question, mr. cook, is if ireland recruited you back when you were a $100 million company, and gave you a really good deal, how do we, if we’re setting tax policy, how do we do it in a way that there’s not going to be — correct me if i’m wrong — but pro three-fouts of activity growth is going to be in emerging markets. would you disagree with that percentage that net new growth in markets in terms of mobile activity will be out there in eming markets as opposed to europe and north america? i think a significant amount — i’m not sure the number. let’s assume we simplify our tax code, that we get it down, we clear out the underbrush, take away the goodies in some sectors of our economy. we understand the reality of international moving of capital because of international economies and international trade. what keeps us from being undercut like ireland did back in ’80? the u.s. has such enormous advantages and the barrier now in terms of repatriating cash is it’s repatriating at the 35% level. and so our proposal, and maybe i’m different than my peers here, i’m not proposing zero. my proposal is that we eliminate all corporate tax expenditures into a very simple system and have a reasonable tax on bringing money back from overseas. and i think if we did that many, many companies would bring back capital to invest in the united states and it would be great for the economy. how about the other way? what would it cost you to move out of california? and go entirely to ireland or to a country that is going to be, for example, china if you get that deal with china mobile soon which i know you’re working on, right? that’s a big one. hopefully you get it done. you’ve been working on it for a while. what keeps you from, in terms of the relative cost analysis and the benefit analysis, what keeps you from moving out of california? well, we’re an american company, and we’re proud to be an american company. we do the vast majority of our r&d in california. we’re there because we love it there, and this is where we can create and make things that people haven’t even managed yet. so it’s an intangible? are you saying it intangible? it’s not something you can reduce to — i’m saying it’s who we are as people, and we are an american company. we’re an american company whether we’re selling in china or in egypt or selling in saudi arabia. wherever we are, we are always an american company. i ever never thought — it has never entered my mind honestly, senator, moving our california headquarters to another country. it’s — it’s beyond my imagination, and i have a pretty wild imagination. it’s beyond me. on the money that the corporate bonds you issued, do you think — i’m not being judgmental about you doing that. i understand the business rationale behind it in terms of the low cost of capital, but do you think you should be able to deduct the interest on those? would that be a corporate expenditure we could do away with? it could be one of the corporate expenditures to do away with. the way the tax code is written currently, my understanding is it would be deductible. it would be a very, very small percentage of the overall that we pay. we paid $6 billion and had an effective rate of 35% but, yes, it’s certainly one of the things i think this group should talk about in terms of doing comprehensive tax reform. okay. this is kind of complicated, but somewhere along the way you’re deciding how to divide up sales proceeds as to where the money goes. and i know some of it depends on where the sale occurred. but some of it depends on a decision you’re making internally about where you’re going to allocate what you’re getting for your intellectual property. where is that decision being made and what do you base it on in terms of how much money comes back to the american companies that are paying taxes versus how much is attributable to the international companies? that’s a good question. today everything that we sell in the u.s. is taxed in the u.s. for a foreign country, generally speaking when we sell something in a foreign country, it’s taxed in the local market and then if it’s one of the countries that are being served from ireland, those units are generally sold by an irish subsidiary and so that income, if you will, is taxed to the degree it needs to be in the local jurisdiction and then the proceeds move to an irish — in many cases aoi which acts as a holding company and invests apple’s earnings, and then we pay taxes on those earnings in the united states. so does any of the proceeds of the many thousands of dollars you’ve gotten from me over the years, do any of the proceeds of that actually g parked in ireland or in any of the international companies under the aegis of international property? you know, i think mr. bullock probably could answer this better than i. thank you, tom. the answer to that is no. 100% of the profits on any sale to a customer in the united states, whether it’s through our online stores, all of that is fully taxed in the u.s. okay. there’s nothing — there’s no outbound payments offshore. okay, thank you. thank you. thank you very much, senator mccaskill. mr. chairman, let me kind of pick up where senator mccaskill left off there. this is complex, and it has to do with how do you allocate income what kind of transfer price is an appropriate price. i did notice that your u.s. sales are about 39% of your total sales. international is about 61%. so u.s. is about 39% and you had 35%. international sales 61% and 65% of income. can you explain that? that’s pretty close. if i were to take a look at that, you’re getting pretty darned close, i would think, to proper allocation between sales and income. can you explain that disparity? sure, senator. and i’ll make some comments and pass it to peter. generally apple’s mcintosh business is a larger percentage of its sales in the u.s. than internationally. as we launched the iphone, iphone became a larger percentage of our international business than it did a part of our u.s. business because we had this nice base of mcintosh sales in the u.s. the iphone generally speaking has higher gross margins than our mcintosh business, so it’s logical that the international business generally would carry higher margins than domestic. peter may be able to add to this. to summarize, you have a more profitable mix internationally than in the u.s.? that explains the difference? it does. i was talking earlier about who are the beneficiaries of your very good tax rates overseas. i would point out, i think this is true, that if we ever do tax reform, if we ever do incentivize companies, the way current tax law is written, you would get a deduction for foreign taxes paid, correct? that’s correct. it’s actually a credit, dollar for dollar credit. so as a result nowpple has a lot more money than when you repatriate it, we’ll be able to tax more, correct? so the u.s. government, you could argue, will be a beneficiary to get our tax house in order? to the extent of repatriation in one form or another, if it’s taxable, yes, that would yield more u.s. tax. mr. bullock, i imagine you know this better than anybody, because you’re a large corporation, my guess is you have full-time irs agents stationed in your operation looking basically doing a full-time audit nonstop. is that pretty accurate? that’s correct. we’re under audit in a number of jurisdictions around the world including the u.s. not unlike our multinational peers. and they’re looking at the corporate structure, at all the transfer prices and they’re basically giving you the nod saying you’re following the tax law? they look at it in detail, yes. mr. cook, again, talking about who are the beneficiaries of your excellent products but also just your low tax rates and corporate profit, shareholders. can you describe your shareholders in general? peter can probably add more to this buterally apple is very widely owned because it’s a part of the underlying index in the stock market and a number of mutual funds in addition to pension funds. peter? yes. senator, the roughly top 50 shareholders own about half the company. and these include public employee retirement systems, mutual funds such as fidelity or pimco and we have individual retail shareholders as well. even the top 50% is widely disbursed, those are large funds that have very diverse shareholder base? absolutely. absolutely. so, again, those folks benefit from the fact that apple’s able to retain more of its profit by not paying out taxes to foreign governments? yes, and they also receive our dividends. in addition to u.s. and state income taxes, what other taxes in had the u.s. does apple basically generate? what could you will almost take credit for? last year we paid more than $325 million in federal and employment taxes that apple paid in addition to our employees and we’ve paid over the last couple of years, i think, nearly $100 million to state and local governments in property taxes and various other fees. and i believe last year we ected and remitted and paid approximately $1.5 billion in sales tax. close to $2 billion in total, mr. bullock? just to clarify that a little bit, it was a little over $1.3 billion. okay. sales and tax. when we were talking about transfer pricing and allocation of income, you faced the same dilemma between states, don’t you? in terms of which state claims how much income when you pay those in state income taxes? well, the income that the company generates in the u.s., the approximate 40% that you alluded to earlier of our total global profits, which is relatively commensurate with our u.s. customer base, that income does get apportioned around and divvied up among the states until a slightly different system, but it does get allocated to the states. what is the base of that allocation? how would that differ trying to allocate between — that too varies by states. some states
