Apple Inc. employs a group of affiliate companies located outside the United States to avoid paying billions of dollars in U.S. income taxes, a Senate investigation has found.
The world's most valuable company is holding overseas some $102 billion of its $145 billion in cash, and an Irish subsidiary that earned $22 billion in 2011 paid only $10 million in taxes, according to the report issued Monday by the Senate Permanent Subcommittee on Investigations.
The strategies Apple uses are legal, and many other multinational corporations use similar tax techniques to avoid paying U.S. income taxes on profits they reap overseas. But Apple uses a unique twist, the report found. The company's tactics raise questions about loopholes in the U.S. tax code, lawmakers say.
The spotlight on Apple's tax strategy comes at a time of fevered debate in Washington over whether and how to raise revenues to help reduce the federal deficit. Many Democrats complain that the government is missing out on collecting billions because companies are stashing profits abroad and avoiding taxes. Republicans want to cut the corporate tax rate of 35 percent and ease the tax burden on money that U.S. companies make abroad. They say the move would encourage companies to invest at home.
Apple CEO Tim Cook, the company's chief financial officer and its tax chief are scheduled to testify and explain the company's tax strategy at a hearing by the subcommittee Tuesday.
Apple spokesmen didn't immediately respond to a request for comment Monday on the subcommittee report.
The company has made clear that given current U.S. tax rates, it has no intention of repatriating its overseas profits to the U.S.
The subcommittee also has examined the tax strategies of Microsoft Corp., Hewlett-Packard Co. and other multinational companies, finding that they too have avoided billions in U.S. taxes by shifting profits offshore and exploiting weak, ambiguous sections of the tax code. Microsoft has used "aggressive" transactions to shift assets to subsidiaries in Puerto Rico, Ireland and Singapore, in part to avoid taxes. HP has used complex offshore loan transactions worth billions while using the money to run its U.S. operations, according to the panel.
The subcommittee's report estimates that Apple avoided at least $3.5 billion in U.S. federal taxes in 2011 and $9 billion in 2012 by using the strategy. The company, based in Cupertino, Calif., paid $2.5 billion in federal taxes in 2011 and $6 billion in 2012.
Apple uses five companies located in Ireland to carry out its tax strategy, according to the report. The companies are located at the same address in Cork, Ireland, and they share members of their boards of directors. While all five companies were incorporated in Ireland, only two of them also have tax residency in that country. That means the other three aren't legally required to pay taxes in Ireland because they aren't managed or controlled in that country, in Apple's view.
The report says Apple capitalizes on a difference between U.S. and Irish rules regarding tax residency. In Ireland, a company must be managed and controlled in the country to be a tax resident. Under U.S. law, a company is a tax resident of the country in which it was established. Therefore, the Apple companies aren't tax residents of Ireland nor of the U.S., since they weren't incorporated in the U.S., in Apple's view.
The subcommittee said Apple's strategy of not declaring tax residency in any country could be unique among corporations.
"Apple wasn't satisfied with shifting its profits to a low-tax offshore tax haven," Sen. Carl Levin, D-Mich., the subcommittee's chairman, said in a statement. "Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere."
Sen. John McCain of Arizona, the panel's senior Republican, said that while Apple claims to be the biggest U.S. corporate taxpayer, it is also "among America's largest tax avoiders." He said the company is "purposefully depriving the American people of revenue" by using a "byzantine" tax structure.
The subcommittee report also noted that Apple has been setting aside billions for tax bills it may never pay. As previously reported by The Associated Press, the overlooked asset that Apple has been building up could boost Apple's profits by as much as $10.5 billion. However, Apple has been lobbying to change U.S. law so it can erase its tax liabilities in a less conspicuous fashion.
In its second quarter ended March 31, Apple posted its first profit decline in ten years. Net income was $9.5 billion, or $10.09 a share, down 18 percent from $11.6 billion, or $12.30 a share, in the same period a year ago. Revenue increased 11 percent, to $43.6 billion.
Apple said in April that it will distribute $100 billion in cash to its shareholders by the end of 2015. The company is expanding its share buyback program to $60 billion, the largest buyback authorization in history, and is raising its dividend by 15 percent, to $3.05 a share.
In Monday's regular trading session, Apple's stock rose $9.67, or 2.23 percent, to close at $442.93.
President Barack Obama has proposed using the tax code to encourage companies to move jobs back to the U.S. and discourage them from shifting jobs abroad. Many in both parties say they want to overhaul the entire tax code, but there are vast differences in how they would do so.
