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Senate report: Apple claims subsidiaries with no taxing jurisdiction

Grant Gross | May 21, 2013
Apple avoids paying billions of dollars in taxes a year through a 'complex web' of offshore entities, the report says.

Apple Operations Europe is a third subsidiary that Apple says is not a resident of any country for tax purposes, staffers said.

Subcommittee staffers questioned Apple's use of the offshore subsidiaries, which are supposed to maintain arm's length relationships with the corporate parent in order to take advantage of so-called transfer pricing deals that allow companies to shift assets and costs to other countries. Most officers of the three offshore companies examined by the subcommittee are executives with Apple, the subcommittee said.

Nearly 64 percent of Apple's global sales are attributed to its Irish subsidiaries, even though 95 percent of the company's research and development activities happen in the U.S., staffers said.

Apple holds $145 billion in cash and other securities, with $102 billion located outside the U.S. It has no plans to return that money to the U.S. until Congress creates a more favorable tax environment, the report noted.

Subcommittee staffers said the Apple case study points to the need for tax reform, but the difficulty in closing loopholes for corporations. If Congress closes one loophole, large companies will find another, they said.

Tech-focused think tank the Information Technology and Innovation Foundation (ITIF) called on Congress to fix the U.S. tax code instead of blaming companies for using legal loopholes. Congress should focus more on making the U.S. attractive for global investment, the group said.

"Unfortunately, instead of focusing on the reforms the U.S. needs to keep pace, some policymakers focus on blaming corporations for choosing to move jobs offshore or legally deferring foreign profits to reduce their tax burden," the ITIF said in a statement. "Blame is not a strategy. Shame is not a policy. Instead of berating U.S. companies for being unpatriotic, Congress would be better advised to put in place the comprehensive changes needed to make the U.S. economy more competitive."

Congress should move to lower the corporate tax rate, expand a research-and-development tax credit and put more money into R&D, the group said.

The Information Technology Industry Council (ITI), a tech trade group, also defended Apple, saying Levin's efforts to target the company are a "political sideshow."

The subcommittee hearing is "really a venture designed to embarrass Apple, a company that has a strong record of U.S. job creation and employs Americans and pays about $1 million an hour in state and federal income taxes," ITI President and CEO Dean Garfield wrote in a blog post. "With innovation as its North Star, Apple has been a major job-creating force in the U.S."


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