Former US Senator: blame Congress for tax avoidance, not Apple

Tim Cook (Senate hearing 001)

Carl Levin, the chairman of the Senate Permanent Subcommittee on Investigations, ahead of a high-profile congressional hearing accused Apple of seeking “the Holy Grail of tax avoidance” by creating “offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.”

Needless to say, click-hungry media came all guns blazing in support for the government’s stance. But not so fast, cautions former U.S. Senator John E. Sununu (Republican, New Hampshire), who points the finger at the United States government over instituting tax laws that discourage corporations like Apple from repatriating its $40 billion in overseas cash…

In an op-ed piece published by The New York Times-owned Boston Globe (go figure), Sununu writes that Apple, like any other multinational company, sells its products and make money in dozens of countries globally.

Uncle Sam is now seeking ways to tax international earnings at a higher rate of a whopping 35 percent.

Uncle Sam (I want your money)

Small wonder that corporations like Apple, Microsoft, Coca Cola and others employ all kinds of creative strategies that call for keeping overseas cash in offshore tax havens and countries like Ireland, where they pay little to no taxes at all.

“The U.S. government, unlike most others, attempts to collect taxes on all of those profits, not just those earned in the United States,” the article reads.

Indeed, only Bangladesh and Guyana have higher tax rates on repatriated earnings versus the U.S. government, which is saying a lot, notes Philip Elmer-DeWitt of Fortune.

Sununu adds:

Senator Levin and his staff believe that it is wrong for companies and individuals to engage in behavior that avoids taxes. They hoped that calling out Cook might generate support for legislation that targets companies like Apple.

Instead, they mostly provided a lesson in the complex, convoluted, and often uncompetitive nature of America’s corporate tax code. They also provided a reminder that those responsible for the mess were asking the questions, not sitting at the witness table.

He’s 100 percent right.

Apple revenue by region (Robert Paul Leitao)
Pie chart courtesy of Robert Paul Leitao.

Apple CEO Tim Cook escaped from Washington largely unscathed and talk shows like The Daily Show have readily ridiculed the Senate hearing, painting U.S. senators as Apple fanboys.

In my view, politicians have created these tax loopholes in the first place, probably in order to benefit themselves and their patrons.

Sununu acknowledges as much, writing that “by refusing to feel guilty about the results produced by a 30-year-old corporate structure, Cook placed the responsibility for the taxes Apple pays where it belongs: on the US Congress.”

The nearly bankrupt U.S. government is now attempting to make an example out of Apple in the hope that other corporations will repatriate their overseas cash.

Needles to say, this is not going to happen unless the government tweaks its tax laws because the tricks corporations use to funnel money through a complex network of international subsidiaries – while morally questionable – is perfectly legit.

On a related note, Google Chairman Eric Schmidt told BBC News he was “perplexed” by the Internet giant’s ongoing debate over the company’s tax contributions in the UK.

What we are doing is legal. I’m rather perplexed by this debate, which has been going in the UK for some time, because I view taxes as not optional.

I view that you should pay the taxes that are legally required. It’s not a debate. You pay the taxes.

If the British system changes the tax laws, then we will comply. If the taxes go up, we will pay more, if they go down, we will pay less. That is a political decision for the democracy that is the United Kingdom.

And where do you stand on this hot topic?