Tim Cook got grilled by congress for legally using the tax code they created to avoid paying taxes. Below is his full testimony (videos and computer generated transcript) before the ‘honorable’ Senators who tried to make a good show for their constituents. The statements of both CEO Tim Cook and CFO Peter Oppenheimer can be found at the end embedded in scribd.
Current Corporate Tax Code Hurting Economy?
Senator Rand Paul (R-KY) said he thinks the committee should apologize to Apple as the tech giant’s CEO Tim Cook was testifying on tax code, reports CNBC’s Eamon Javers. David Selig, Selig & Associates Federal Tax Practitioner, discusses
Transcript:
we believe anything now. the big story this hour is apple’s tim cook is on the hill being grilled. in case you’re wondering, apple is the largest corporate taxpayer in the country. eamon, you’ve been watching and listening, i imagine this will be a litmus test for some of the other internationals. reporter: that’s right. in fact this particular subcommittee has been going company by company doing case studies. they’re looking at apple releasing pretty revealing report last night, which revealed in fact that apple had created three subsidiary corporations that were not tax residents of any country anywhere in the world, and we expected that tim cook was going to face some grilling on that issue. what we didn’t expect w this moment that we had with senator rand paul that came out even before tim cook began to testify. take a listen. frankly i’m offended by the tone and tenor of this hearing. i’m offended by a $4 trillion government bullying, berating and badgesering one of the america’s greatest success stories. if anyone should be on trial here, it could be congress. i frankly think the committee should apologize to apple. i this that congress should be on trial here for creating a bizarre and byzantine tax code. you’re free to apologize if you wish. you can apologize to anyone you want. this subcommittee is not going to apologize to apple. we did not drag them in front of the this subcommittee. and the subcommittee didn’t in fact apologize to apple. what they did do was question apple fairly intensely at times about why it set up these corporations, whether or not it was avoiding u.s. taxes, but the subcommittee also asked apple’s opinion on how to refor the u.s. tax code overall treating them like subject matter experts. a lot of committee members praising the products. leave at one point pulled out an iphone and said how great it was. it gave apple folks to have some breathing space in the hearing, and tim cook, of course came out to 2k6d his company. i’m often asked if apple still considers itself an american company. my answer has always been an emic yes. we are proud to be an american company, and equally proud of our contributions to the u.s. economy. reporter: so obviously there tim cook saying he’s proud of what the company has done, sort of a mixed day for apple, not necessarily all the body plows landed on the company that a lot of people expected. eamon javers, thank you very much. let’s not forget microsoft and i think hp have also been dragged in front of the congress for the very same reasons. david selig is a federal tax practitioners and advocate. is this a case, david where it’s like senator levin has been in the senate since 1979. he’s had plenty of time to change the tax code. is this a situation where congress basic lip served up the ingredient and now ticked off that apple made the meal? very well said. i think a lot of the individuals who are response gourdian knot and get their rapacious hands on apple’s money, they would probably slap them with a retained earnings penalty, which is the most in — maybe we should be blaming prohibitive tax code, and maybe we need to change it. even tim cook said i would be happy to pay more u.s. tax if indeed you reformed the prohibitive tax code? i think we have to be very careful. even though there are some distinguishes in the code, on the whole it works. the problem with these fast solutions — ivlts wait, it’s not worki if we’re not seeing the moving — i understand that part, but what i’m saying a fast solution to a complex problem usually creates some unpleasant unintended consequences. i’m a big believer in granting whether you call it a federal tax holiday or such so these companies can bring the money back in, and it doesn’t matter how it’s distributed. it could go to different, it could go to bonuses, because that money is going to flow into our federal and state tax laws. what’s the line — you’re a grocery boy sent by a messenger to collect a bill, something like that, right? the government needs money, right? so they’re going after what they seeing is a problem. if you bring up the charts, i think you’ll see would you some people are ticked off. right? corporate taxes used to make up 20%, 25% of the money brought in. it’s now about 9%. the burden on the individual has gone up largely. so does congress at least have a point, especially because it’s broke? no, i have to tell you, without being disrespectful to you, i disagree with the arguments. what’s to stop you? my co-host does it every day. the government has been printing an awful lot of money. it seems they’re looking at they various coveringses as a convenient dog to kick. it creates the impression that these companies are getting awa with something and we’re carrying their water. we have to leave it there, but certainly it’s food for thought. and very polite. very polite as well. yeah, see how nice he was. you could be nicer to me. and we’re talking about tax
CNBC’s Seema Mody reports on how Apple shares are reacting to Tim Cook’s testimony on Capitol Hill.
Apple CEO Testifies At Hill Hearing Today
Apple CEO Tim Cook is testifying on Capitol Hill today as Senate investigators accuse the tech giant of using a complicated system to shield billions of dollars in overseas profits. CNBC’s Eamon Javers has the details.
Transcript:
we appreciate the breaking news. let’s get back to capitol hill, apple’s ceo tim cook is being questioned by senators, basically talking about reforming the tax code. let’s go to eamon javers on capitol hill. he’s been monitoring the discussion. eamon? we expected some tough questions here for tim cook, as they talks to the senate in the wake of this release, which reveals apple created three companies that in fact are stateless there, not registered for tax purposes in any country anywhere around the world. what we doesn’t expect is much of the fireworks would happen over before tim cook sought done to take a listen to rand paul just now. frankly i’m offended by the tone and tenure. i’m offended by a $4 trillion government, bullies, berating and badgering one of the america’s greats success stories. if anyone should be on trial here, it should be congress. i frankly think the committee should apologize for apple. i think that congress should be on trial here for creating a bizarre and byzantine tax code. senator paul you’re free to apologize if you wish, apologize to anyone you want, this subcommittee will not apologize to apple. we did not drag them in front of this subcommittee. so obviously there, guys, you can see nor levin in no mood to hear it from senator paul this morning, and then senator john mccain, a republican, jumping immediately to the defense of senator levin, the democrat who chairs the committee. listen to senator mccain. implgts senator, i’ve the honor of serving with us for more than a quarter of a century. no one has every accused of you bullying or harassing in the thousands of hearings, and frankly it’s offensive to hear you accused of that behavior. reporter: so mccain suggesting he’s offended by what rand paul did. and guys, you’ve got to tell you that when you’re apple, you come up for a high-profile hearing like this, you expect to be grilled. the squabbling is probably good news, in the sense it reveals real fissions in the committee. not necessarily a focus grilling down. that probably work works to apple’s benefit. eamon, thank you very much. well, it is one of the
Apple’s Cook on Tax Reform
Sen. Rob Portman (R-OH) says we have to reform the tax code, and asks Apple CEO Tim Cook about how much money Apple spends on tax compliance efforts.
