Apple to argue for tax reform, defend tax practices on Tuesday

Mon May 20, 2013 5:05pm EDT
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By Poornima Gupta

SAN FRANCISCO (Reuters) - Apple Inc will argue for a comprehensive corporate tax reform that will levy a "reasonable tax" on foreign earnings and is not dependent on a company's revenue when it goes before a Senate panel on Tuesday to explain its offshore tax practices.

In prepared testimony released by the company and submitted ahead of Apple Chief Executive Tim Cook's hearing on Tuesday before the Senate Permanent Subcommittee on Investigations, Apple denied it employed "tax gimmicks" like using Cayman Islands bank accounts or shifting intellectual property abroad.

It also said the existence of its subsidiary "AOI" in Ireland - which has been criticized as a way to shift money from the United States - does not reduce Apple's U.S. tax liability.

Tuesday's hearing is the second to be held by Senator Carl Levin, a Michigan Democrat and chairman of the subcommittee, to examine how the weaknesses of the U.S. corporate tax code is helping large companies avoid paying taxes on offshore earnings.

Cook, in his first Senate testimony on the issue as CEO, will face lawmakers' queries over his company's overseas cash holdings and tax bills.

The hearing comes as lawmakers globally are closely scrutinizing the taxes paid by multinational companies. In Britain, Google faces regulatory inquiries over its own tax policies, while Hewlett-Packard Co and Microsoft Corp have been called to Capitol Hill to answer questions about their own practices.

U.S.-based multinationals do not have to pay U.S. corporate income tax on foreign earnings as long as the earnings do not enter the United States. Accounting rules also let the companies avoid recognizing a tax expense if management intends to keep the earnings indefinitely re-invested overseas.

KEY ISSUE   Continued...

Men are silhouetted against a video screen with an Apple logo as they pose with an Apple iPhone 4 smartphone in this photo illustration taken in the central Bosnian town of Zenica, May 17, 2013. REUTERS/Dado Ruvic