WASHINGTON Apple Inc's chief executive officer defended the company's tax record at a Tuesday Senate hearing where lawmakers said the maker of iPads, iPods and Mac computers kept billions of dollars in profits in Irish subsidiaries to avoid U.S. taxes.
The hearing marked another foray by the Senate's most powerful investigative committee into corporate offshore tax avoidance, which is increasingly a target of many governments from the United States to Western Europe.
Senator Carl Levin, who has led several probes into offshore tax issues as chairman of the Permanent Subcommittee on Investigations, said Apple shifted billions of dollars in profits offshore to avoid U.S. taxes on a massive scale.
In 2012 alone, Levin said, Apple avoided paying $9 billion (5 billion pounds) in U.S. taxes.
Apple CEO Tim Cook said at the hearing that his company was a major U.S. taxpayer, handing over nearly $6 billion in cash to the federal government in 2012.
"We expect to pay even more this year," Cook said in his first congressional testimony since becoming CEO in 2011.
"We pay all the taxes we owe," he said. "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."
Cash-strapped governments worldwide are trying to wring more tax revenue from companies whose interests in many countries enable them to shift capital and assets across borders. Critics say the companies exploit tax loopholes. (Video factbox: r.reuters.com/qej38t)
MCCAIN FAULTS TAX SYSTEM
"Closing these kinds of unjustified loopholes could provide hundreds of billions of dollars to reduce the deficit and avert damaging budget cuts," Levin, a Democrat, said at the hearing.
"We should close them and dedicate the revenue that generates to these important priorities, whether or not we reform the overall tax code," he said.
Senator John McCain praised Apple as an American business success story, but he said the company's tax strategy reflected a "flawed" tax system.
"For years, Apple has opted to forego fully contributing to the U.S. Treasury and to American society by shifting profits and circumventing U.S. taxes," McCain said.
Levin's panel issued a report saying that Apple used three subsidiaries with no "tax residency" in Ireland, where they are incorporated, or in the United States, where corporate executives manage those companies.
The main subsidiary, a holding company that includes Apple's retail stores throughout Europe, has not paid any corporate income tax in the last five years, the subcommittee said.
The Levin inquiry comes at a turbulent time in tax circles, with the U.S. Internal Revenue Service under investigation because of the way agents handled conservative political groups' applications for tax-exempt status.
It is not clear, however, whether that controversy and Levin's allegations will lead to an overhaul of the U.S. tax code. Tax law writers in Congress had been inching forward on such a project before the IRS scandal erupted earlier this month. Levin's inquiry has been under way for months.
Subcommittee staffers said on Monday that Apple was not breaking any laws and had cooperated fully with the inquiry.
Shares of Apple were down 0.2 percent at $442.10 in midday trading.
(Writing by Kevin Drawbaugh; Editing by Lisa Von Ahn)