Transcript:
thank you very much. thank you, senator ayotte. senator portman? i appreciate the opportunity, having just left the finance committee on the irs to talk about tax reform, not just tax administration. this hearing is important, because it’s talking about a specific provision of our international tax rules allowing companies to effectively takes ip rights created here in the u.s. to foreign jurisdictions, some by means of cost-sharing, some of it by other agreements. i agree with you, mr. chairs, that we need to address this issue. i totally disagree that we ought to do it through picking out specific loopholes or preferences. we’ve got to reform this code. if we don’t do that, our companies will continue to be uncompetitive. you think about it, we have an uncompetitive tax system now. it may make us feel better about — so that’s why we’ve got to do tax reform. we have to do it now when the rate was lowered to 34%, now 35%, so we are — we’re looking at several decades now of tax policy that really is antiquated and doesn’t keep up with the times. so i — i have a proposal to do that. it’s been scored by the committee, revenue-neutral with a territorial system. there are other ideas out there. the president has talked about it. his has said in his february 2012 white paper he believes the rate oughting to lowered and reinvested. so there’s a lot of commonalty where senator baucus is, senator hatch is, and where congressman camp and the ways and means committee are working together on this. a could strategy is by tapping into that. it’s also where our enter national tax code puts or companies at a disadvantage, because when you’re operating overseas, you pay the tax rate of the company you’re operating in, plus you pay the residual u.s. tax. the other is a tax credit. some jurisdictions, like ireland, the tax is so low you don’t get much of a credit, but it’s also entirely complicated. so it puts us in a noncompetitive position, almost all of our industrial competitors, by the way, have shifted to a territorial type of system, including the uk and france. it includes germany, japan, in fact, when you look at the oecd, now 26 of our 35 fellow countries have moved to this dividend exemption system, congressman camp has talked about that. i think that’s the right way to go. essentially they don’t tax active business income earned beyond their borders, and they’re much more competitive internationally. the u.s. penalty for repatriating earns has resulted in between 1.5 and 2 trillion overjae. that means that money is starting to be deployed. for putting factories overseas that otherwise could be here. so i think we have to move and move very quickly. no other nation in the world imposes such a high barriers to bringing foreign earnings home. they have all been reformed. our rate, as you know, is the highest in the world, but they reformed the code. we have to do this. i think our guide been principle is how to win — and as my plan would do, is important to do. i know mr. open hyper — i think i just heard 65% of your revees are overseas. is that accurate? yes, sit’s accurate. in total we have created or support 600,000 u.s. jobs. it’s difficult to allocate a certainly percentage, but i would say it’s significant. it will be tens of thousands because of your sales overseas, right? i would such you come up with that number. i know it’s not easy, but — and we want you to sell stuff overseas, because it — would it be fair to say your biggest mpetitor globally is samsung? certainly one of them, yes. psalm sung is — korean company. 39.5%, which is our combined state and federal? so they have a lower tax rate there. my staff tells me that they pay about the same global tax effect raise. samsung olympics global tax payments were about $4 billion in pretax earnings, a rate of about 14%, same for both companies. mr. bullock, is that consistent? senator, yes, that was apple’s global cash tax rate last year. we believe it would be a few point higher this year. so it sounds like all the tax planning discussed at the hearing today, ultimately resulting in nothing more than as your main foreign competitor. is that accurate? senator, yes, with one difference. i’m getting to that. so i would say the answer is it’s worse for apple, because they can’t bring their money home. it’s partly the rate, but partly the — their investment options are more limited, aren’t they? how much money do they spent? i don’t have the exact figure, but it’s a lot. again, i would suggest you get that number. i think a the american people would — i’m a recovering lawyer myself, but you don’t need more tax lawyers. you need more engineers, more innovators, you need more people to keep america on the cutting edge. your products are great already, but could be even greater if you had more how big is your tax department? approximately three dozen around the world. a couple dozens resources, singapore. we do have some personnel in shanghai and brazil. a lot more than three dozen. there’s a load of inside help — senator, i would add — we want to reform the tax code so you don’t have to mess with all this stuff. go ahead. sorry. i would add that the tax return i sign even year in the united states is two feet tall or greater, and we are under continuous examination, and much of the efforts that phil spoke about, both internally and particularly with our outside advisers, deals with the continuous examination. we would very much support a simplified code that would lead to a smaller tax return. so high-tax compliance cost, you
can’t bring your money home, so you can’t invest it where you want to. what would it do to — if congress effectively hiked the tax rate on the international earns without modernizing the tax code so you could move is a modernized system? very bad, sir. it would not be helpful. that’s essentially what some are advocating here today. would you like to be able to cut your tax and client costs? yes, definitely. with no offense to mr. bullock?
Apple’s Cook: Recommend Dramatic Simplification of Corp. Tax Code
Sen. Kelly Ayotte (R-NH) asks Apple’s CEO Tim Cook about simplifying the tax code and what it would mean for keeping the U.S. competitive in business.
Transcript:
i want to thank the witnesses for being here today. mr. cook, is there any dispute at this hearing that apple has complied with our tax laws? i’ve heard no dispute of that. one of the issues that i heard raised when you were being asked questions by senator mccaskill about the issue of the 102 billion that is present overseas that you have now is this idea of repatriation. you haaid that you would be willing to pay some rate on repatriation. as we look at tax reform, what do you think is is the rate, thinks not only of apple, but of mountain national corporations around the world. let’s say we simplify the code, so deductions are eliminated, we take that and pour that into reducing the rate. what rate do you think we have to be at to be competitive to make sure we have investment here? i think the rate on the u.s. sales, in my judgment, for most of the studies i have seen, would indicate it would need to be in the mid 20s, as all of the expenditures are dropped out. i think in terms of a rate on bringing back foreign earnings, i think to incent a huge number of companies to do that, it would need to be a single digit number. i think by doing that, you wind up in a revenue-neutral kind of situation, which means some companies may pay a bit more. i think we would be one of those. other companies would pay less, but i think more important than all of the tax, it will be great for growth in this country. that’s the reason i feel so adamant about doing this. what would it do — as i understand it, let’s sayou’re building a datacenter here, you’re building a new facility here. right now that money you have parked overseas, you can’t use that to invest in plant facilities here. is that right? that’s correct. we could use our overseas cash to make any investments in the united states. if you were in our position, and thinking about tax policy and making sure that our country remains competite, how important do you think it is that we change the tax code to ensure that this remains a good place for investment? assuming — i understand there are many other advantaging to being here including intellectual property, et cetera, but you’re not the only corporation that you have significant money overseas that we would like to see come back. i think it’s vital to do, i think it’s great for america to do. i think we would have a much stronger economy if we did that. i think it would create jobs and increase investment. so i put my whole weight and force behind it. if we create more jobs and create investment, isn’t that more taxes that can be collected here as well, in terms of thinking about the fiscal state of the country? it is, and i think that’s a very excellent point, that all ships rise with the tide. i wanted to ask you about the issue of a at the torrie rate. how important it is as we go forward, to reform the code, to really create a dynamic, simpler rate for an investment here, that a component of that be a territorial rate. there’s been some discussions around here i think the country is more advanced — i think it would strengthen our economy. i don’t propose zero, i think there has to a reasonable tax on doing so. and some people refer to that as territory, some refer to it as hybrid. i’ve heard different terminology before. that’s how i believe it should work. we think the tax code needs to be — if we create a temporary tax holiday which we have done in the past, don’t we just perpetuate the situation? i think it’s important to be predictable. a permanent changes better than a short-term tax holiday. i have a question on an unrelated topic, and to the tax issue today, but can you tell us, when you think about — you were talking to senator mccaskill, talked about the advantages of being in this country, one i view as the intellectual property protections of this country, which i know are have you significant to you as technology company. can you tell me what those challenges in china are? and thinking about intellectual property protection is certainly an advantage the united states has. how do we address this with our international partners? we face more significant areas in other cunning that is china — the reason i raise china is i’ve heard stories about the knockoff apple stores, but please speak to other countries as well. that has been an issue. i think the u.s. court system is currently structured in such a way that it’s very difficult to get the protection a technology company needs, because our cycles are very fast. when the cycles are very fast and the court system is very long, foreign competitors, or even competitors in the united states can quickly take certain i.p., use it and ship products with it and they’re on to the next product before the court system rules. so i aually that we require much more work on i.p. in this country as well, and i would love to see conversations between countries to try to strengthen ip protection globally. i don’t know how likely that is to occur in the currents environment, but for us, our intellectual property is so important to our company i would love the system to be strengthened in order to protect it. i thank all of you for being here. i appreciate it.
