May 17, 2013 at 2:32 PM ET
Lower corporate taxes in exchange for American jobs? This is the trade-off Apple seems poised to offer.
Ahead of his appearance Tuesday at a hearing of the Senate’s permanent subcommittee on investigations, CEO Tim Cook took an unusual step for the notoriously tight-lipped company: He spoke to the media about Apple’s overseas cash cache and prospective changes to the tax code targeting “job creation, as well as research and development” to induce companies to bring foreign cash home.
Cook told The Washington Post he plans to suggest a “dramatic simplification” of relevant tax laws when he appears before the subcommittee next week. He is likely to face hard questions from lawmakers. The hearing agenda describes itas “the structures and methods employed by multinational corporations to shift profits offshore and how such activities are affected by the Internal Revenue Code and related regulations.”
“I hope to make some clear recommendations, and I trust there will be receptive parties there," Cook told Politico.
Peter Misek, managing director of technology research at Jefferies LLC, said Cook is smart to get out in front of the debate by proposing alternatives to the tax code. “The position Tim Cook is taking is right for the whole industry,” he said via email. “The U.S. tax code encourages complicated structures to avoid taxes. A simplified and lower rate would likely collapse all that.”
Just over $102 billion of the computer giant’s nearly $145 billion in cash is held overseas, according to the company’s most recent quarterly report. Apple wants to avoid paying what Cook said would be a 35 percent tax rate if that money was repatriated to the United States. “That is a very high number,” he told the Post. “We are not proposing that it be zero... But I think it has to be reasonable.”
Apple is hardly the only company that employs this practice. In March, a Wall Street Journal analysis of 60 big companies found that they collectively parked $166 billion overseas last year to avoid the tax bite.
“We've been working with the Subcommittee to answer their questions about Apple, and we welcome any further questions they might have,” a company spokesman said via email. Apple paid $6 billion in federal corporate income tax in fiscal 2012, he said, and has “help[ed] create hundreds of thousands of jobs” in the U.S.
Giving Apple more leeway to bring its cash home could prove tempting to lawmakers, especially given the company’s recent pledge to commit $100 million to building some computers domestically.
According to Politico, Apple will begin manufacturing a “new version of a current Mac product later this year” and is manufacturing components as well as the final product in states across the country, including Arizona, Texas, Illinois, Florida and Kentucky. Apple wouldn’t say which model that would be, but observers have suggested that the Mac Pro, which is due for a refresh, is a likely candidate.