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Summary:

Cook will call for a revenue-neutral reform of the corporate tax code that does away with all tax expenditures, lowers tax rates and establishes a “reasonable” tax on companies’ earnings from overseas.

Apple CEO Tim Cook is going before Congress on Tuesday to defend his company’s tax-paying practices. On Monday, the company published his planned testimony, including his recommendations for “a dramatic simplification of the corporate tax system.” Cook will argue that his general suggestions for an overhaul will benefit the economy by encouraging U.S.-based companies like his own to bring more of their foreign profits back to their accounts in the U.S.

Cook will call for a revenue-neutral reform of the corporate tax code that does away with all tax expenditures, lowers tax rates and establishes a “reasonable” tax on companies’ earnings from overseas. It’s not in the planned testimony, but in an interview last week, Cook made it clear that he does not believe that a tax rate of zero is a reasonable number. In his testimony before the U.S. Senate’s Subcommittee on Investigations, he will say that Apple supports this simplification of the tax code despite the likelihood that it will mean Apple’s overall corporate taxes will go up. The current corporate tax system “applies industrial era concepts to a digital economy” and “undermines U.S. competitiveness,” Apple believes.

Before Cook gets into his specific suggestions for fixing how U.S. businesses are taxed on foreign earnings, he’s going to spend most of his time going over why he’s being called to testify in the first place: Apple’s accounting methods. Apple keeps at least $100 billion in foreign earnings outside of the IRS’s grasp because it doesn’t wish to pay the 35 percent tax it would incur by bringing that money home. Many other businesses follow similar practices.

According to the published testimony, Cook will going into detail about how the company accounts for profits earned in the U.S., how investment in its foreign assets is taxed, how it shares R&D costs with an Irish subsidiary and more. (It’ll probably be a snoozefest for everyone except those who get a thrill out of spreadsheets.) Most of it is Cook on the defensive, explaining how what Apple does is within legal limits. Cook plans to assure the committee it’s not cheating on its taxes with any special tricks and “does not have a bank account in the Cayman Islands.”

He will underscore his point about Apple being on the up and up by laying out how much the company pays in taxes. Last year it paid $6 billion in taxes to the U.S. and this year, Cook has said it will pay $7 billion.

Tuesday’s testimony will be Cook’s first appearance before Congress. The company’s tax practices came to light a year ago when the New York Times highlighted some of the methods Apple has used to keep its overall taxes at a minimum.

Update 2:43 p.m. PT: Later on Monday the Senate released the results of its own investigation into the Apple’s tax-paying practices. It found that Apple’s convoluted system of subsidiaries has allowed it to avoid paying $44 billion in U.S. taxes over the last four years. However, it also noted that Apple did not break any U.S. law in doing so, according to a report in the Los Angeles Times. Expect many questions during Tuesday’s hearings about how the company uses its subsidiaries in Ireland to do this.

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  1. Michael W. Perry Tuesday, May 21, 2013

    There’s a radical disconnect between Tim Cook’s words and his company’s behavior. What Apple’s CEO wants isn’t a new idea. It’s has been an available political option since at least Reagan and the 1980s. Here’s what our two parties offer:

    Democrats: High nominal tax rates accompanied by nasty rhetoric about taxing the rich, both corporations and individuals. But that comes with all the loopholes that the party’s politicians create to please their donors. In Geek Speak, the loopholes that Apple exploits aren’t bugs, they’re features.

    Republicans: Lower nominal tax rates accompanied a simplified tax code with few ways to evade taxes. That creates a level playing field between giant businesses such as Apple, who have the resources to create tax-evading schemes, and smaller businesses that can’t.

    And yet what does Apple actually do in the political arena? It has a prominent big government liberal, Al Gore, on its board, and I suspect that a check of political contributions from the company’s executives will find it tilts heavily toward the Democrats.

    If Tim Cook and the rest of Apple’s executives want Republican tax policies, then they need to match their deeds with their words and support Republicans.

    And if they want to continue to support Democrats, then they’re going to have to endure not just high tax rates and the messy necessity of exploiting loopholes, but all the nasty rhetoric that Democrats indulge in from time to time to keep their dim-witted voters in line.

    And that’s why Apple deserves so little sympathy here. The company is reaping what it has sown.

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