fold: The U.S. corporate tax code is an impossible dream (we knew that, already); and Apple is acting like a sensible corporation (we knew that, too).
Derek ThompsonMay 21 2013, 11:59 AM ET

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Reuters

There are a few ways to respond to the congressional report that Apple has discovered ingenious ways to avoid paying taxes on income earned overseas.

• There is the outraged response: "Apple's scheming to avoid paying taxes is unethical and unpatriotic."
• There is the proactive response: "The U.S. corporate tax system is broken, and we should fix it."
• And there is the indifferent response: "Wow, a multinational company is legally saving money. What color is the blue sky, again?"

A year ago, I would have told you I fall between outraged and proactive. I'm trending rapidly toward indifferent.
'A Bad Boy'
Apple is a multinational company, with 61 percent of its revenue from foreign operations. To (legally) minimize its tax bill, Apple has set up empty subsidiaries in lower-tax countries like Ireland, effectively making them a quasi-stateless corporation with an effective corporate tax rate of about 20 percent.
This might sound devious and and a little bit evil. But we aren't accusing Apple of behaving like a criminal. We are accusing them of behaving like corporation, since it is in the nature of corporations to find ways to save money. Rather than a story about patriotic duty, or funding the social net, or corporate ethics, this is really a story about unrealistic expectations. We wish we could tax American companies on their earnings from all around the world. And we can't. We just can't.
Apple is an American company, in most people's eyes. But it is a global company, insofar as most of its employees and most of its revenue come from outside the country. Since most developed foreign economies have lower statutory rates -- and because there are ways to play national tax laws off each other to further cut taxes -- multinational companies like GE and Google have mastered the global tax labyrinth to save money. Congress operates under the illusion that it can impose U.S. taxes on foreign earnings, but trying to fit a global mesh of far-flung money under Washington's narrow tax purview will always end like all efforts to push toothpaste back into a tube: Messily, somewhat embarrassingly, and thoroughly unsuccessfully.
"The most important takeaway for me from this report how ridiculous the US corporate tax system is," said Gary Hufbauer, an international tax policy expert at the Peterson Institute for International Economics. "We have this illusion of taxing earnings abroad. We think we should be taxing Apple and GM on any income earned anywhere in the world. But we can't, and very few countries even try."
"I would hope this turns out to be a great teaching lesson on how dysfunctional the architecture of our tax system is," he continued. "But it's more likely that we'll learn an easier lesson: That Apple is being a bad boy."
'The Worst of All Possible Worlds'
Tax experts I spoke with called the US corporate tax code "the worst of all possible worlds": a high tax rate, loopholes upon loopholes, billions of dollars falling through the cracks, and trillions stowed away overseas to avoid repatriation.
"When Apple needs money, it's cheaper for the company to borrow from the bond market" than to bring back earnings from overseas, said Howard Gleckman at the Tax Policy Center. "That's just crazy."
But even the simplest solutions to the craziness wouldn't end it. One sensible thing to say, if you're a tax wonk, is that we should "move to a territorial system with a lower statutory rate," which is wonkese for "just tax profits in the U.S., but not so much." It's a fine idea. It might even lead to more revenue, counter-intuitively, since more companies might hire and build here under the lower rate. But it wouldn't stop Apple from employing Apple-y tax schemes, because those tax schemes would save money over basically *any* U.S. statutory rate.
"There is not a simple solution," Gleckman said. "Even with a territorial system, there is no evidence that it would create more jobs here. If you're paying tax in the U.S. on US earnings only at 25 percent, we're still competing with an Irish system at 12 percent. So, [all things equal] if you have a choice of building a factory here or Ireland, you're going to go to Ireland."
The current system of international corporate income taxes is not working. But it might not "work," under certain definitions of the word, no matter what we do. Even as most people publicly agree that the system is "broken," Apple (and GE and Google, etc) aren't terribly enthused about most of the proposed reforms, because their tax departments have already figured out how to exploit the "broken" system to save money.
The Real Problem With Ingenious Tax Schemes
So what's the argument against ignoring this whole thing and directing our finite attention to stuff where reform could really make a difference?
Gleckman responded with a short story: Think of it this way, he said. Apple has got all this money stashed overseas. It wants to make investments in the U.S. But bringing the money back is too expensive because of our tax code. So it sells bonds instead. And then it uses the money from that bond sale to pay tax lawyers to keep its tax burden low. "That's a huge waste of resources."

Even as I've grown cynical about attacking Apple for behaving like a corporation, this argument hits home.In perhaps the most ingenious tax juke reported by the Permanent Subcommittee on Investigations', Apple realizes that the US taxes companies based on where they incorporate, while Ireland taxes companies based on where the subsidiary managers work, so Tim Cook sets up an empty subsidiary in Ireland and manages it in the U.S. to avoid taxes in both countries. Admit it. That's ingenious.

And the fact that it's ingenious is sort of the problem. It would, after all, be nice if America's greatest companies spent more time and resources designing ingenious things than designing ingenious tax schemes.
　
　
　
http://www.theatlantic.com/business/archive/2013/05/of-course-apple-avoids-billions-in-taxes-and-it-should/276078/