In August 2010, Cheryl Lenkowsky, an auditor for the Texas state comptroller, sent a letter to a top tax executive at Amazon.com’s Seattle headquarters. At that point, Amazon had been selling a wide array of merchandise to Texans for 15 years without collecting a penny of sales tax from them. Tax-free shopping was a delight for customers, a vital competitive edge for the company — and a hemorrhaging wound for state government.

Now, Lenkowsky informed the company, all that was about to end. Texas’s audit, which had gone back four years, had resulted in an “adjustment”: a bill for uncollected taxes, plus penalties and interest — $ 268,809,246.36 in all. Added Lenkowsky helpfully: “We have included a pre-addressed envelope for your payment convenience.”

Amazon responded fiercely. It appealed the assessment. It sued the comptroller for her audit records. It lobbied Rick Perry, Texas’s business-friendly governor. Most of all, Amazon insisted it had no “physical presence” in Texas — the basis for the tax claim — despite owning and operating a 630,800-square-foot distribution center (with an Amazon.com flag in front of it) in a Dallas suburb. When all that didn’t work, the company shuttered the facility and threw its 119 employees out of work, vowing to abandon the Lone Star State.

Article source: http://money.cnn.com/2013/05/23/technology/amazon-sales-tax.pr.fortune/index.html

The shameful thing is that we have a tax system that seems to allow multinational companies to choose what they want to pay.

The fact that this costs the government money is important, but that is not the critical element. Revelations about the ability of the rich and well connected to duck taxes can have a corrosive effect on the attitudes of the rest of us. If others who are better off than you can get away with not paying taxes, why shouldn’t you look for a way to cheat on your taxes?

The news in the Senate report about Apple was not that the company had found ways to shift income to low-tax jurisdictions. Lots of multinational companies do that. The news was that Apple had found a way to move a large part of its income to subsidiaries that claimed to not exist anywhere, at least when it came to paying taxes.

Carl Levin, the Michigan Democrat who heads the Senate Permanent Subcommittee on Investigations, had good reason to call that the holy grail of tax avoidance.

In that way, the Apple hearing filled a similar role to the one played by disclosures about Bain Capital, the private equity firm founded by Mitt Romney, during the last presidential campaign. It had been common knowledge that private equity firms had found ways to have most of the money earned by partners taxed at low capital gains tax rates, through what is known as carried interest. What came out last year was that some had found a way to treat all of their compensation that way.

Senator Levin, and the ranking Republican on the subcommittee, John McCain, tried to make the point, again and again, about how unfair the current system is to domestic companies, which cannot hide profits overseas, and to ordinary taxpayers, whose income is derived from salaries and investments that are automatically reported to the Internal Revenue Service.

“The general American public should not have to make up the balance as corporations avoid paying billions in U.S. taxes,” Senator McCain said.

But no other Republican senator seemed interested in that analysis. They praised Apple for avoiding taxes, saying that benefited its shareholders. Senator Rand Paul of Kentucky, a physician, suggested it would “probably be malpractice” for a chief financial officer not to do everything possible to minimize the corporate tax bill.

If that is the standard, perhaps Senator Paul, instead of apologizing to Apple for the fact that the hearing was being held, should have joined in what he called the “vilification” of the company, but for an entirely different reason. As Tim Cook, Apple’s chief executive, testified, there is a whole range of tactics Apple has chosen not to use.

“Apple does not hold money on a Caribbean Island, does not have a bank account in the Cayman Islands, and does not move any taxable revenue from sales to U.S. customers to other jurisdictions in order to avoid U.S. taxation,” he said.

I asked Jeffrey M. Kadet, who spent a career with large accounting firms helping companies to minimize their international tax payments — working in places like China, Japan, Hong Kong, Singapore and Russia — and now teaches tax law at the University of Washington, to review the subcommittee’s report on Apple.

“Apple’s basic structure and planning described in the memorandum appears to be appropriate corporate tax planning in today’s environment and is consistent with what I review with my students in class,” he said in an e-mail. “The company appears to be almost conservative in its approach of not trying to move any portion of profits on sales to U.S. customers into its overseas structure as some other groups have done.”

One such company, as the Senate subcommittee documented last year, is Apple’s archrival, Microsoft.

