Ups, Now Congress Knows: Apple Paid Little Or No Taxes To Any Government On Billions In Profits

WASHINGTON (Reuters) - Using an unusual global tax structure, Apple Inc has held billions of dollars in profits in Irish subsidiaries to pay little or no taxes to any government, a Senate report on the company's offshore tax structure concluded on Monday.

In a 40-page memorandum released a day before Apple CEO Tim Cook is scheduled to testify before Congress, the Senate's Permanent Subcommittee on Investigations identified three subsidiaries that have no "tax residency" in Ireland, where they are incorporated, or in the United States, where company 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 subsidiary, which has a Cork, Ireland, mailing address, received $29.9 billion in dividends from lower-tiered offshore Apple affiliates from 2009 to 2012, comprising 30 percent of Apple's total worldwide net profits, the report said.

"Apple has exploited a difference between Irish and U.S. tax residency rules," the report said.
Ahead of Tuesday's hearing, Apple said on Monday it does not use "tax gimmicks" and that the company will pay more than $7 billion in U.S. taxes in fiscal 2013.

Apple defended the main subsidiary highlighted by the subcommittee's report, saying it does not reduce Apple's U.S. tax liability, the company said in a comment posted online as part of Tuesday's prepared remarks.

Subcommittee staffers said on Monday that Apple was not breaking any laws and had cooperated fully with the investigation.

Tuesday's hearing is the second to be held by Senator Carl Levin, a Michigan Democrat and chairman of the subcommittee, to shed light on the weaknesses of the U.S. corporate tax code. Levin has sought to overhaul the code in Congress.

In September, the subcommittee scrutinized the offshore tax structures of Microsoft Corp and Hewlett-Packard . Committee staffers said they did not find similar subsidiaries set up for stateless tax bills at those two companies.

Apple also uses two conventional offshore tax practices typical of multinational companies' tax-avoidance strategies, the report said.

Multinational corporations value goods and services moving across international borders from one corporate unit to another. Known as "transfer pricing," these moves are frequently managed to reduce corporations' global tax costs.

Corporations must pay the top U.S. 35-percent corporate tax on foreign profits, but not until those profits are brought into the United States from abroad. This exception is known as corporate offshore income deferral.

Apple's tax structure highlights flaws in the U.S. corporate tax code so that Congress "can effectively close the loopholes used by many U.S. multinational companies," Arizona Senator John McCain, the subcommittee's top Republican, said in a statement on Monday.

Levin, who announced he will retire at the end of 2014, introduced legislation in February to close tax loopholes. So far, the bill does not have any Republican co-sponsors. Similar legislation has been introduced in the House of Representatives.

Government tax officials from the Internal Revenue Service and Treasury Department also are scheduled to testify before the subcommittee on Tuesday.

(Reporting by Patrick Temple-West; Editing by Howard Goller, Bernard Orr)