Why Rand Paul thinks Senate is 'bullying' Apple Inc. (+video)

Senators who convened a hearing Tuesday say Apple uses a 'scheme' to avoid paying its full share of US taxes. Sen. Rand Paul disagrees and called the hearing a 'theater of the absurd.'

By , Staff writer

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    Apple CEO Tim Cook (c.) appears before a Senate homeland security and governmental affairs investigations subcommittee hearing on Capitol Hill in Washington Tuesday about offshore profit shifting and the US tax code. Committee chairman Carl Levin (D) of Michigan and Republican John McCain of Arizona (r.) are also pictured.
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Sen. Rand Paul (R) of Kentucky thinks the US Senate is “bullying” Apple Inc. That’s what he said Tuesday during a hearing on Apple’s tax-avoidance strategies, in any case.

The Senate Permanent Subcommittee on Investigations convened the hearing to investigate charges that the iconic producer of the iPhone and iPad has kept its taxes low in recent years by in essence parking overseas profits in the middle of the ocean.

Senator Paul said that as far as he could tell Apple had done nothing illegal. The firm had simply taken advantage of the complexities of the US and foreign tax codes, he said.

Recommended: What does the federal government do with your money? Take our taxes quiz.

He complained that instead of celebrating the firm’s success, senators were “dragging in” Apple executives and berating them.

“Apple has done more to enrich people’s lives than politicians will ever do,” said the Kentucky lawmaker, a favorite of the tea party. “To the Apple executives here I apologize for this theater of the absurd.”

Paul’s rant sent a jolt of tension through a session that otherwise was focused on what many lawmakers perceived as Apple’s use of tax gimmicks.

The firm avoided taxes on money earned overseas by assigning it to three subsidiaries based in Ireland, according to information developed by subcommittee staff.

Under US law, profits held by those subsidiaries would be taxed in Ireland, where the subsidiaries are incorporated. Under Irish law, the profits would be taxed in the US, the country from which the subsidiaries are controlled and where they hold board meetings.

So they weren’t taxed at all. (If the money were repatriated to the US, it would then face corporate income taxes.)

Through this maneuver Apple withheld at least $76 billion in profits from taxation between 2009 and 2012, according to subcommittee investigators. In 2012 alone this cost Uncle Sam $12 billion in receipts, according to subcommittee figures. Two other Apple subsidiaries incorporated in Ireland pay taxes there.

Many senators expressed outrage at Apple using overseas subsidiaries to avoid taxes at a time when the government is struggling to reduce the federal deficit.

“Apple is exploiting an absurdity,” said Sen. Carl Levin (D) of Michigan, subcommittee chairman, at the beginning of the hearing.

Sen. John McCain (R) of Arizona began his statement praising Apple for creating great products. But he decried Apple’s “scheme” to avoid taxation.

“In my view, loopholes like these are harmful in that they allow large corporations huge advantages over domestic companies, who can’t use overseas corporations to lower their domestic burdens,” said Senator McCain. “The American people will not tolerate it. Our tax system is broken and not modern, but I won’t let that excuse be used by Apple to explain why it’s OK for companies to not pay what they owe.”

Apple was unapologetic about its use of what it termed legal maneuvers to lower its tax burden as much as possible for its shareholders.

“Apple complies fully with both the laws and the spirit of the laws,” said a company statement prepared in advance of the hearing.

Recommended: What does the federal government do with your money? Take our taxes quiz.
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