What Apple did was transfer rights to its intellectual property to a subsidiary that was incorporated in Ireland — and therefore not subject to immediate United States taxation — but managed in California. Under Irish law, that freed the subsidiary from Irish taxation.

Article source: http://www.nytimes.com/2013/05/24/business/making-companies-pay-taxes-the-mccain-way.html?pagewanted=all

The shameful thing is that we have a tax system that seems to allow multinational companies to choose what they want to pay.

The fact that this costs the government money is important, but that is not the critical element. Revelations about the ability of the rich and well connected to duck taxes can have a corrosive effect on the attitudes of the rest of us. If others who are better off than you can get away with not paying taxes, why shouldn’t you look for a way to cheat on your taxes?

The news in the Senate report about Apple was not that the company had found ways to shift income to low-tax jurisdictions. Lots of multinational companies do that. The news was that Apple had found a way to move a large part of its income to subsidiaries that claimed to not exist anywhere, at least when it came to paying taxes.

Carl Levin, the Michigan Democrat who heads the Senate Permanent Subcommittee on Investigations, had good reason to call that the holy grail of tax avoidance.

In that way, the Apple hearing filled a similar role to the one played by disclosures about Bain Capital, the private equity firm founded by Mitt Romney, during the last presidential campaign. It had been common knowledge that private equity firms had found ways to have most of the money earned by partners taxed at low capital gains tax rates, through what is known as carried interest. What came out last year was that some had found a way to treat all of their compensation that way.

Senator Levin, and the ranking Republican on the subcommittee, John McCain, tried to make the point, again and again, about how unfair the current system is to domestic companies, which cannot hide profits overseas, and to ordinary taxpayers, whose income is derived from salaries and investments that are automatically reported to the Internal Revenue Service.

“The general American public should not have to make up the balance as corporations avoid paying billions in U.S. taxes,” Senator McCain said.

But no other Republican senator seemed interested in that analysis. They praised Apple for avoiding taxes, saying that benefited its shareholders. Senator Rand Paul of Kentucky, a physician, suggested it would “probably be malpractice” for a chief financial officer not to do everything possible to minimize the corporate tax bill.

If that is the standard, perhaps Senator Paul, instead of apologizing to Apple for the fact that the hearing was being held, should have joined in what he called the “vilification” of the company, but for an entirely different reason. As Tim Cook, Apple’s chief executive, testified, there is a whole range of tactics Apple has chosen not to use.

“Apple does not hold money on a Caribbean Island, does not have a bank account in the Cayman Islands, and does not move any taxable revenue from sales to U.S. customers to other jurisdictions in order to avoid U.S. taxation,” he said.

I asked Jeffrey M. Kadet, who spent a career with large accounting firms helping companies to minimize their international tax payments — working in places like China, Japan, Hong Kong, Singapore and Russia — and now teaches tax law at the University of Washington, to review the subcommittee’s report on Apple.

“Apple’s basic structure and planning described in the memorandum appears to be appropriate corporate tax planning in today’s environment and is consistent with what I review with my students in class,” he said in an e-mail. “The company appears to be almost conservative in its approach of not trying to move any portion of profits on sales to U.S. customers into its overseas structure as some other groups have done.”

One such company, as the Senate subcommittee documented last year, is Apple’s archrival, Microsoft.

What Apple did was transfer rights to its intellectual property to a subsidiary that was incorporated in Ireland — and therefore not subject to immediate United States taxation — but managed in California. Under Irish law, that freed the subsidiary from Irish taxation.

Article source: http://www.nytimes.com/2013/05/24/business/making-companies-pay-taxes-the-mccain-way.html?pagewanted=all

Apple CEO Tim Cook told a Senate subcommittee that the company has paid ‘every single dollar’ of U.S. taxes owed. (Image courtesy of C-Span)

Apple Apple released transcripts of the statements made by CEO Tim Cook before a U.S. Senate subcommittee earlier this week, during which the bi-partisan group accused the tech giant of stashing its cash overseas in order to avoid paying billions of dollars in U.S. taxes.

