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Apple’s Cook gets grilled

The US Senate aggressively questioned Apple’s CEO Tim Cook over allegations that it avoids billions in taxes via its Irish subsidiaries. Cook stated “We pay all the taxes we owe, every single dollar.”

The report released on Tuesday by the Senate Permanent Subcommittee on Investigations listed Apple as an example of legal tax avoidance made possible via the US tax code. They estimated that Apple avoided at least $4.3 billion (US$3.5 billion) in federal taxes during 2011 and US$9 billion in 2012 using complex setup of Irish subsidiaries for its tax strategy.

Given that the US federal budget is US$642 billion in deficit, the additional billions from Apple would not even make a dent. Politicians are trying to make an example of Apple that powerful corporations should not be excluded from paying their fair share of taxes.

Microsoft, Hewlett-Packard and other Multi-National companies also came under the subcommittee’s spotlight, finding they too have avoided taxes in the billions.

All this comes as a huge debate on questions on how to raise revenues to help reduce the high US deficit

Largely due to the iPhone & iPad, Apple is one of the worlds most profitable companies. It earnt US$41.7 billion during the 2012 calendar year.

Apple uses five companies in Ireland to operate its tax strategy, according to the report. The companies are at the same address and share members of their boards of directors. While all five companies were incorporated in Ireland, only two have tax residency in that country. Behind the scenes the other three companies actually don't have a tax residency in any companies, a bizarre concept for US lawmakers.

Cook argued that the Irish subsidiaries didn't reduce their US taxes. Rather avoiding paying the 35% fed tax on profits made overseas by not bringing the profits to the US, a practice used by other multi-nationals.

Irish Prime Minister Enda Kenny dismissed claims Apple had negotiated a tax rate of less then 2 percent. All companies pay the 12.5 standard rate on profits from all Irish operations, the Prime Minister said.

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