Apple’s Cook: Emphatically Consider Ourselves American Company
Sen. Claire McCaskill (D-MO) asks Apple’s CEO Tim Cook what prevents his company from moving to another country, and Sen. Ron Johnson (R-WI) asks Cook about taxes paid to other countries.
Transcript:
i can describe it on a broad level, senator. the cost of capital today is at an all-time low as you know. and so our weighted average cost for the borrowing that we just did was less than 2%. and we were faced with a decision to go that way or to pay 35% to repatriate. and so as we looked at that analysis, we felt strongly that it was in the best interest of our shareholder for us to secure the debt. okay. let’s assume that we simplify this. ireland gave you a 2% rate which was negotiated for your company, correct? we went to ireland in 1980, and they were very much recruiting, i believe, technology companies at that time. and apple was a business that had no operations in europe. and so as a part of recruiting us, the irish government did give us a tax incentive agreement to enter there. and since then we’ve built up a sizable operation there. nearly 4,000 people continuing to grow. and the skills of our people there are very fundamental for understanding the european market and servicing our customers there from tech support to sales to reseller support, et cetera, and so we have quite a very strong presence there. i guess my
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
apportion based on relative sales, sales to customers in that state over total sales domestically. some states use a multifactor test. they may look to sales, property and payroll. do you independently negotiate between the states in terms of who gets to claim what percentage of your income? do you end up paying more — do you have more of your incull allocated to state income tax? in other words more than 100%? not over 100%, but it is approximately 100%. in our fact pattern, it’s not double taxed, which would@ be the case if more than 100% of the income apportioned. but that’s a similar type of problem you have trying to allocate income between different countries, isn’t it? if you have different states apportioned in different ways, yes. can you tell me a bit about the taxes you pay to foreign countries? are those sales taxes? property taxes? a combination of all of those? can you give me some sort of relative amount? well, there’s a combination. last year in fiscal ’12, the company paid a little over $900 million in international income taxes around the world. we’re projecting that number to be larger this year, significantly larger than it was a few years ago. in addition to that, offthe statistics available, but i would imagine similar to in the u.s., there are employer contributions for payroll tax action for employees outside of the united states, and there’s a considerable amount of v.a.t. and gst that gets remitted to various countries around the world. of your total worldwide employment, how much is based in the u.s. and how much is based overseas? about 50,000 of our 75,000 employees are here in the united states. so even though 60% of your sales are overseas, what percentage is that, almost two thirds? yes, that’s also influenced by our retail stories. of our approximately a little over 400 retail stores, about 260 of them are here, and that influences it.
Sen. Paul: Let’s Not Vilify American Companies
CNBC’s Eamon Javers reports the latest from Capitol Hill where Apple’s CEO Tim Cook is testifying on taxes. Senator Rand Paul (R-KY) thinks the committee is vilifying Apple.
Transcript:
we want to go down to the it testimony as it’s about to resume in washington. eamon? reporter: we’ve already had a couple of fireworks here this morning. tim cook has been testifying. early yerp before the hearing began, senator rand paul questioned having this hearing in the first place. got under the skin of chairman carl levin here. take a listen to this exchange. and — and maybe we don’t have the exchange. let me tell you what happened there. rand paul said he was offended by this hearing. he thought if anything congress ought to be apologizing it to apple instead of criticizing apple for doing what every company does, rand paul said, trying to lower its taxes. he said nobody’s out there trying to maximize their taxes. everyone is trying to lower their taxes. levin responded to that in classic senate fashion, not by naming paul but, wait a second, this hearing is entirely appropriate. john mccain chimed in in defense of levin himself. mccain saying that he was offended anyone would accuse levin of bullying — i think we do have that tape now ready to go. let’s take a listen to this exchange. apple has real operations with apple employees selling real products to real customers. we pay all the taxes we owe, every single dollar. we don’t stash money on some caribbeisland. reporter: and sometimes in television the wrong tape plays. that was not the exchange we were talking about with rand paul. in any case, some dramatic moments up here already on capitol hill. john mccain leaping to the fense of carl levin, the democrat who chairs the committee. a dispute between rand paul and john mccain over whether this hearing is legitimate anyway and so far, guys, i have to tell you, not a lot of heavy blows landed personally on cook. he’s been weathering the storm so far. we’ll watch and see how he does in the remainder ofhe testimony. again, eamon, it raises the corporate tax rate and that’s what rand paul was trying to refer to, right? reporter: yeah, that’s exactly the question here. rand paul saying, wait a second. congress set up this tax rate in the first place. why are we blaming apple of taking advantage of the perm
What to Make of Goldman’s Bullish Call
Muted growth could mean Goldman Sachs’s year-end price target of 1,750 in the S&P 500 might be right, Joe Terranova of Virtus Investment Partners says.
Transcript:
in florida with jamie dimon winning that vote. back to our top story, goldman’s bull market call. new numbers out today revealing just how strong the firm thinks the stock market is and will continue to be. goldman expecting the s&p 500 to hit 1750 by the end of this year, 1900 by the end of next year, and 2100 by the year 2015. josh brown? scott, it’s a fascinating rationale. goldman is saying typically multiples will expand in the year before to get gdp growth, and so they’re talking about 75% of the current expansion being due to the multiple growing and that continues. they’re also talking about this dividend floor that they think will continue to rise. right now it’s about 2% on the s&p. they think that will go higher and keep price with the price of the s&p and that is rather interesting, it’s a much better case than for them to say there’s multiple earnings growth. what do you make of this wildly bullish call? i think it’s an acknowledgement of the growth we saw in the first quarter. 12% was surprising from the street. it came from the sectors we like through discretionary and financials. you want to see the names like a microsoft, ibm, even apple, extend the dividend policy they put for already. i agree with josh. i don’t think it’s on earnings growth. it’vidend growth. it’s a way to give back to shareholders. if you watch the testimony with tim cook and the lawmakers in d.c. you begin to wonder if
Rally Red Flags?
Wall Street is chasing the rally, and CNBC’s Steve Liesman reports on why some have missed the boat; and Gina Martin Adams, Wells Fargo, discusses her bearish year-end target.
