Apple's CEO is disputing assertions by a Senate panel that the company avoids billions of dollars in U.S. taxes by shifting profits to foreign affiliates.
Tim Cook testified at a hearing Tuesday by the Senate Permanent Subcommittee on Investigations, which released a damning report Monday on Apple's tax practices.
"We pay all the taxes we owe — every single dollar," Cook said. "We don't depend on tax gimmicks."
Cook, who is more accustomed to commanding a stage in front of investors and techies than facing a congressional committee, took a defensive tone with his opening statement. He punched out words when stressing the 600,000 jobs that the company supports and noting that Apple is the nation's largest corporate taxpayer. Cook said he advocates an overhaul of the U.S. tax code.
The company came under fire on Tuesday at the Senate hearing over an investigation claiming that the high-tech giant has kept billions of dollars in profits in Irish subsidiaries and paid little or no taxes to any government.
"Apple effectively shifts billions of dollars in profits offshore—profits that under one section of the tax code should nonetheless be subject to U.S. taxes, but through a complex process avoids those taxes," said Sen. Carl Levin.
As chairman of the Senate Permanent Subcommittee on Investigations, Levin frequently dives into complex tax matters. His latest probe targets one of America's most successful companies, with a powerful global brand.
Offshore tax avoidance by multinational companies has become a high-profile issue. Cash-strapped governments worldwide are increasingly focused on wringing more tax revenue from corporations that often have interests in many countries and easily shift capital and assets across borders.
The Levin probe comes at a turbulent time in tax circles, with the Internal Revenue Service under investigation over agents' targeting conservative political groups.
The impact of that controversy and the hearings on the potential for a thorough overhaul of the tax code are hard to predict. Tax law writers in Congress had been inching forward on such a project before the IRS scandal erupted this month. The senator's investigation has been underway for months.
Levin, a Democrat, urged closing "unjustified tax loopholes" like those he said Apple used to avoid $9 billion in U.S. taxes in 2012.
"Closing these kinds of unjustified loopholes could provide hundreds of billions of dollars to reduce the deficit and avert damaging budget cuts," he said at the hearing.
"We should close them and dedicate the revenue that generates to these important priorities, whether or not we reform the overall tax code," he said.
Sen. John McCain praised Apple as a success story but said that its tax strategy "reflects a flawed corporate tax system."
The former Republican presidential nominee said, "It is a system that allows large multinational corporations to shift profits offshore to low-tax jurisdictions. For years, Apple has opted to forgo fully contributing to the U.S. Treasury and to American society by shifting profits and circumventing U.S. taxes."
Subcommittee staffers said Monday that Apple was not breaking any law and had cooperated fully with the inquiry.
Apple said in a comment posted online Monday that it does not use "tax gimmicks." It said the existence of its "Apple Operations International" unit in Ireland does not reduce Apple's U.S. tax liability and the company will pay more than $7 billion in U.S. taxes in fiscal 2013.
At the hearing, Levin's subcommittee issued a 40-page memorandum focused on explaining allegations that Apple used three subsidiaries with no "tax residency" in Ireland, where 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 subcommittee said.