Cook, joined by Apple CFO Peter Oppenheimer and the company’s tax chief Phillip Bullock, countered those claims by saying the maker of iPhones and iPad has paid “every single dollar” of U.S. taxes owed and that the tax system needs to be overhauled because it puts multinationals based in the U.S. at a disadvantage. “We not only comply with the laws, but we comply with the spirit of the laws,” Cook told the Senate Permanent Subcommittee on Investigations on May 22. “We don’t depend on tax gimmicks. We don’t move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don’t stash money on some Caribbean island. We don’t move our money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.”

Here’s the transcript of Cook’s statement, which can also be found on Apple’s website. The company also released the opening remarks made by Peter Oppenheimer. A transcript of Oppenheimer’s comments can be found here.

Good Morning Chairman Levin, Ranking Member McCain, and Members of the Subcommittee. I am proud to represent Apple before you today.

Apple has enjoyed unprecedented success over the past 10 years. The worldwide popularity of our products has soared, and our international revenues are now twice as large as our domestic revenues. As a result, I’m often asked if Apple still considers itself an American company. My answer is always an emphatic “yes.” We are proud to be an American company, and we are equally proud of our contributions to the U.S. economy.

Apple is a bit larger today than the company created by Steve Jobs in his parents’ garage almost forty years ago. But that same entrepreneurial spirit drives everything we do. You can tell the story of Apple’s success in just one word: Innovation. It’s what we’re known for – products like iPhone and iPad, which created entirely new markets. These products give customers something so incredibly useful that many people can’t imagine their lives without them.

You might be surprised to learn that most of that innovation takes place in a single ZIP code: 95014. That’s Cupertino, California, where we have built an amazing team – the brightest, most creative people on the planet. They come to work each day with one mission: to make the best products on Earth. Their job is to dream up things that will capture the world’s imagination.

One of those inventions is the App Store. If you’ve ever used an iPhone or an iPad, you know mobile apps are the hottest thing in technology today. Apps have made software development one of the fastest growing job segments in our country.

We estimate the App Store has generated nearly 300,000 new jobs in the U.S. App developers have earned over $9 billion from apps sold in the App Store, half in the last year alone.

 

None of that economic activity existed five years ago. But Apple took a bold step in developing the App Store, and the App Economy was born. Today, it’s a multi-billion dollar marketplace that shows no signs of slowing.

 

We have chosen to keep the design and development of our revolutionary products – and the jobs that go with them – right here in the United States. While job growth stagnated around the country during the last decade, Apple’s U.S. workforce grew five fold. We now employ 50,000 people in the U.S. and have employees in all 50 states.

 

Apple has also created hundreds of thousands of jobs at small and large businesses that support us in areas from manufacturing to the people who deliver our products. Components for iPhones and iPads, for example, are made in Texas, and glass for iPhones comes from Kentucky. In total, Apple is responsible for creating or supporting 600,000 U.S. jobs.

We’re using our earnings growth to invest billions of dollars in the U.S. to create even more American jobs. We’re investing $100 million to build a Mac product line here in the U.S. The product will be assembled in Texas, include components made in Illinois and Florida, and rely on equipment produced in Kentucky and Michigan.

We have constructed one of the world’s largest data centers in North Carolina. Reflecting our commitment to the environment, the data center is powered by the largest solar farm and fuel cell of its kind in the U.S. We’re building data centers in Oregon and Nevada, a new campus in Texas and a new headquarters in Cupertino.

With all this growth and investment, Apple has become – to the best of our knowledge – the largest corporate income taxpayer in the United States. Last year, our U.S. federal cash effective tax rate was about 30.5%, and we paid the U.S. Treasury nearly $6 billion in cash. That’s more than $16 million per day. We expect to pay even more income tax this year.

I would like to explain very clearly how we view our responsibility with respect to taxes:

• Apple has real operations in real places, with Apple employees selling real products to real customers.

• We pay all the taxes we owe – every single dollar.

• We not only comply with the laws, but we comply with the spirit of the laws.

Article source: http://www.forbes.com/sites/connieguglielmo/2013/05/23/apples-cook-on-taxes-being-an-american-innovator-transcript-of-senate-testimony/

By Luke Baker

BRUSSELS |
Wed May 22, 2013 12:42pm EDT

BRUSSELS (Reuters) – Britain, France and Germany called for stricter rules to stop companies such as Google, Apple and Amazon aggressively avoiding taxes in austerity bitten Europe, while acknowledging they had done nothing unlawful.

