Apple's CEO was apparently all smiling and charming in his testimony on Apple's international tax gimmicks. Not surprisingly, he claimed that Apple pays tax on all its US profits and doesn't shift US profits offshore. See, e.g., Michael Shear, Torches and Pitchforks for IRS but Cheers for Apple, New York Times (May 22, 2013); Schwartz & Chen, In disarming testimony, Apple chief eases tax tensions, New York Times (May 21, 2013) (noting that Apple effectively claims a rate of about 30% but that is misleading).
Mr. Cook was especially disarming. “It’s important to tell our story, and I’d like people to hear directly from me,” he told Mr. McCain and the other senators. Apple, he testified, pays “all the taxes we owe — every single dollar.” Schwartz & Chen, In disarming testimony, Apple chief eases tax tensions, New York Times (May 21, 2013) (paragraphing changed).
But that's just wordsmanship and the kind of self-interested political schmoozing at which the "best" of Big Business leaders have always been rather adept. The fact is that Apple transfered essential intellectual property--developed with economic and other subsidies in the US--to an offshore shell that merely collects the offshore profits from that intellectual property offshore. That resulted in a significantly lower tax rate than Apple claims. Jesse Drucker, Apple's Tax Rate Ignores Profit-Shifting Offshore, Bloomberg.com (May 23, 2013).
While nobody at the hearing questioned the figure, it provides a distorted picture of Apple’s total tax burden. Based on its public filings, the company pays just under 14 percent of its income in taxes worldwide, according to Scott D. Dyreng, an assistant professor of accounting at Duke University’s business school whose research specializes in the actual tax rates of large U.S. companies.
Cook’s statistical spin goes to the heart of the debate over corporate tax avoidance. By shifting income from countries where they operate to offshore tax havens, multinational companies such as Apple, maker of the iPhone and iPad, can manipulate their tax rates and boost their profit.
Apple’s calculation “ignores the issue of profit shifting, which is the central controversy that was the subject of the hearing,” said Martin Sullivan, a former U.S. Treasury Department economist and chief economist at Tax Analysts, a nonprofit organization. “Apple has shifted enormous amounts of profits from the United States to an untaxed entity overseas.
Our ability to handle offshoring of assets hasn't advanced enough to take into account the ready globalization of intangible assets in any way that makes sense, and our tax administrators (bludgeoned by the heavily financed corporate lobbyists and their Congressional enablers, constantly underfunded and understaffed and therefore outmanned, constantly attacked by the right, as in the craziness currently underway against the division that attempts to appropriately categorize tax exempt applicants to avoid subsidizing their political activity without at least demanding disclosure of donors) and our courts (with too many ideologically driven right-wing activist judges that favor Big Business interests, appointed mostly by GOP presidents but even some by DEM presidents) don't usually have the desire or the guts to take on the use of offshore corporate shells under well-established statutory and judicial anti-abuse doctrines.
Those existing federal tax common law doctrines would permit courts (and therefore administrators) to disregard circular flows of cash, non- economic reality based ontax-avoidance dreams, and use of corporate shells with no or few employees and no or few actual commodities and management from a distant headquarters as conduits. But the companies have gotten away with it for so long, and have so effectively lobbied tax administrators who have too cozy a relationship with the tax bar and legislators who have a much cozier relationship with Big Business principals, that almost everybody now talks of use of seeminglyh endless chains of empty shell corporations or corporations tweaked with "just enough" superficial semblance of an actual business function to avoid US taxes as "common practices" that "everybody" considers legal under the "letter of the law."
This is hyper-textualism that condones doing anything you think you can get away with so long as it isn't clearly prohibited by a specific provision. Of course, the creation of specific provisions to counter discovered abuses requires considerable effort to get through a Big-Business friendly Congress. Those that do make it through increase the complexity of the Code. And then the lobbyists who lose on one-in-a-hundred of these innovative interpretations of what's allowable just go to work on tax administration to get a more friendly interpretation, and then go to work on Congress to "simplify" the Code and "cut rates" so they can be "competitive." It is a vicious cycle that is driving corporate taxes to zero, while most of the wealthy elite who own the corporate stock and business debt and business partnership interests are also driving their own rates down, as the myth of "job creation" by owners of capital who "deserve" lower capital gains rates is pushed by the same funding sources through well-funded so-called 'think tanks' and hired academic guns.