The U.S. Senate Permanent Subcommittee on Investigations accused Apple of being the mastermind of tax evasion practices that it says are unique to the iOS device maker. The remarks took place in the opening of a hearing Apple CEO Tim Cook is scheduled to testify at on Tuesday.
U.S. Sen. Carl Levin (D-Mich.) took particular issue with Apple Operations International, an Ireland-based entity owned by Apple that he said has paid no taxes. The issue comes from a loophole in U.S. tax law that Levin believes should be closed.
“Apple is exploiting an absurdity, one that we have not seen other corporations use,” the senator said. “And the absurdity need not continue.”
The issue involves differences between U.S. and Irish tax laws. Ireland laws state that only companies that are managed and controlled in Ireland are considered tax residents. While Apple Operations International is incorporated in Ireland, it is not managed and controlled there.
U.S. tax laws are based on the location a company is incorporated, not where it is managed and controlled.
Apple uses three offshore corporations that allow it to reduce its effective tax rate to 15%, the U.S. effective tax rate is 35%, Levin said.
Senator Levin said the iPhone maker has been a particularly egregious offender in exploiting tax loopholes.
While the senator did praise Apple as an “American success story,” noting that he himself carries an iPhone in his pocket, he slammed Apple’s use of “ghost” corporations, calling the company’s practices a “sham.” He continued, saying while Apple wants members of the public to focus on the “extraordinary amount” of taxes the company already pays, it does not excuse the taxes he says the company should be paying.
“The real issue is the billions in taxes that it has not paid, thanks to offshore tax strategies whose purpose is tax avoidance, pure and simple,” Levin said.