By Brendan Sasso - 05/21/13 06:53 PM EDT
Apple CEO Tim Cook on Tuesday forcefully defended his company before Congress, denying that the technology giant used “gimmicks” to dodge billions in corporate taxes.
Testifying before the Senate Permanent Subcommittee on Investigations, Cook said Apple creates hundreds of thousands of jobs and pays billions of dollars in taxes every year.
His testimony came after a report from the Senate panel released Monday detailed how Apple uses a network of offshore subsidiaries to save billions of dollars every year in taxes.
Chairman Carl Levin (D-Mich.) said Apple and other corporate giants were exploiting tax loopholes that allowed them to avoid paying billions to the federal government.
"Apple is exploiting an absurdity, one that we have not seen other companies use," Levin said. "The absurdity need not continue."
He argued that Apple’s actions forced the government to slash vital social programs and to increase the tax burden on other businesses.
Levin said that because of the lost revenue, "children across the country won't get early education form Head Start. Needy seniors will go without meals. Fighter jets sit idle on tarmacs because our military lacks the funding to keep pilots trained."
The Senate report found that three of Apple's subsidiaries in Ireland have no official tax residence, meaning they pay little or no taxes to any government.
One entity, Apple Operations International, made up 30 percent of the company's total worldwide net income from 2009 to 2011 but did not pay any corporate income tax to any government during that time period, the report said.
The company also used cost-sharing agreements to shift billions of dollars in economic intellectual property rights to its offshore subsidiaries, according to the report. But the legal rights to its intellectual property remained in the U.S., allowing the company to take advantage of strong U.S. legal protections, the investigators said.
"Most of your profits worldwide are not taxed," Levin said. "We're proud of you being an American company. We're glad you're where you're at, but the result of these arrangements that you've continued is that most of your profit is … in Ireland in these companies that don't exist anywhere."
He emphasized that he was not accusing Apple of breaking the law, but he said he wanted to shine a spotlight on egregious corporate tax policies depriving the federal government of revenue.
Cook, along with Chief Financial Officer Peter Oppenheimer and head of tax operations Phillip Bullock, argued that the cost-sharing deal was only the continuation of an arrangement that has existed since Apple launched its European operations in 1980.
Cook said Apple's foreign subsidiaries own such a large share of the company's income and assets because of the "rapid growth of our international business."
“We do have a low tax rate outside the U.S., but this is for products we sell outside the U.S.,” he said.
Sen. John McCain (R-Ariz.), the panel's ranking member, accused Apple of being one of the largest tax avoiders in the country.
“By engaging in these elusive corporate strategies aimed at deferring and reducing tax payments, Apple’s tax department has given new meaning to the company’s old slogan, quote: ‘Think different,’" he said.
But other senators on the panel defended Apple, and Sen. Rand Paul (R-Ky.) said the company would be guilty of malpractice if it paid any more taxes than it owed.
"I frankly think the committee should apologize to Apple," Paul said.
"I'm offended by the spectacle of dragging in executives from an American company that is not doing anything illegal," he added.
McCain called it "offensive" to accuse Levin of bullying and asked Cook to clarify whether he felt that he was dragged before the subcommittee.
"I didn't get dragged here, sir," Cook said. "I think it's important that we tell our story, and I'd like people to hear it directly from me."
Cook urged lawmakers to slash the corporate tax rate from 35 percent to the mid-20s and to enact a "single digit" rate on foreign earnings that companies bring back to the United States.
"It would be great for growth in this country," he said.