Transcript:
welcome back. we’ll continue to follow the stories in washington and down in florida with jamie dimon winning that vote. back to our top story, goldman’s bull market call. new numbers out today revealing just how strong the firm thinks the stock market is and will continue to be. goldman expecting the s&p 500 to hit 1750 by the end of this year, 1900 by the end of next year, and 2100 by the year 2015. josh brown? scott, it’s a fascinating rationale. goldman is saying typically multiples will expand in the year before to get gdp growth, and so they’re talking about 75% of the current expansion being due to the multiple growing and that continues. they’re also talking about this dividend floor that they think will continue to rise. right now it’s about 2% on the s&p. they think that will go higher and keep price with the price of the s&p and that is rather interesting, it’s a much better case than for them to say there’s multiple earnings growth. what do you make of this wildly bullish call? i think it’s an acknowledgement of the growth we saw in the first quarter. 12% was surprising from the street. it came from the sectors we like through discretionary and financials. you want to see the names like a microsoft, ibm, even apple, extend the dividend policy they put for already. i agree with josh. i don’t think it’s on earnings growth. it’vidend growth. it’s a way to give back to shareholders. if you watch the testimony with tim cook and the lawmakers in d.c. you begin to wonder if apple doesn’t get motivated even more. chasing the rally all along and our own steve liesman is here with a look at why so many have missed the boat, and so many have. i wish i knew the why, scott. you overpromise. i do not know the why. it has been extraordinary. when i saw that goldman thing, first of all, we did that interview with gary cohen recently and you got a sense of the bullishness inside goldman. because you asked him if he agreed and he did. six ways to sunday i asked him for his pessimism. he wouldn’t give it. i know this is not planned but put up the chart of what goldman’s previous was and where their outlook is now and when i saw that, exactly emblematic of what’s on the street. they were at 1625 for year end at a time when the current market was above where they were. let’s go to the fed survey, the cnbc fed survey, a chart that shows you the increasing pessimism of the analyst, the economist, on the market — guys, i don’t know if you have that chart we created in the back. i’m sitting here twisting in the wind. there it is. what you see there in the blue, their mid-year forecast and then where it was, the green number is where the s&p was on the date that we reported what the average was. so you can see only in december did they forecast an increase and the percentage decrease. so look at that in april when they forecast whatever that number ends up being, it ends up being that they’re thinking by june 1.3% lower. they have never believed in this market and they have continued to chase it higher. but the market keeps outperforming. we’re the top analysts. i think they have been pretty on the money here. they haven’t underperformed. if if you talk to these guys, the reason they’ll give you for why they weren’t keeping pace is they all overestimated these policy issues and the role they would have and underestimated the power of sentiment when it shifts. that’s interesting. so the key being overestimated the government cutbacks. look at that graphic, though. that’s where the street is. these are the guys i’m talking about for year end. below or substantially below. we are looking at the s&p 500 at 1670. i wonder the read. maybe being behind the curve is healthier for the market. you’ve seen a lot of markets. i have but i’ve listened to a lot of strategists. where they missed was they were looking at bottoms up s&p numbers saying, okay, historically on 0 an evaluation basis we’re closer to the top and given this growth we shouldn’t be there. here is what’s really driving the market. give me a point in time when any central bank has mott overshot either a tightening or an easing. so with every central bank right now easing, everyone that’s meaningfuven israel coming out and easing, you’re in such an accommodative easing money policy wheretorically you were accommodative at 3% rates. we’re at 0.25%. just go with what common sense tells us. let’s bring in a strategist who is maintaining her bearish stance on the market with a year end target. equity strategist for wells fargo joins us. gina, welcome back. good to see you. why has it been so difficult for your colleagues at other firms, for you, to get on top of what’s happening in the market? you know, i would say respectfully you’ve been the most wrong of the lot. and i’m wondering why. well, our price target is based on two things, it’s a model of the multiple. the multiple has been tremendously difficult to predict because of the evolution of fed policy over the last several years. the earnings numbers are actually tracking as we expected. we are suggesting we get 2% growth which is about right. our model actually suggested we would have some multiple rise the first half of the year and multiple contraction the second half of the year remains to be seen whether we’ll get that the second half of the year resulting in lower equity prices ultimately. are you ultimately underestimating the power of the fed and other central banks to do what they’ve done? you can cite earnings, almost everything, and none has seemed to matter. what matters most is central bank stimulus in this market. it has put a floor under the market, added a gusto to the market unlike anything almost we’ve ever seen. yeah, i think that’s spot on target. you can underestimate on the top side. it’s the nature of equity markets to overreact in both directions. i think the mantra don’t fight the fed works both ways. you don’t fight the fed on the way up but you don’t fight the fed on the way down. did we just lose gina? we just lost gina martin. we’ll try to get her back. one of the interesting things she said, scott, she underestimated — the evolution of the fed policy. what i think she was getting at was the way that fed policy would force people out of certain securities into others and the willingness to bid up stocks. plain and simple, we heard her speak in december, the r word, recession. that’s what she expected in 2013. i don’t know if she is still using that word but, if she is — looking for $104 from the s&p this year. it’s going to come in much higher. she is way too bearish. you are lookinttoms up at what companies are — what she is talking about with earnings, that is in the market. it’s where it’s going. the other thing is that sentiment doesn’t turn on a dime. it’s not a light switch. once it gets going, it’s got to run its course. it’s just gotten going. it’s early to talk about multiple contraction. look, you have five months or so, six, seven months to find out if she’s right. it’s early to say right now that she will be wrong but she hasn’t been right i would say over the last several times and that’s fair enough.
Apple’s Cook on Why AOI Exists
Senator John McCain (R-AZ) asks Apple CEO Tim Cook whether one could draw the conclusion that Apple has an unfair advantage over domestic-based corporations and companies in the U.S. that don’t have the same ability to relocate overseas, and why AOI exists.
Transcript:
carl, thank you very much. it is noon in the east. welcome to the halftime show. we’re monitoring two breaking stories this hour. u.s. ceo tim cook, as we’ve been watching here, getting grilled on capitol hill over the way the company pays its taxes. we’re going to bring you all of the latest headlines from that testimony and the question and answer session as it continues. we also want the to get to the results of the
