On Capitol Hill, CEO Tim Cook denies Apple avoids paying taxes

Sen. Carl Levin (D., Mich.) holds up his Apple iPhone while questioning Apple CEO Tim Cook about methods used by corporations to shift profits offshore.

ASSOCIATED PRESS

Apple CEO Tim Cook testified before a Senate subcommittee that was examining methods employed by multinational corporations to shift profits offshore.

WASHINGTON — Facing down blistering criticism on Capitol Hill that Apple sidestepped billions of dollars in taxes, the company’s chief executive defended Apple’s record Tuesday, rejecting any suggestion of misconduct but avoiding clashes with skeptical legislators.

“It’s important to tell our story, and I’d like people to hear directly from me,” Timothy Cook told a Senate panel during questioning by Sen. John McCain, (R., Ariz.).

Apple, the chief executive said, pays “all the taxes we owe — every single dollar.”

Rather than taking unfair advantage of what congressional investigators say are a host of tax code loopholes, Mr. Cook said his company was a victim of an outdated tax system.

“Unfortunately, the tax code has not kept up with the digital age,” Mr. Cook said. “The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free movement of capital.”

On Monday, congressional investigators unveiled a detailed report showing how Apple subsidiaries based in Ireland but spanning other regions had helped the company pay as little as one-twentieth of 1 percent in taxes on billions of dollars in income.

Mr. Cook sought to draw a sharp distinction between sales in the United States and those abroad, arguing the company had complied with local laws everywhere.

“The way I look at this is that Apple pays 30.5 percent of its profits in taxes in the United States,” he said. “We do have a low tax rate outside the U.S., but this is for products we sell outside the U.S.”

Mr. Cook repeatedly said Apple was proud to be an American company, even if the majority of its sales took place outside the United States and were taxed at lower rates.

Other witnesses suggested Apple had pushed to take advantage of the tax code.

J. Richard Harvey Jr., a professor at Villanova Law School, estimated that Apple’s legal maneuvering had saved the company $7.7 billion in potential American taxes in 2011.

“In addition to demonstrating excellence in designing, building, and selling consumer products, Apple has been very successful at minimizing its global income tax burden,” he said.

Investigators have not accused Apple of breaking any laws and the company is hardly the only American multinational to face scrutiny for using complex corporate structures and tax havens to sidestep taxes.

Tax avoidance strategies used by Google, Starbucks, and Amazon have all stirred public anger and spurred several European governments, as well as the Organization for Economic Cooperation and Development, a Paris-based research organization for the world’s richest countries, to discuss measures to close the loopholes.

Still, the findings about Apple were remarkable both for the enormous amount of money involved and the audaciousness of the firm’s assertion that its subsidiaries are beyond the reach of any taxing authority.

For example, in 2011, 64 percent of Apple’s global pretax income was recorded in Ireland, where only 4 percent of its employees and 1 percent of its customers were located, Mr. Harvey said.

While Apple’s strategy is unusual in its scope and effectiveness, it underscores how riddled with loopholes the American corporate tax code has become, critics say. At the same time, it shows how difficult it will be for Washington to overhaul the tax system.

Sen. Carl Levin (D., Mich.) holds up his Apple iPhone while questioning Apple CEO Tim Cook about methods used by corporations to shift profits offshore.

While Mr. McCain and Sen. Carl Levin (D., Mich.) were critical of Apple, the company was not without its defenders on the panel.

“I’m offended by the spectacle of dragging in Apple executives,” said Sen. Rand Paul (R., Ky.). “What we need to do is apologize to Apple and compliment them for the job creation they’re doing.”

“Apple is a great company,” Mr. Levin said. “But they don’t have a right to decide in my book how much in taxes they are going to pay and to whom they are going to pay them.”