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Old May 21, 2013, 03:29 PM   #1
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Excerpts of Apple Executives' Senate Committee Testimony on Tax Policy




Three Apple executives, CEO Tim Cook, CFO Peter Oppenheimer, and head of tax operations Phillip A. Bullock, appeared in front of the U.S. Senate Permanent Subcommittee on Investigation earlier today, testifying about Apple's tax policies.

MacRumors has a rough transcript of the hearing, while the full event is viewable on C-SPAN. The full hearing was quite long, but here are some selected excerpts from our transcript.

At the beginning of the hearing, Senators are allowed to make whatever opening statements they wish. Senator Rand Paul (R-KY) gave a spirited defense of Apple, saying he was "offended" by the hearing.
Quote:
"Tell me a politician who is up here and doesn't try to minimize his taxes... Tell me what Apple has done is illegal. I am offended by a government... that convenes a hearing to bully one of America's greatest success stories... If anyone should be on trial here, it should be Congress. I frankly think the committee should apologize to Apple."

Instead of Apple executives, we should have brought in a giant mirror. This problem is solely and completely caused by our tax code. This committee should look in the mirror. "I find it abominable."

We need to apologize to Apple, compliment them for the job creation they're doing, and get on with our job and redo the tax code.
Apple CEO Tim Cook and CFO Peter Oppenheimer also made opening statements. Cook noted that Apple is responsible for creating or supporting 600,000 jobs in the United States, and disclosed for the first time the the upcoming 'Made in the USA' line of Mac computers would be manufactured in Texas, with parts coming from a wide variety of states.Much of the hearing would focus on Apple's use of Irish subsidiaries to avoid paying U.S. income taxes on revenue generated overseas from the sale of products. Senators had accused Apple of having "sham" corporate entities in Ireland that served no purpose except for avoiding tax liability. Hitting back at that accusation, Cook said that Apple's operations in Ireland were not shell corporations, but had actual functions.
Quote:
Apple has real operations, in real places, with Apple employees selling real products to real customers. We not only comply with the laws but we comply with the spirit of the laws. We don't move intellectual property offshore and use it to sell products back on the U.S. Our foreign subsidiaries pull 70% of our cash because of the rapid growth of our international business. We use this money to finance construction of Apple retail stores around the world and fund production of products. It would be very expensive to bring that cash back to the United States. Unfortunately the tax code has not kept up with the digital age. We are handicapped in relation to our foreign competitors who do not have such constraints on the free movement of capital.
Senator John McCain (R-AZ), asked Cook whether Apple's actions overseas created an unfair advantage for them compared to smaller companies that operate strictly inside the US and cannot create such overseas entities.
Quote:
McCain: If you look at the 35% [corporate] tax burden, that I'm sure we're in agreement is way too high, you said the purpose of AOI [an Irish subsidiary] is to ease administrative burdens. Isn't it obvious that you are not bearing the same tax burden as if you were bearing in the United States? This gives you some advantage over smaller companies located strictly in the US?

Cook: Sir, I have tremendous respect for you. I see this differently from you. Apple is earning these profits outside the US. By law and regulation, these are not taxable in the US. AOI invests that money overseas and then the interest from those investments is taxed in the US. I see this as a very complex topic and I'm glad we're having the discussion. Honestly, I don't see it as being unfair. I am not an unfair person. That's now who we are as a company and who I am as an individual. I do not see it that way.
In a moment of levity, the 76-year old McCain expressed a concern that many iPhone owners share: "I'm out of time, but why the hell do I have to keep updating the apps on my iPhone? Why can't you fix that?" Cook responded that Apple was "looking to do better all the time."

Senator Claire McCaskill (D-MO), after praising Apple and its products, asked Cook about what's keeping Apple headquartered in the United States and why the company doesn't move overseas where the fiscal climate might be more favorable.
Quote:
McCaskill: What would it cost to move out of California or move entirely to Ireland or China? What keeps you from moving on a cost analysis basis?

