U.S. Markets closed

Apple CEO Cook Defends Taxes Paid, Urges Big Reforms

Apple CEO Tim Cook on Tuesday rebuffed accusations of tax dodging, telling a Senate committee his company pays what it owes and doesn't use "gimmicks," complying with the spirit and the letter of tax laws.

He urged the Senate's subcommittee on investigations, which is part of the Homeland Security and Governmental Affairs Committee, to push for a major simplification of corporate tax laws.

Cook also called on Congress to set a reasonable rate for repatriated foreign profits.

Cook said the U.S. should eliminate deductions and set a tax rate in the mid-20% range for U.S. sales and a single-digit rate on foreign profits returned to America. The federal rate for U.S. and repatriated earnings is 35% now.

New Look

"This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the United States," Cook told the Senate panel.

"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," he said.

Last year, Apple (AAPL) paid an effective federal tax rate of 30.5% and cut a check for $6 billion to the Treasury. It expects to pay $7 billion in federal taxes this year.

Given the title of the hearing, "Offshore Profit Shifting and the U.S. Tax Code," many expected the senators to grill Apple executives about their business practices. Instead, the politicians praised Cook and two lieutenants for their innovation.

In questioning academic experts before Apple's presentation, committee members criticized Apple's handling of foreign profits, including its use of subsidiaries in low-tax Ireland.

Apple has $102 billion in cash and investments banked overseas that it refuses to bring back to America because of the stiff tax burden.

McCain Zinger, Paul Defense

"In my view, Apple has violated the spirit of the law, if not the letter of the law," said Sen. John McCain, R-Ariz.

Sen. Rand Paul, R-Ky., accused the panel of "vilifying Apple." He said the firm was simply doing what every corporation and individual taxpayer does in trying to lower the tax burden. Paul said he found the hearing's tone "objectionable.

Sen. Carl Levin, D-Mich., said he merely wished to "shine a light" on egregious tax practices. The subcommittee, which he leads as chairman, released a report Monday detailing what it considers questionable Apple strategies, including a "complex web of offshore entities.

Cook shot back: "We pay all the taxes we owe, every single dollar. We not only comply with the laws, but we comply with the spirit of the laws. We don't depend on tax gimmicks.

"We don't move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don't stash money on some Caribbean island. We don't move our money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.

Cook outlined how innovations like the iPhone, iPad and App Store have boosted the economy and created 600,000 U.S. jobs, including nearly 50,000 at Apple.

He said corporate tax legislation is vital for the health of the U.S. economy and would create more jobs and investment here.