At a summit to discuss energy and tax policy, the leaders of the three largest EU countries took the opportunity at news conferences to lament the impact of corporate tax avoidance, following several cases involving U.S. firms.

The issue has hit a nerve in Europe where many countries are cutting back on social spending and squeezing workers in order to reduce national deficits and debt.

Most recently a U.S. Senate report found that Apple Inc had paid just 2 percent tax on $74 billion in overseas income, largely by exploiting a loophole in Ireland’s tax code.

“We cannot accept that a certain number of companies can put themselves in situations where they escape paying taxes in ways that are legal,” French President Francois Hollande said.

“We must coordinate at a European level, harmonize our rules and come up with strategies to stop this.”

British Prime Minister David Cameron, who has put tax at the top of the agenda for a meeting of the G8 in Ireland next month, was equally clear about the need for coordination steps.

“There is a real chance of seeing the sort of international action that we need to fix this problem,” he said. “You can’t do it on your own, you have to have that international action and that is why I think today has been a bit of a breakthrough.”

France and Britain in particular have grown concerned by the sheer scale of the legal tax schemes.

Monday’s U.S. Senate report on Apple Inc followed reports that the British unit of Amazon paid just $3.7 million tax on 2012 sales of $6.5 billion, and similar revelations concerning the UK operations of Google and Starbucks.

In all, officials estimate that EU governments miss out on around 1 trillion euros ($1.3 trillion) a year through the legal tax avoidance schemes employed by such companies and via illegal tax evasion.

German Chancellor Angela Merkel, who avoided commenting on the issue ahead of the summit, expressed her frustration that existing laws were not sufficient to capture taxes fully.

“We will work towards ensuring companies have to pay more where they are based,” she told reporters, saying that new rules would affect big companies most, although it many cases companies are basing themselves in low- or no-tax jurisdictions.

HARD TO CLOSE LOOPHOLES

While there is common consent among EU leaders that action needs to be taken to close loopholes and level the playing field on tax policy, little has been done on the issues despite regular lobbying by the Organisation for Economic Co-operation and Development (OECD) and other international organizations.

In a report in March last year, the OECD, a club for wealthy countries, set out in detail how companies were using “hybrid mismatch arrangements” to avoid paying taxes, the very technique that Apple is alleged to have used in its tax planning.

“We have got to make sure as we set those tax rates that companies pay taxes, and that means international collaboration, the sharing of tax information,” British Prime Minister David Cameron said as he arrived at the summit.

But officials have dismissed the possibility of immediate steps to close loopholes or any targeting of companies, saying it is primarily up to EU member states to craft the necessary legislation, and to work through wider international forums such as the OECD, G8 and G20 to make progress and close the net.

Eversheds, a global law firm dealing with tax issues, said that while recent cases involving high-profile U.S. companies had pushed the tax issue to the top of the global agenda, it could not be tackled with any quick or immediate steps.

“While the issues deserves this top-level attention, the public should not expect any game-changing developments, and indeed it would be wrong for the EU to try to tackle the issue on its own,” said Ben Jones, a tax expert at the firm.

“Uncoordinated attempts by individual countries or blocs of countries to tackle the issue may actually create more tax ‘loopholes’ or have a detrimental impact on businesses that do not engage in aggressive tax planning.”

France has already shown its willingness to take on major U.S. companies, with authorities raiding Google in a 2011 investigation into whether its Paris office conducts sales work. The company was asked to pay 1.7 billion euros in back taxes.

A similar issue has arisen with how Google operates in Britain, with questions raised about whether its sales staff are based abroad, as the company maintains, or in the country, which would create a liability to UK tax.

Google says it follows tax rules everywhere it operates and that references to selling in job ads for British-based staff reflect the fact that it likes people with a sales skills.

(Additional reporting by Adrian Croft and Peter Griffiths in Brussels, Michelle Martin in Berlin and Mark John in Paris; Editing by Will Waterman and Janet McBride)

Article source: http://www.reuters.com/article/2013/05/22/us-eu-summit-apple-idUSBRE94L0DX20130522