The subcommittee's inquiry and hearing are intended to shine a light on "offshore tax-avoidance tactics" by Apple, Levin said at a news conference Monday. Companies' use of such loopholes has the effect of raising the taxes of ordinary Americans and increasing the federal deficit, he said.
McCain called Apple's strategy "an egregious and really outrageous scheme that Apple has been able to orchestrate to avoid paying taxes."
Ray Manzarek, the keyboardist and founding member of The Doors who had a dramatic impact on rock 'n' roll, has died. He was 74.
Publicist Heidi Robinson-Fitzgerald says Manzarek died Monday at the RoMed Clinic in Rosenheim, Germany, surrounded by his family. Robinson-Fitzgerald says his manager, Tom Vitorino, confirmed Manzarek died around 3:30 p.m. EDT. He had bile duct cancer.
Manzarek founded The Doors after meeting then-poet Jim Morrison in California. The band went on to become one of the most successful rock 'n' roll acts to emerge from the 1960s and continues to resonate with fans decades after Morrison's death brought an effective end to the band.
The Chicago native continued to remain active in music after Morrison's 1971 death. He briefly tried to hold the band together by serving as vocalist, but eventually the group fell apart. He played in other bands over the years, produced other acts, became an author and worked on films.
The Doors were inducted into the Rock and Roll Hall of Fame and Manzarek is among the most notable keyboard players in rock history. His lead-instrument work with the band at a time when the guitar often dominated added a distinct end-times flavor that matched Morrison's often out there imagery and persona.
The group is best known for hits like "L.A.Woman," ''Break On Through to the Other Side," ''The End" and "Light My Fire" — a song particularly colored by his keyboard work — and came to symbolize the decadence of Los Angeles as the counterculture grew in the U.S.
Manzarek is survived by his wife, Dorothy, his son Pablo and two brothers, Rick and James.
A judge has ruled that some workers at the five largest University of California medical centers can go on strike for two days starting Tuesday.
Sacramento County Superior Court Judge David Brown denied the system's request Monday for a complete injunction against a strike by the union which represents 13,000 nursing assistants, scanning technicians, operating room assistants, pharmacists and other health care workers.
UC spokeswoman Dianne Klein says Brown partially granted the system's request for an injunction, ensuring 453 workers remain on the job so public safety isn't compromised.
The hospitals are in San Diego, Irvine, Los Angeles, San Francisco and Sacramento, where UC Davis Medical Center is located.
The two sides are fighting over pensions and staffing levels. The union says staffing has been reduced to dangerous levels.
Fire crews aided by air tankers battled a three-alarm wildfire Monday in the hills above Orinda, officials said.
The blaze began around 1:37 p.m. near Ivy Drive and was burning close to several ridge top houses.
More details to follow.
A mile-wide tornado churned through the Oklahoma City suburbs Monday, destroying homes and crushing at least one elementary school, officials said.
A mix of volunteers and first responders were combing through debris in the Oklahoma City suburb looking for survivors.
People wearing neon-green vests were joined by residents in the search through rubble. Neighborhoods are flattened and homes blown apart.
Gary Knight with the Oklahoma City Police Department says an elementary school took a direct hit from the mile-wide tornado, but did not say which school was hit.
There were no immediate reports of injuries.
Shards of wood and pieces of insulation were strewn everywhere. Television footage also showed first responders picking through rubble and twisted metal.
In advance of the storm, the Oklahoma House of Representatives stopped work so Capitol employees could take shelter in the basement. Television and radio broadcasters urged residents to take shelter because the storm's strength and size.
"We're just waiting to see what happens. It's a mile-wide tornado. It's still grinding out," said Mark Meyers, a spokesman for the Oklahoma County Sheriff's Office. "We are currently on standby for tornado response. Whatever happens, we'll be ready to respond."
The strongest winds on earth — 302 mph — were recorded near Moore during a tornado May 3, 1999.
The Storm Prediction Center in Norman had predicted a major outbreak of severe weather Monday in Arkansas, Kansas, Missouri and Oklahoma.
Storms on Sunday killed two people near Shawnee, about 35 miles southeast of Oklahoma City. Gov. Mary Fallin earlier Monday took a tour of the areas hardest hit and she expressed concern that, with power out, Oklahomans might not receive warnings about the new round of storms.
Pottawatomie County Sheriff Mike Booth said a 79-year-old man, who was later identified as Glen Irish, was found dead Sunday out in the open at Steelman Estates, a mobile home park near Shawnee. The state medical examiner's office said Monday that a 76-year-old man, Billy Hutchinson, was found dead in a vehicle.
The office said both men lived in Shawnee, but the city wasn't hit by the tornado and it wasn't immediately clear if either or both lived in the mobile home park, which is near the city.