big vote on jamie dimon’s future as chairman and ceo of jpmorgan. the votes, in fact, are in down in tampa, officially. kayla tausche joins us now live with the very latest from there. kayla, what can you tell us? reporter: scott, the proposal everyone was looking squarely at was proposal six, by four pension funds to split the role of chairman and ceo at the top of jpmorgan. that vote only garnering 32.2% of preliminary votes. that is not counting any votes cast in person today. the balance open all throughout the morning but as of right now,( 32.2%. so a clear win for dimon and also markedly lower from last year, 40% of shareholders supported a similar proposal to split those roles. now we should also note there’s some interesting approval numbers. three of note coming under fire recently from proxy adviser firm iss noting that the risk committee had some weaknesses squarely in that crossfire was the president of the american museum of natural history. she actually wasn’t present today, and she got the lowest approval rating of everyone on the board at 53.1%. jim crown, who runs an investment management company, got 57.4% and david cote of honeywell got 59%. those are fly low approval ratings. the rest of the board got approved at least 91%, so clear support for everyone on the board besides those three who saw approval ratings far lower. the presiding director who also serve ises as a defactor chairman in role if not in title and serves as a foil to jamie dimon. shareholders and investors here today were fairly impressed with the way raymond and dimon handled questions from shareholders. kayla tausche with the latest for us from down in tampa, florida. steve weiss, resounding win? a majority voted for the split. how would you characterize it and what does it mean where the stock goes from here? i would say resounding because they looked for a much closer result. maybe something towards 50%? exactly. 45% to 55%. so, to me, i was kind of interested in this because you can find yourself, it if you separate the roles, look at what ray lane has done to hewlett-packard. you have other instances. what was particularly interesting he may have walked if he wasn’t re-elected. and that was troubling. i don’t think it has any bearing, quite frankly, on the main issue, too big to fail. it didn’t help bear stearns. they had a separated role. we have been following tim cook defending the way apple pays its taxes in that hearing down on capitol hill. we want to take you back there, give you a quick run of some of the headlines there. cook saying emphatically we have real operations in real places. we pay all of our taxes. we owe every single dollar. we don’t depend on tax gimmicks or stash money on a caribbean island. we don’t skirt repatriation tax. unfortunately, the tax code has not kept up with the digital age. those are the words of tim cook. let’s take you back to the q&a session with senator mccain. an incredible legacy for apple and all of the men and women who serve it. also, i think you have to be a pretty smart guy to do what you do and pretty tough, too. you have that reputation and i say that in a complimentary fashion, and i enjoyed our conversation. and so i wonder, do you feel you have been bullied or harassed by this committee or its members? i felt very good to be participating in this and i hope to help the process. the i would like comprehensive tax reform to be passed this year and any way apple can help to do that, we are ready to help. so it was my understanding that you sought to testify before this committee for that purpose and other purposes, is that correct? i think it’s important that we tell our story. i’d like people to hear it directly from me. so you were not dragged before this committee? i didn’t get dragged here, sir. you don’t drag very easily, i understand. and i thank you. this is an issue of concern for congress, and i guess my first question to you, mr. cook, is you have obviously legally taken advantage of a number of aspects of the tax code both foreign and domestic, and that has reduced the tax burden. i think we would agree that if you were paying the 35% corporate tax rate that domestic companies pay. so my question is, couldn’t one draw the conclusion that you and apple have an unfair advantage over domestic-based corporations and companies? in other words, smaller companies in this country that don’t have the same ability that you do to locate in ireland or other countries overseas? no, sir, it’s not the way that i see it, and i’d like to describe that. the way i look at this is apple pays 30.5% of its profits in taxes in the united states. and i don’t know exactly where this stacks up relative to other companies, but i would guess it’s extremely high on the list. i know with the 6 billion we’re the top payer in the united states. we do have a low tax rate outside the united states, but this tax rate is for products that we sell outside the united states not within. and so the way that i look at this is there’s no shifting going on that i see at all. and, in addition, if you look at apple versus other companies that do not sell in the u.s., i would say that the applicable comparison would be the 30.5% effective rate not our foreign tax rate. well, let’s get a little simpler here. why does aoi exist? sir — how is its income generated? how is its income taxed? why was aoi incorporated in ireland? 4,000 employees is impressive but not impressive when you look at your overall workforce. so maybe you can clear that up for us. yes. thanks very much for the question. aoi was created in 1980, and in this period of time apple was — this is before the days that the iphone and ipad and the ipod and the things that we’re known for today were invented. the mac wasn’t even announced until 1984. so apple was looking for a place to distribute its products in europe. i understand that. is that still operative today? the relationship between apple and the irish government is still there today. we’ve built up a sizable population. i say with respect given the tax rate the that you are paying in ireland, i am sure you have a very close relationship. but it’s more than that, sir. we built up a significant skill base there of people that really understand deeply the european market that serve our customers well yet provide a number of functions for that. also, i think it’s important to understand that aoi is nothing more than a holding company. a holding company, as you know, is a concept many companies use. it’s not an operating company. and so the dividends that go into this operating — this holding company have already been taxed appropriately in their local jurisdiction. and so aoa — to a great advantage to apple, wouldn’t you agree? aoi to me, sir, is nothing more than a company that has been set up to provide an efficient way to manage apple’s cash from income that’s already been taxed and the investment income that comes out of aoi is taxed in the united states at the full 35% rate. and so, sir, from my point of view, aoi does not reduce our u.s. taxes at all. can you please state for the record where aoi, asi and aoe is a tax residence? yes, sir. my understanding is there’s not a tax residence for any of the three subsidiaries you just named. does that sound logical? well, again, as i look at it, the asi and aoe are paying irish taxes and so i’m not — i personally don’t understand the difference between a tax presence and a tax residence, but i k that they fill out irish taxes and pay those. aoi, because it’s just a holding company, the interest — it only makes investment income and all that is taxed in the united states at the full 35% level. when you look at that avoidance or relief of 35% tax burden, which i’m sure that we are in agreement is way too high and now the highest in the world, i understand, but you said the purpose of aoi is to ease administrative burdens. but are there certain u.s. tax burdens — isn’t it obvious that you are not bearing the same tax burden as if you were bearing in the united states which then gives you some advantage over corporations and companies which are smaller, which are strictly located in the united states of america? i’m not saying that’s wrongdoing, but i think you would agree it gives you a significant advantage. sir, i have tremendous respect for you. i see this differently than you do, i believe. what i see is apple’s earning these profits outside the united states by law and regulation they’re not taxable in the u.s. we set up a holding company company to collect these after tax profits from our different foreign subsidiaries into aoi. it then invests as any treasury arm would and the interest investment — or the interest profits off of that are paid in the u.s. as required to under existing treasury regulations. can you understand there’s a perception of unfair advantage? this is a complex topic that i’m glad we’re having the discussion but honestly speaking i don’t see it as unfair. i’m not an unfair person. that’s not who we are as a company or i am as an individual. i would not preside over that honestly. what i really wanted to ask is why i have to keep updating appss on myiphone all the time and why you don’t update that? we’re trying to make them better all the time. we have only five minutes left on a roll call. have you voted already? i think we’d better recess for ten minutes. watching tim cook on capitol hill, a recess now taking place. again, lawmakers have been grilling apple and ceo tim cook about the way that it pays its taxes, about its corporate structure, that it has subsidiaries. it plays by the rules saying that its foreign units provide an evident way. i can’t help but wonder as we watch this there are some folks out there maybe this would be better served if you had a role reversal here and you had maybe jeff immelt and tim cook and some other ceos asking
the questions and lawmakers answering as to why our corporate tax rate is the rate that it is. this is old news but apple being the biggest company it’s an issue the tax code is at fault here. they have to redo it. apple making the point it is the largest corporate taxpayer in the united states, payed $6 billion in cash. we’re back on the other side of this break.
Sen. Levin: Where Is ASI ‘Functionally’ Managed & Controlled?
Sen. Carl Levin, (D-MI), questions Tim Cook, Apple CEO, and Phillip Bullock, Apple’s head of tax operations about whether income from Apple Sales International and AOI is paid in the United States or Ireland.
