Just Taxes Blog by ITEP

Tim Cook’s Disingenuous Argument to Justify Apple’s $215 Billion Offshore Cash Hoard

August 9, 2016

Tim Cook is a persuasive CEO. In a wide-ranging interview published earlier this week in the Washington Post, he discussed his vision for the company, thoughts about leadership succession, and humbly admitted he has made mistakes.

So it would be very easy to view as reasonable his declaration that Apple will not repatriate its offshore profits until the United States enacts a “fair” tax rate. Apple, he asserted, pays “plenty of taxes” and is justified in keeping profits offshore to avoid U.S. taxes because it “sells products everywhere.”

A review of the company’s latest public filing reveals that it holds $215 billion offshore, avoiding up to $66 billion in taxes. Just last year, Apple moved a record $50 billion offshore, far more than any other company has achieved in a single year.

Apple cemented its status as a champion tax avoider in 2013 after a U.S. Senate Permanent Subcommittee on Investigations (PSI) found that the tech giant exploits loopholes in the tax code to shift its U.S. profits to an Irish subsidiary where those profits will not be taxed. CTJ analysts outlined how it does this in a 2013 report.

When Cook  justifies Apple’s offshore cash stash by declaring that the company sells products everywhere, he is carefully conflating the political controversy over whether the U.S. should have a territorial tax system with the real issue—the fact that Apple is aggressively moving U.S. profits offshore to avoid taxes. It’s a clever PR strategy intended to make Apple’s tax avoidance scheme seem reasonable.

The U.S. has a global tax system in which it taxes all corporate profits (at the statutory rate less whatever rate the corporation pays to a foreign government) of U.S.-based companies no matter where said profits are earned. Corporations and their allies continue to push for legislation that would move the United States to a territorial corporate tax system in which only the profits they earn in the United States would be subject to taxation here. CTJ has written extensively about why this should not be a top priority for tax reform.

Shifting questions about Apple’s tax avoidance to political discourse over whether the U.S. should move to a territorial tax system is a ruse. As the Senate PSI investigation found, Apple shifts a significant percentage of U.S.-earned profits offshore so that it doesn’t have to pay taxes on its U.S.-earned profits.

Cook’s assertions are further bunk as it appears the company is paying a miniscule amount, if any, in taxes to any nation on these profits. ITEP’s Matt Gardner last year reviewed Apple’s corporate filings and found that the company has an effective tax rate of “about 2.2 percent on its permanently reinvested foreign profits.” This means a significant percentage of those profits are in tax havens where they will not be taxed at all.

Tim Cook’s declarations that Apple will not repatriate profits until the United States has a “fair” rate and that the company pays “plenty of taxes,” appears to mean that the company has determined an upper limit of U.S. profits that should be taxed (plenty) and the rest should be moved offshore because the company has decided it’s paid enough.


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