Cook: We're an American company. We're proud to be an American company. The vast amount of our R&D is in California. We love it there.

McCaskill: It's an intangible?

Cook: It's who we are as people. We're an American company whether we're selling in China or Egypt. We're an American company. It has never entered my mind that we would move to another country. It's beyond my imagination and I have a wild imagination. It's beyond it.
One of the major reasons for Cook's appearance in front of the committee was for Apple to put forth its own plan for corporate tax reform.

For one thing, Cook said the U.S. corporate income tax rate should be in the mid-20 percent range, while repatriation tax rates for income earned outside the U.S. should be somewhere in the single digits. Cook said that Congress should take a tip from Apple and focus on simplicity.
Quote:
Apple has always believed in the simple, not the complex. You can see this in our products and in the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. We make this recommendation with our eyes wide open, fully recognizing that this would likely result in an increase in Apple's U.S. taxes. We strongly believe that such reform would be fair to all taxpayers and would keep the U.S. competitive.
Finally, in his final line of questioning to Cook and Oppenheimer, Senator Levin went on the offensive, arguing that while Apple may not be violating the letter of the law, it was certainly violating the spirit of it.

By routing most foreign earnings to an Irish subsidiary -- a subsidiary that, in Levin's view, existed solely to avoid paying U.S. income tax -- Apple was doing a disservice to the American public by not paying their fair share.

Apple does pay U.S. income tax on earnings from the Americas (Mexico, Canada and Brazil most notably), but some two-thirds of its worldwide income eventually get routed to Irish subsidiaries.
Quote:
Levin: And all the profits from Mexico and Canada and Argentina are taxed in the United States. But you made a decision to shift economic value overseas and the result is that most of your profits are not taxed. You're an American company. You're proud of it, we're proud of it. The result of these arrangements is that most of your profit is now in Ireland in these companies that don't exist. Of course we have to change this system. But to change it, we have to understand what is going on. What is going on is a huge loss of revenue to the United States. We've got these corporations that are able to shift profits to places where you don't pay income tax on it. We better understand that if we're going to correct it. That's our purpose here today. To shed a light on that. I hope that purpose has been achieved. We cannot continue a system where the company, a multinational company, is phenomenally as successful as yours and can make a decision, sitting down in 2008 as to where the profits will flow.

Where the R&D is 95% in the United States. You got R&D tax credits, all the benefits of living in this country. You're sitting there, unilaterally deciding whether to continue a system where profits are shifted to a place where they are not available to the American taxman. Everyone agrees that we need to change this system. In order for us to change this system, we've got to understand what is going on. You make a unilateral decision, three Apple employees in 2008, essentially decided where these profits will be taxed or not taxed. It's not right. That is not right. To leave that decision, it seems to me, the way it is decided so unilaterally, that a company can shift its value to a tax haven -- that's what Ireland is -- I know its your intention and I applaud your view. I know its not easy to come in front of the spotlight. It's important for us to write the laws. You agreed Mr. Cook that we need to rewrite these laws. Thank you for coming.
Following the testimony of Apple's executives, representatives from the US Treasury and the IRS appeared and largely confirmed that Apple's activities appeared to be entirely legal.

Note: Due to the political nature of the discussion regarding this topic, the comment thread is located in our Politics, Religion, Social Issues forum. All MacRumors forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

Article Link: Excerpts of Apple Executives' Senate Committee Testimony on Tax Policy
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Old May 21, 2013, 03:31 PM   #2
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I'm sick and tired of Apple being unresponsive and inconsiderate when it comes to taxes.
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Old May 21, 2013, 03:34 PM   #3
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The solution is clear: Put Jonathan Ive in charge of redesigning the tax code.
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Old May 21, 2013, 03:35 PM   #4
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So because someone creates jobs; they don't have to pay taxes?
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Old May 21, 2013, 03:36 PM   #5
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It takes a real set of balls to hide and not pay SO MUCH in taxes and then turn around and give advice on how to make companies pay more in taxes. And that Rand Paul simpleton? He's exactly the type to decry a lack of "patriotism" but, at the same time, applaud a company that wouldn't pay its fair share for the privilege of doing business here.
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Old May 21, 2013, 03:38 PM   #6
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Way to go Rand Paul! Liberals and Democrats live in la la land and have no understanding how business and job creation work.

