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Apple’s Cook faces Senate questions on taxes


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"What Apple is doing is pretty mainstream," said accounting expert Robert Willens, in an interview.

The spotlight on Apple’s tax strategy comes at a time of fevered debate in Washington over whether and how to raise revenues to help reduce the federal deficit. Many Democrats complain that the government is missing out on billions of dollars because companies are stashing profits abroad and avoiding taxes. Republicans want to cut the corporate tax rate of 35 percent and ease the tax burden on money that U.S. companies make abroad. They say the move would encourage companies to invest at home.

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While the two parties agree that reform is necessary, there is little agreement about what shape it would take. Throughout the hearing, senators on the panel seized on Apple’s situation to illustrate their belief that the U.S. tax system is in dire need of repair.

White House spokesman Jay Carney said the issue highlighted by the Senate panel’s report, unfairness in the U.S. tax code, is one of longstanding concern to President Barack Obama. Carney said Obama has long favored proposals "to ensure that American companies cannot use off-shore profit shifting to avoid paying taxes," including a proposal for a minimum tax on foreign earnings.

"This has been a major priority of his because he thinks it is inexplicable that our tax code would actually be written in a way that rewards companies for taking jobs and profits offshore, and thereby penalizes companies for doing what we want them to do, which is create jobs and opportunity here in the United States," Carney said Tuesday.

Thanks largely to the iPhone, Apple is one of the world’s most profitable companies. It earned $41.7 billion in calendar year 2012. It’s neck and neck with Exxon Mobil Corp. as the world’s most valuable company.

However, Apple’s Irish subsidiaries date back thirty years, to the time when the Macintosh computer was Apple’s banner product, and its profits were a fraction of 1 percent of today’s figure.

Apple’s stock fell $2.74, or less than one percent, to $440.19 in Tuesday’s afternoon trading.

The subcommittee also has examined the tax strategies of Microsoft Corp., Hewlett-Packard Co. and other multinational companies, finding that they too have avoided billions in U.S. taxes by shifting profits offshore and exploiting weak, ambiguous sections of the tax code. Microsoft has used "aggressive" transactions to shift assets to subsidiaries in Puerto Rico, Ireland and Singapore, in part to avoid taxes. HP has used complex offshore loan transactions worth billions while using the money to run its U.S. operations, according to the panel.

The tone of the hearing turned tense before the Apple executives appeared, as Sen. Rand Paul, R-Ky., an anti-tax hawk who reflects tea party sentiment, insisted that the subcommittee apologize to Apple for unfair scapegoating.


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"If anyone should be on trial here it should be Congress ... for creating a bizarre and byzantine tax code," said Paul. "If you want to assign blame, this committee needs to look in the mirror and see who created that mess."

Levin countered angrily that no such apology would be forthcoming. "Apple’s a great company, but no company should be able to determine how much it’s going to pay in taxes ..... by using gimmicks," he said.

And Sen. John McCain of Arizona, the subcommittee’s senior Republican, condemned Paul’s remarks as "offensive" for accusing Levin of bullying Apple executives.

Levin called Ireland a "tax haven," an appellation Irish Prime Minister Enda Kenny rejected when speaking in parliament in Dublin on Tuesday.

"We are not a tax haven. American investors quite understand that. Our (taxation system) is statutory-based and clear and transparent and effective right across the board," Kenny said.

He also denied the assertion in the subcommittee’s report that Apple had negotiated an Irish corporate tax rate of less than 2 percent. All companies pay the standard rate of 12.5 percent on profits from Irish operations, the prime minister said.

"Reports of lower effective tax rates appear to arrive at their figures by running together the profits earned by group companies in Ireland and in other jurisdictions," Kenny said.

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Svensson contributed from New York. Associated Press writer Shawn Pogatchnik in Dublin contributed to this report.



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