Transcript:
answer now with tim cook. here is carl levin. recently more and more enterprises argued abroad by american firms have arranged their corporate structures aided by artificial arrangements between parent and subsidiary regarding intercompany pricing, the transfer of patent licensing rights, managing fees and similar prctices which maximized the accumulation of profits and the tax haven. do you agree with that? the president and his brother had been long-term heroes of mine, so i’m sure if he said it at the time, it was true. today, from at least our point of view, i don’t consider deferral to be a sham or abuive in any kind of way. does apple own directly or indirectly aoi, aoe and asi? yes,pple incorporated owns directly or indirectly aoi, aoi and asi. all those companies in ireland are owned by apple effectively, is that correct? they are all legally owned by apple incorporated, yes. and where is aoi functionally managed and controlled? in our view it is functionally managed and controlled, which is an irish legal concept, in the united states. a february 11 letter to the subcommittee apple wrote, quote, has not made a determination regarding the location of aoi central manage lt control. why did you tell us that? mr. chairman, the reason we responded in that manner is that under irish law, the requirement for evaluating our concluding on the tax residency of ireland looks to whether or not central management and control takes place in ireland or not. it does not formally require that you make a determination that it takes place somewhere else. but you’ve told us here this morning that you believe that the location of aoi’s central management control is in the united states — or apple has concluded that, is that correct? yes. and i believe that? a previous meeting with your staff, they asked the same question and i believe i provided the same response. mr. cook, do you agree that the location of aoi’s central control is in the united states? sir, i don’t know what the legal definition of that is, but from a practical point of view, yes. now relative to asi, mr. bullock, is asi managed and controlled in the united states? as a practical matter, applying the irish legal standard of central management and control, i believe that it is centrally managed and controlled from the united states. and does apple agree that it is functionally managed and controlled in the united states? under irish law — no, under our law, do you believe that? i don’t believe that central management and control is a legal term under u.s. tax law. do you believe it is functionally manage the and controlled in the united states? yes. mr. cook, do you agree? there’s a significantmount of decisions and leadership and negotiations that go on in ireland. but some of the most strategic ones do take place in the united states. would you agree that on balance asi is functionally managed and controlled in the united states? from a practical matter. i don’t know the legal definition. practical matter you would agree that it is functionally managed and controlled in the united states? yes, senator. thank you. now, mr. bullock, aoi is incorporated in ireland, is that correct? yes, mr. chairman, it i incorporated in ireland. and where is aoi a tax resident? it does not have a tax residency. that does not mean that it does not pay taxes. the interest that it earns is paid — u.s. taxes are paid in full on its interest by apple, inc. and the interest you are talking about is on the tens of billions of dollars that it has in cash, is that correct? correct. the cash that was distributed from the operating subsidiaries underneath. of cash earn interest and that interest is paid by apple inc? is that correct? it pays a the statutory rate of 35%, yes. but there’s no income — there’s no tax paid on the money itself that has been sent to apple — excuse me, to aoi by the distributors, is that correct? there’s been no tax paid on that either in ireland or the united states on those tens of billions of dollars which has been sent to aoi from the subsidiaries below that? the income of the subsidiaries have been subject to tax in the countries in which they operate. right. but there’s been no tax paid in ireland on those distributions nor in the united states or those profits, is that correct? there’s been — there is no u.s. tax on the transfer of those balances to aoi. the income earned by asi and aoe has been subject to irish tax in full and in accordance with the agreement that we have with ireland. and is that a maximum of 2%? mr. chairman, i’m not precisely sure of the me be cannics of the computation. not the mechanics but is that a maximum of 2%? approximately, yes. thank you. has aoi filed a corporate income tax? that is senator carl levin questioning the apple executives.
Apple CEO Cook: We Don’t Use ‘Tax Gimmicks!’
In testimony to a Congressional panel, Apple CEO Tim Cook rejects accusations that Apple uses overseas entities to avoid billions in U.S. taxes and calls for a drastic simplification of the country’s tax code.
Transcript:
we don’t move our money from foreign subsidiaries in order to reskirt the tax. our foreign subsidiaries hold 70% of the cash because of the very rapid growth of our international business. we use the earnings to fund our foreign operations, such as spending billions to acquire commitments for apple products and apple retail products around the world. under the current u.s. corporate tax system, it would be very expensive to bring that cash back to the united states. umpl the tax code has not kept up with the digital age. it handicaps american corporations in relationship to the foreign competitors who don’t have constraints on the free movement of apple. we believe it brings increased responsibilities to the communities where we live, work and sell our products. we enthusiastically embrace the belief to whom much is given, much issing quired. in addition to creating hundreds of thousands of american jobs and developing products that deeply enrich the lives of millions apple is a champion of human rights, education and the environment, our belief that innovation should serve the deepest values and highests a places is not going to kpang. we are deeply committed to our country’s welfare. we believe great public policy can be a catalyst for a better society d a stronger america. apple has always believed in the simple. not the complex. you can see this in the products and in the way we conduct ourselves. in the spirit that we recommend a dramatic simplification of the tax code. it should eliminate all corporate tax
expenditures. lower income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the united states. we make this recommendation with our eyes wide open fully recognizing that this would likely result in an increase in apple’s u.s. taxes. but we strongly believe that such comprehensive reform would be fair to all taxpayers, would keep america globally competitive and would promote u.s. economic growth.
Cook: ‘Proud to Represent Apple’
Sen. Carl Levin, (D-MI), swears in Apple’s CEO before a Senate committee hearing on tax reform. Cook defends his company’s stand on tax repatriation, adding Apple complies with the letter and spirit of the tax law and does not use “tax gimmicks.”
Transcript:
all witnesses who testify before the sub committee are require to be sworn. at this time please stand and raise your right hand. you swear that the testimony you’re about to give will be the truth, the whole truth, nothing but the truth, so help you god. i do, so help me god. we’ll kuz our traditional timing system today. you’ll see the lighting change from green to yellow. giving you an opportunity we can ask that you limb your oral testimony to ten minutes. my thanks to you and your colleagues for being here. you may proceed. i’m sorry. we changed that. it’s to a 15-minute opportunity, instead of 10 minutes. i appreciate that. good morning. i am proud to represent apple before you today. apple has enjoined unprecedented success in the past ten years. international revenues are twice as large as domestic revenues. as a result i’m often asked if apple still considers itself an american company. my answer has always been yes. we are proud to be an american company and equally proud of our contributions to the u.s. economy. apple is a bit larger than the company created by steve jobs in his parent’s garage 40 years ago. that entrepreneurial spirit drives everything that we do. you can tell the story of apple’s success in one word. innovation. it’s what we’re known for. products like iphone and ipad, which created entirely new markets. these give customers something so incredibly useful. they can’t imagine their lives without them. you may be surprised to learn much of the innovation takes place in a single u.s. zip code. 95014. that’s in california where we have built an amazing team. they come to work each day with just one mission, to make the very best products on earth. their job is to dream up things that capture the world ice imagination. one of those inventions is the app store. if you’ve ever used an iphone or ipad, you know mobile apps are one of the hottest things in technology today. apps that made software development one of the fastest growing job segs in the u.s. today. we estimate that the app store has generated 300,000 new jobs in the u.s. app developers have earned over $9 billion from apps sold on the app store. half in the last year alone. none of that economic activity was there five years ago. apple took a bold step in developing the a prk p store and the app economy was born. today it’s a multibillion dollar marketplace that shows no sign of slowing. we chose to keep the design of the products right here in the united states. while job growth stagnated this the last decade, apple’s u.s. workforce withdrew by five told. today we have 50,000 employees and employees in all 50 states. apple that has created hundreds of thousands of jobs with small businesses that support us. the components for iphone and ipad, for example, are made in texas. and iphones glass comes from kentucky. in total, apple is responsible for creating or supporting 600,000 new jobs. we used if earnings growth to invest billions to create more american jobs. we’re investing $100 million to build a line o in the u.s. later this year. this product will include components from illinois and florida and rely on equipment produced in kentucky and michigan. we 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 fuel cell of its kind in the u.s. we are building data centers in oregon and nevada, a new headquarters in cupertino. apple has become the largest corporate incomes taxpayer in america. last year our u.s. federal ch effective tax rate was 30.5%, and we paid nearly $6 billion in cash to the u.s. treasury. that’s more than $16 million each day, and we expect to pay even more this year. i would like to explain to the sub committee very clearly how we view our responsibility with respect to tacks. 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. we don’t depend on tax gimmicks. we don’t move an electrical 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 foreign subsidiaries in order to reskirt the tax. our foreign subsidiaries hold 70% of the cash because of the very rapid growth of our international business. we use the earnings to fund our foreign operations, such as spending billions to acquire commitments for apple products and apple retail products around the world. under the current u.s. corporate tax system, it would be very expensive to bring that cash back to the united states. umpl the tax code has not kept up with the digital age. it handicaps american corporations in relationship to the foreign competitors who don’t have constraints on the free movement of apple. we believe it brings increased responsibilities to the communities where we live, work and sell our products. we enthusiastically embrace the belief to whom much is given, much issing quired. in addition to creating hundreds of thousands of american jobs and developing products that deeply enrich the lives of millions apple is a champion of human rights, education and the environment, our belief that innovation should serve the deepest values and highests a places is not going to kpang. we are deeply committed to our country’s welfare. we believe great public policy can be a catalyst for a better society d a stronger america. apple has always believed in the simple. not the complex. you can see this in the products and in the way we conduct ourselves. in the spirit that we recommend a dramatic simplification of the tax code. it should eliminate all corporate tax expenditures. lower income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the united states. we make this recommendation with our eyes wide open fully recognizing that this would likely result in an increase in apple’s u.s. taxes. but we strongly believe that such comprehensive reform would be fair to all taxpayers, would keep america globally competitive and would promote u.s. economic growth. my colleague will now make a few opening remarks and then we’ll be happy to answer your questions. thank you very much.