Apple is a success story!
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Old May 21, 2013, 03:38 PM   #7
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Levin and McCain should be embarrassed for that sham of a hearing. They picked on Apple because they knew the cameras would follow. They should have heard from GE, Exxon Mobil and Wall Street.

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Originally Posted by MultiMediaWill View Post
I'm sick and tired of Apple being unresponsive and inconsiderate when it comes to taxes.
Oh, Will. How do you manage to get the first comment bashing Apple is so many threads?
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Old May 21, 2013, 03:40 PM   #8
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Originally Posted by WiiDSmoker View Post
So because someone creates jobs; they don't have to pay taxes?
Did they break any laws? No.
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Old May 21, 2013, 03:40 PM   #9
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Originally Posted by MultiMediaWill View Post
I'm sick and tired of Apple being unresponsive and inconsiderate when it comes to taxes.
Because you obviously do all you can to maximize your tax burden.
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Old May 21, 2013, 03:44 PM   #10
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Originally Posted by HyperX13 View Post
Way to go Rand Paul! Liberals and Democrats live in la la land and have no understanding how business and job creation work.
By most accounts, Steve Jobs was fairly liberal, so it's strange that you're making that assertion given the subject at hand partly being the incredible success of Apple under his guidance. Seems some liberals might understand business, huh?

But either way, if you're looking to score cheap political points or bolster your own political biases, you'll need to explain why it wasn't only Democrats running this committee hearing.

----------

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Originally Posted by WiiDSmoker View Post
So because someone creates jobs; they don't have to pay taxes?
Strawman argument. Nobody said that.
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Old May 21, 2013, 03:45 PM   #11
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Originally Posted by distemp View Post
It takes a real set of balls to hide and not pay SO MUCH in taxes and then turn around and give advice on how to make companies pay more in taxes. And that Rand Paul simpleton? He's exactly the type to decry a lack of "patriotism" but, at the same time, applaud a company that wouldn't pay its fair share for the privilege of doing business here.
Not following you. Apple pays US taxes at the full corporate rate for all US activities (in addition to units sold in all of americas). The distinction is their AOI managed foreign sales, which they are not required to pay US taxes on anyway. Why should they bring that money in and have it cut by a third?

Would you do that to your 401K?

Apple came in to suggest a lower rate for repatriating that money, which would be a great thing for our economy. Otherwise, it ain't happening (this goes for just about every other company as well btw. Apple are not an exception.).
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Old May 21, 2013, 03:46 PM   #12
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I think Cook was pretty reasonable when he suggested a corporate tax rate in the 20's.

I'm in favor of an international minimum tax as Obama has suggested. If the nation of sale taxes below this mutually agreed upon rate, the home nation taxes the rest to that percentage (say 15%). No tax on repatriating money. That way you tax the profits only once. Makes sense to not tax the moving of money provided it was taxed fairly when it was first earned. And it's not a true transfer of wealth since it remains under the control of the same entity.
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Old May 21, 2013, 03:49 PM   #13
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Not following you. Apple pays US taxes at the full corporate rate for all US activities (in addition to units sold in all of americas). The distinction is their AOI managed foreign sales, which they are not required to pay US taxes on anyway. Why should they bring that money in and have it cut by a third?

Would you do that to your 401K?

Apple came in to suggest a lower rate for repatriating that money, which would be a great thing for our economy. Otherwise, it ain't happening (this goes for just about every other company as well btw. Apple are not an exception.).
You know more about this than I do. Just leave me to be upset.
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Old May 21, 2013, 03:49 PM   #14
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Defended by the likes of Rand Paul? Sheesh!
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Old May 21, 2013, 03:51 PM   #15
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Great to see people are somewhat sane and see how twisted our world has become. legal stealing? go into politics. Legal bribing? be a lobbyist.
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Old May 21, 2013, 03:52 PM   #16
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Levin and McCain should be embarrassed for that sham of a hearing. They picked on Apple because they knew the cameras would follow. They should have heard from GE, Exxon Mobil and Wall Street.



