Senator Carl Levin turned up the heat on Apple Computer over the company’s gaming of international tax rates to reduce the rate America’s most profitable tech companies pay to less than what is required of many small and medium-sized businesses.
On the last day of the U.S. federal budget year that ended on September 30, 2014, retiring Senator Levin blasted Apple for crafting what he called a “sweetheart deal” with Ireland to dodge billions in U.S. taxes. Levin said the tax deal that Apple cut had “no rational basis” as a business strategy, other than shifting profits offshore.
The octogenarian Levin has served as a senator for 35 years and is the chairman of the powerful Senate Committee on Armed Services. Although he is a proud life-long Democrat, he often breaks with party liberals regarding crony capitalism. He was one of only three party members, with Joe Manchin of West Virginia and Mark Pryor of Arkansas, to vote with every Republican against Senate Majority Leader Harry Reid and 51 of his Democratic colleagues last November in the dangerous precedent of changing how the chamber considers executive branch and most judicial branch nominees.
But since the spring of 2013, Levin, as the chairman of the Senate Subcommittee on Investigations, has been delving into how tech behemoths like Apple and Microsoft are able to avoid taxes by moving their operations overseas.
Levin complains that one reason Apple is the world’s most profitable tech company is that despite almost 50% of Apple’s sales coming from America, Apple has arranged its affairs over the last six years to only pay an 11% tax rate, versus the 39.13% top rate in the U.S., according to the latest Apple Computer S.E.C. filing.
Levin has called Apple’s operations “the holy grail of tax avoidance.” Levin went so hard on his questioning of Apple CEO Tim Cook last year that libertarian Senator Rand Paul said Levin should “apologize” for “bullying” such an important American business leader, according to the Center for American Progress.
Apple has accomplished this feat primarily by designing and manufacturing its iPhones, MacBooks, or iPads in Asia and hosting its AppleCare customer service from Ireland, according to The New York Times.
The company does manage its $150.5 billion in cash in America. But Apple set up a handful of employees in a small office 200 miles away from its headquarters in Cupertino, California, to collect and invest the profits in state tax-free Nevada to escape California’s 8.84% state tax.
Yesterday, Levin responded after the European Union Commission formally warned Ireland it may have given Apple Computer unfair tax exemptions that could qualify as illegal state aid. In a 21-page report, the Commission charged Ireland with improperly giving Apple Irish tax deals that illegally “constituted State aid.” Regulators also said they may order Ireland to collect billions in new retroactive taxes from Apple.
According to Levin, “The facts are abundantly clear: Apple developed its crown jewels–lucrative intellectual property–in the United States, used a tax loophole to shift the profits generated by that valuable property offshore to avoid paying U.S. taxes, then boosted its profits through a sweetheart deal with the Irish government” to pay a 2% tax rate. Levin added, “Apple’s Irish tax rate has no rational basis; it was determined by what Apple was ‘prepared to accept’–with the threat that it would cut jobs in Ireland if it didn’t get its way,” according to a report by The Hill.
Apple defended its relationship with Ireland, saying in a statement that it did not create any “special arrangements” with the Irish government. Apple added, “We’re subject to the same tax laws as the countless other companies who do business in Ireland.”
The European Commission’s report constitutes a “preliminary indictment” of Apple’s past arrangements with Ireland and comes as policymakers in the United States and Europe try to block some of the more inventive maneuvers multinational corporations use to dodge taxes in their home countries and minimize worldwide payments.
Edward D. Kleinbard, a professor at the University of Southern California’s Gould School of Law and a former chief of staff to the Congressional Joint Committee on Taxation, said, “The light bulb has gone off that trade wars by another name and conducted through the tax system are just as ruinous.”
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