Apple’s CEO Arrives on Capitol Hill
Tim Cook smiled as he arrived to give testimony before a Senate committee, reports CNBC’s Eamon Javers. And Sen. Rand Paul (R-KY) and Sen. Carl Levin (D-MI) disagree on whether Congress should apologize for “bullying” one of America’s “greatest success stories.”
Transcript:
ann when we speak with her. thank you so much for your time. ceo tim cook will give his testimony soon. ea did see tim cook walking in a few moments ago. heedness answer any questions but gave a big smile and wave. he is expected to be part of the second panel and expected to face very tough questions here about the way that apple has structured itself around the globe, including what this investigative sub committee says is setting up three separate corporate entities that were not tax residents in any country of the world. not taxed residents of the united states or ireland, where they were legally registered but apple will be in a position where they have do defend themselves from a very hostile senate. we have some tape here of cook walking in. let’s take a look at that first, and then we’ll show you the others. take a look. was what apple did appropriate here? was apple appropriate here? so you can see a lot of camera crews. let’s see if we can play the other tame we have with senator rand paul in a dispute if what apple did was wrong. frankly i’m offended by the tone and tenor of the hearing. i’m offended by a $4 trillion government bullying one of america’s greatest success stories. if anyone should be on trial here. it should be congress. i think the committee should apologize to apple. senator, paul, you can apologize if you wish. this sub committee is not going to apologize to apple. we did not drag them in front of this sub committee. carl levin in no mood to have anybody apologize. now we are going to hear from cook about why apple structured itself this way around the world, whether that gave the company tax vangss and whether he says it’s inappropriate in any way. and apple said they don’t use gimmicks. we’ll see how he handles it in live testimony in just a couple of minutes. he’s up against challenging optdices, as you just showed us, thank you so much. we’ll find out what best buy ceo
‘Berating’ CEOs Doesn’t Solve Tax Problem: Fiorina
Tim Cook testifies before a Senate panel proposing tax changes that would overhaul the corporate tax code, reports CNBC’s Eamon Javers & Jon Fortt. And, Carly Fiorina, former HP chairman & CEO; and William George, Harvard Business School professor, discuss what this means for Apple and other corporations.
Transcript:
apple stans accused of shielding taxes. its ceo and cfo are about to be grilled on capitol hill. we’re watching the first part of the session and they’re on the second panel. thering from a couple of finance professors right now giving them a sense of what the tax law is and what these professors think it should be given the findings here of the senate subcommittee. in essence, the subcommittee here doing months of research found that apple created three corporate entities that were sort of stateless. they didn’t exist in the united states for tax purposes. legally registered in ireland, but not for tax purposes. they didn’t exist anywhere in the country. the committee says that’s a big problem and it was done to avoid taxes. it doesn’t use tax gimmicks and the setup of one of these sub entities didn’t reduce their u.s. tax burden at all. we’ll get to the bottom of that. everyone here waiting, of course, for tim cook, the ceo of apple to take the chair there in the room and begin his testimony. we have not spotted him publicly yet and they’re about to wrap up for the second panel and this is the second speaker now so it should be not too long now before tim cook takes the chair and faces tough questions from the senators, simon. apple is not the first to be dragged into the subcommittee. a couple of months ago it was high pressure and microsoft. you want to know, does it affect the stock. gene munster, well-known analyst, said it doesn’t affect apple stock for now unless they start changing the rules. that’s right. do you think they will change the rules on taxation? senator carl levin who is the guy who chairs this committeeio you seeere grilling tim cook later. we talked to his staff yesterday and they were arguing that we need to not wait here for overall tax reform before the senate takes a look at some of these loopholes that they say apple took advantage of here to create these companies without a country so to speak. he says what they did was take offshoring to a whole new level and something like no shoring and what he’d like to do is eliminate the ability of companies to do that. john mccain, the republican on the committee seemed to support his comments and clearly, there are two key senators that need to be two key changes in the law that would prevent apple from doing this. whether that has the steam politically to get all of the way through a tax process is an entirely different question and probably a long way off for now, but what they’re doing here is trying to tee up that battle for the future. tax reform was something greeted happily by many who run the corporations. eamon, thank you. when we talk about apple, we talk about an awful lot of cash that are overseas and some estimates have all corporations and cash holdings and it’s somewhere $1.9 trillion. apple, the largest single cash hoard, of course. cnbc’s john ford has more on the overhaul of the tax code and on apple’s overseas cash. john? yeah, you know, it’s pretty phenomenal david to watch this hearing take place and the homeland security and governmental affairs committee is the one that’s over this subcommittee. carl levin and john mccain. finally, we found something that congress can agree on. rand paul, however, as part of this hearing called out, congress should apologize for hauling apple out and apple hasn’t broken any rules here and it’s their 102 billion in cash that apple now has overseas. that’s growing. the balance of nearly $150 billion total that apple has that is in the u.s. take a look at what’s happened to apple’s stock today thus far. it looks to be down a bit perhaps on this where the overall market is about flat. apple operations international is the name of this — this sub group that apple created, incorporated in ireland and said, it’s not managed in ireland, therefore it doesn’t need to be taxed in ireland. hey, united states because it’s not incorporated in the united states you can’t tax us either. it will be interested to see what tim cook has to say about that. that seems to be the kind of thing that your average american who pays taxes might have some questions about and apple, of course, very protective of its image, plus there’s the fact that apple operations international and some of those subsidies that the subcommittee has talked about don’t have employees even. here is a key also. apple shifted $36 billion in global sales income away from the u.s. avoiding $9 billion in taxes in one year more than $1 million an hour. that is the kind of figure that your average person can wrap their minds around and there might be some questions about, so we’ll see how that plays out as this hearing continues, david. all right. john ford for us. thank you very much. let’s get more on what this means for tim cook and apple and carly fiorina is the former chairman and ceo of hewlett-packard and she joans us with bill george, the former chairman and ceo of medtronic and he sits on the board of exxon mobil and goldman sachs. hewlett-packard is one of the companies that’s previously been in the cross fire for this kind of activity. so do you think it’s in violation of the law or the spirit of the law for these tech companies to shift profits overseas for more favorable tax rates. no, it’s clearly not and it’s a reflection of the fact that it is uncompetitive and it’s unproductive in its complexity and it would be more productive instead of senators feigning outrage and shock that companies would exploit that complexity to minimize their tax rate which is is the high of the in the world now, and i think a more productive use of time is to talk about how aree going reform this tax code so that it is competitive in its rate and it is vastly simpler for the benefit of all businesses, but particularly small businesses and so we can move some of that cash from overseas back to this country. i think that’s what you’re going to hear every ceo say. you’ve got to lower the rates. you have to close the loopholes and simplify this tax code and hauling up companies to berate them for