Oh, Will. How do you manage to get the first comment bashing Apple is so many threads?
I watched part of it. They have brought in other corporations on their tax practices in the past. Last year it was HP and Microsoft. The way they conducted it was stupid. Levin spent a lot of time asking questions and then talking at the person attempting to answer, which was ridiculous. It's not like the IRS has the resources to audit a company the size of Apple anyway even if they did suspect illegal activity.
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Old May 21, 2013, 03:54 PM   #17
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I watched part of it..... It's not like the IRS has the resources to audit a company the size of Apple anyway even if they did suspect illegal activity.
Guess you didn't watch enough of it. Apple has IRS people in their building, constantly keeping an eye on what's going on. A full time audit.
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Old May 21, 2013, 03:58 PM   #18
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"Tell me a politician who is up here and doesn't try to minimize his taxes... Tell me what Apple has done is illegal. I am offended by a government... that convenes a hearing to bully one of America's greatest success stories... If anyone should be on trial here, it should be Congress. I frankly think the committee should apologize to Apple."

Instead of Apple executives, we should have brought in a giant mirror. This problem is solely and completely caused by our tax code. This committee should look in the mirror. "I find it abominable."

We need to apologize to Apple, compliment them for the job creation they're doing, and get on with our job and redo the tax code.
Rand Paul is 100% right. Those senators should have been summoning Cook to receive an award or congratulation on behalf of the company, or perhaps provide advice on balancing the budget.
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Old May 21, 2013, 03:58 PM   #19
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I was offended by this hearing from the first time I heard about it. This was just an excuse for a few Senators to bloviate about the tax code Congress themselves created. Apple did nothing illegal, Apple did what they had a fiduciary duty to their shareholders to do, and Apple is one of the best examples of a successful American company creating jobs in the US and paying their taxes to the IRS.

Ridiculous.
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Old May 21, 2013, 03:59 PM   #20
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So because someone creates jobs; they don't have to pay taxes?
They paid over 6 BILLION in taxes in 2012. How much did you pay?
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Old May 21, 2013, 03:59 PM   #21
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Apple is definately being subjected to a witch hunt here, but don't fall for that tool Rand Paul... He's a free lunch Republican who wants corporations to get all of the benefit without paying any of the costs.
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Old May 21, 2013, 03:59 PM   #22
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The solution is clear: Put Jonathan Ive in charge of redesigning the tax code.
No way. He's British. Taxes would be far too high if he was put in charge.
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Old May 21, 2013, 04:00 PM   #23
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Defended by the likes of Rand Paul? Sheesh!
I know... talk about 'STOP HELPING!!!'.
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Old May 21, 2013, 04:02 PM   #24
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So because someone creates jobs; they don't have to pay taxes?
The company that does not pay ANY taxes is the hyper left leaning General Electric (GE).

Apple IS paying taxes, they just are not paying taxes on sales and service for which it is not required or owed. Funny thing is that NO ONE, not even the mouthy liberals, will pay more taxes then they are obligated to pay. Actually, most of them skirt their taxes as bad or worse then the best of them. Look at Warren Buffett Hello, this guy avoids taxes like the plague but the only time you hear him in the news is when he is preaching that "he and people with wealth should pay more". Then PAY IT you hypocrite. No one is stopping you.

I support Apple in their smart business practices of following the laws and only paying what they are obligated to pay.
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Old May 21, 2013, 04:03 PM   #25
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Originally Posted by WiiDSmoker View Post
So because someone creates jobs; they don't have to pay taxes?
Apple paid over $6,000,000,000 in taxes last year? Is not not having to pay taxes? Levin looked like a joke when he had to be schooled by the Treasury and IRS about Tax, Tax Law and accounting.
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