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Next Mac will be made in Texas, Tim Cook says

  • May 21, 2013: Apple CEO Tim Cook arrives on Capitol Hill, in Washington, to testify before the Senate Homeland Security and Governmental Affairs Permanent subcommittee on Investigations hearing to examine the methods employed by multinational corporations to shift profits offshore and how such activities are affected by the Internal Revenue Code.AP Photo/J. Scott Applewhite

  • Sept. 12, 2012: Apple CEO Tim Cook speaks during an introduction of the new iPhone 5 in San Francisco. Cook is scheduled to testify on Capitol Hill Tuesday May 21, 2013, to explain the companys tax strategy, which a Senate subcommittee says lets it avoid paying billions of dollars in taxes.AP Photo/Eric Risberg

Apple Inc. is as American as apple pie.

Before a congressional committee probing tax loopholes that let his company avoid paying taxes almost entirely on tens of billions in revenues, Apple CEO Tim Cook stood strong, stressing one fact above all: This company was made in the U.S.A.

“We are proud to be an American company, and equally proud of our contributions to the U.S. economy,” Cook told the Senate Permanent Subcommittee on Investigations, which released a detailed report Monday on the company's practices. Apple is holding overseas some $102 billion of its $145 billion in cash, according to the subcommittee's report -- an action that's perfectly legal, through quirks in the tax law the panel sought to address.

Apple’s Irish Tax Strategy Explained

The U.S. is one of the few countries where foreign profits are taxed twice, first by the overseas government, then again at the 35 percent U.S. corporate tax rate when profits are repatriated.

The corporate rate is one of the highest in the world, says the OECD, nearly as high as Argentina, Chad and Uzbekistan. Read more

Yet Apple pays billions in taxes already, Cook said.

“To the best of our knowledge, Apple has become the largest corporate income tax payer in America,” Cook told the panel. And that's going to increase, as the company joins the ranks of companies that are once again building computers on U.S. soil.

“We are investing 100 million for new Macs that will be built in Texas, with components made in Illinois,” Cook said. Parts for that computer will come from various facilities across the country, including Texas, Mississippi, Kentucky and more.

This distribution mimics the nationwide sourcing for the company’s other products.

“Components for iPhone and iPad are made in Texas, and iPhone glass comes from Kentucky,” Cook said. “In total, Apple is responsible for creating or supporting 600,000 new jobs,” he pointed out, noting that the company has created “hundreds of thousands of jobs” in the U.S.

The Senate panel sought to examine not Apple’s job making strategy but its methodology of dealing with foreign income, which is shunted through an Irish company. Irish law lets a company conduct business in the country without paying taxes there.

And that sure sounds like a loophole, stressed Senator John McCain.

'If anyone should be on trial here it should be Congress ... for creating a bizarre and byzantine tax code.'

- Senator Rand Paul

“Apple is one of the great tax avoiders in U.S. history,” McCain said. “Apple has given new meaning to the company’s old slogan, ‘Think Different,’” McCain said.

J. Richard Harvey of Villanova University School of Law, who testified before Cook, agreed.

“[My children] might characterize it as ‘making things go poof,’” Harvey said. But Senator Rand Paul, also on the panel, disagreed with that characterization.

“I’m offended by the tenor of this meeting,” Paul said. “Tell me a chief financial officer you would hire if he didn’t try to minimize his taxes legally.”

But Apple's strategies are legal, and many other multinational corporations use similar tax techniques to avoid paying U.S. taxes on profits they reap overseas. Yet Apple uses a unique twist, the report found. The company's tactics raise questions about loopholes in the U.S. tax code, lawmakers say.

Apple refuted the subcommittee's assertions in testimony prepared for the hearing. Apple said it employs tens of thousands of Americans and pays "an extraordinary amount" in U.S. taxes, citing the roughly $6 billion it paid in fiscal 2012.

Apple "complies fully with both the laws and the spirit of the laws," the testimony says. "And Apple pays all its required taxes, both in this country and abroad."

"Apple does not use tax gimmicks," the statement says.

The Associated Press contrubited to this report.