trying to maximize profit i think is truly counterproductive. it nds like what your saying is shortly of what is productive in washington. look, it is a ceo’s job to try and use legal and ethical means to maximize their profits and to maximize their shareholder return in a way that is sustainable over the long haul. is this ethical? it’s legal, but i guess there’s this question of whether and in who’s interest? apple is frequently here in its testimony putting forward this issue of acting in the interest of shareholders. it seems that is effectively the only thing it needs to worry about and perhaps with some merit. you know, i’m not in the habit of just boldly defending everything companies do, but in this case, i really think the politicians on capitol hill need to take some responsibility for the fact that over decades they have created a tax code that is clearly, uncompetitive, clearly counterproductive in its complexity and again, feigning shock and outrage is easy. what’s difficult is getting down to the hard work of reforming this tax code in a way that makes it more productive in terms of raising tax revenues, more competitive in terms of bringing cash back and insenting our american companies. all of this is hard work. a hearing is easy and it’s good theeder, but not solving the this will be a very bizarre conversation for a let of people watching now. apple stands charged on avoiding taxes on $74 billion. how far below 35% do you have to reduce the corporate tax rate for it to vote to tax that $74 billion? surely, it simply doesn’t. it it just keeps it offshore. that’s the deal. it’s got nothing to do with effective rates of taxation. well, i think it has everything to do with it. carly is absolutely right. she says berating the companies, leading companies like microsoft, hewlett-packard, apple, j.p. morgan, same committee. senator levin’s committee is not getting us anywhere. it’s avoiding the real issue which is an outmoded u.s. tax system. i don’t know global corporations that don’t have a global tax policy and try to optimize their taxing. companies have to pay taxes where the profits are earned so apple is peaing taxes all over the world, in germany, china or in japan where they’re earning money and that’s why they’re paying 30% in taxes and they’re paying a sizeable $6 billion to the u.s., but i think the real issue is we need a different tax policy for repatriation. bill, we should be clear that actually that’s not strengthly true. i know of many big american companies that create the image that they’re running their european operations out of ireland, and those people are actually based in the united states though they are within the hl departments in ireland to make it look as if that’s where business is being done. this is a much bigger issue than simply intellectual company within technology. it comes to theeth iks of doing business. it’s a much bigger issue, isn’t it? i think you have a dysfunctional tax code, and i think the answer is to change the repatriation policy. i would advocate one of two thing sfs either we have a 12-month repatriation holiday in which companies submit a plan to the u.s. treasury to ve invest that fund. say apple wanted to reinvest 5 billion or ten billion in the new factories in the u.s. or any company could submit a threat to the treasury. right now to be able to put those factories and they’re in acquisitions outside the u.s. because they have the cash there and it’s basically tax-effective to do that, and i just think it’s wrong. the other thing is we can permanently reduce it to 78%. it’s the highest in the world so when you do this you’re going to cause legal behaviors that are not the benefit of the u.s. we are not cree ating jobs and we have many other advantages, american companies or i know companies i was on the board of a swiss company. they have a global tax policy, too. i just don’t know anyone that doesn’t do that. this is not about the cayman islands. this is about having a system in the united states and that incentivizes companies to bring their cash back to the u.s. and invest in the u.s., not just invest in bonds and mortgage instruments, but invest in the u.s. in packries and rnd and perhaps an acquisition. that’s what i would advocate. first of all, i agree with everything that bill just said, but simon, i want to go back to the point you made which is in essence of accusing companies of 19inging irish operations. you may be aware of companies that have done that. i am not aware of any companies that have done that. it is important to remember why so many companies went to ire lann in the ’90s. the reason they went to ireland in the ’90s is the irish company made a strategic choice. they lowered their tax rates and invested heavily in their education system and a lot of companies including and not limited to hewlett-packard placed factories there. our senators and congressmen need to get with the program and the reality that we are competing in a global economy. we — every american company must compete in that global economy and in order to compete successfully we have to have a tax system that is competitive globally. our rates are not competitive. the complexity of our tax code is clearly counterproductive to everyone. it’s courter productive in terms of raising tax revenues. it’s counterproductive to dumps in terms of the amount of manpower they have to invest in understanding the tax code. it is literally killing small businesses because of its complexity. as i say, it makes good theater to haul up a ceo of a company like apple and berate them, but it doesn’t get down to the issue of solving the problem which is massive tax reform, including lowering the rates and simplifying the system and recognizing that this is a global economy. and this is the most important point. it is a global economy and frankly, you’ve got it at the same time the european parliament looking to vote right now on trying to harmonize taxes around the world. it will take years for that to happen and in the in the meantime we know how companies are going to behave. can i just say one thing
Apple’s CEO Heads to Capitol HIll
Tim Cook plans to propose tax changes that encourages firms to bring home more of their offshore funds, reports CNBC’s Eamon Javers.
Transcript:
this isthe pursuit of perfection. a monday, good morning. good morning, becky. apple created a new invention. essentially no shore corporate entities, corporate entities tax residents of any country in the world. carl levin called that the holy grail of tax avoidance. look at what the subcommittee is arguing after an investigation into apple structure. they said apple entities not declared tax residents of any jurisdiction in the world. they were legally registered in ire land but they weren’t tax residents there or here in the united states. one is apple operations international. it had net income of $30 billion from 2009 to 2012 but paid no corporate income taxes anywhere in the world from that period, 2009 to 2012. here’s what apple says in response to these allegations. they say a lot $6 billion apple is likely the largest corporate income tax payer in the united states and apple does not use tax gimmicks. even the existence of this does not reduce u.s. tax liability for the company. senator john mccain came out yesterday with a number of senators and staffers and blasted apple. talk a listen. apple executives like to boast that their company is the highest corporate tax payer in the u.s. what they often leave out is the second part of the story, that apple is one of the largest corporate tax avoiders. it’s unacceptable. and they’re not the only ones. but they are the most auto egregious offender. tim cook will come to the hill to testify about this today. he will make arguments about changing u.s. tax law and said everything apple did was legal within the obscure tbgs system that the united states has right now. so it will be a tough day for apple. there haven’t been any allegations of illegal activity with any of the senators? no. the committee staff yesterday said all this stuff they did was gal. they were creating these entities which had no employees, no offices in ireland legally. but under irish tax law they weren’t irish but they were considered to be americans. so they weren’t legal tax entities of any country in the world. that’s something the subcommittee staff said they have never seen before. explain this, though. on one song you have the government saying they have created this stateless, almost homeless subsidiary if you
will that’s collecting no tax. on the other side apple is say, yes, that is true, except for the fact that it doesn’t change our tax liability and we have been paying it anyway. who do you think is right? and are both sides overplaying their hands? i would have to be a more highly paid tax lawyer to decide who is right. they are saying this does not reduce their u.s. tax liability because it’s an off-shore entity. therefore the existence doesn’t reduce u.s. taxes. but having it in ireland and not as a registered tax resident in ireland what it may be doing is reducing their irish tax liability. there are profits being made outside the united states. that’s right. so we shouldn’t care if we’re not paying spain. although spain could use it. tough day for apple. i don’t know why it’s not a tough day for washington. if it’s legal, this is what a company is supposed to do. shou be a tough day for washington because they can’t get their act together and try to figure out,000 reform the tax code or do something with territorial. this bizarre entity that doesn’t exist. if it’s illegal, change the law. he’s a senator. he has several proposals, as you can imagine, that would address this issue directly. the question is whether they want to wait for overall tax reform which may or may not be coming later in the year. and mccain and levin are suggesting let’s go ahead and reform this right now. it’s a loophole and should be
Oppenheimer Opening Statement
Tim Cook Opening Statement
