Apple CEO Tim Cook did his best to deflect the harsh glare of the national political spotlight this morning by defending how the company pays corporate taxes. Used to being lauded as an exemplary American business success story, the company was also singled out by a Senate subcommittee Tuesday for using legal technicalities to avoid paying billions in taxes over the years. Sen. Carl Levin, the chairman of the Senate’s Investigations subcommittee, described Apple’s nimble minimization of its taxes as the result of “exploiting an absurdity,” and Sen. John McCain labeled the company “one of the biggest tax avoiders in America.”
But Cook, for his first time offering public testimony before Congress, acquitted himself quite well despite the scolding his company faced, which makes sense if you think about it: Sen. Levin is probably nowhere near as scary as Steve Jobs. Apple CFO Peter Oppenheimer and its head of tax operations Phil Bullock were tasked with explaining the details of Apple’s accounting, while Cook extolled Apple’s virtues, the jobs it creates and its values as an American company.
Apple normally gets to choose how it’s shown in the spotlight. So it was an unusually defensive position for the company and its chief executive, known for its preference for privacy, to be in and have the nitty gritty of its corporate accounting practices exposed for all to see.
But Cook did indeed choose to go to Washington. He probably could have sent a senior vice president, but he showed up to speak for his company. And in doing so, he continued to rewrite our expectations of an Apple CEO. While his predecessor met privately with public officials, Apple was not in the spotlight in years past the way it has been recently. As profits have soared and some of its corporate practices both abroad and at home have come to light, Cook has had to face increased public scrutiny in a way Apple didn’t see quite as much during Jobs’ tenure as CEO. (With the exception of the stock-options backdating controversy, though the penalties for that were minimal.)
In the same manner he smoothly handled outrage at the practices at Apple’s Chinese manufacturing partners and offered solutions, Cook used his particular experience at Apple to talk about taxes. As the company’s former operations officer, he ably explained pricing transfer and other complex accounting practices his company uses, and laid out suggestions for how to reform the U.S. tax code to encourage more companies like his to bring more of their foreign earnings home.
Grilling Apple
Two experts on tax law testified earlier in the morning how Apple allocates some income to a holding company and subsidiaries in Ireland that don’t file corporate tax returns in the U.S. or anywhere else. But as was oft-repeated, what Apple has been doing doesn’t break any U.S. laws. (Sen. Rand Paul twice decried Apple being “harangued and bullied” by the committee and repeatedly made the point that if Apple weren’t minimizing its tax burden, it would be irresponsible to its shareholders.)
Cook defused some of the more pointed insinuations made by the committee diplomatically, using the same brand of charm and salesmanship we see from him during keynote speeches at Apple events. “We pay all the taxes we owe, every single dollar,” Cook said during his testimony. “We comply with the laws but also the spirit of the laws.”
Many of the senators present Tuesday admitted to being big fans and users of Apple products. But the reason the company they all admire was being grilled wasn’t completely explained. It did appear Apple was being used as an example of common corporate accounting practices because it is the largest corporate tax payer in the U.S. — and, as Sen. Tom Carper noted, because of the current political climate surrounding the national deficit. Apple and many other U.S. companies have been operating in this manner for years, but in the shadow of the “sequester,” several members present acknowledged that Congress is looking for tax revenue that it’s not getting.
In the end, Apple’s presence seemed to serve as an intermediary for the senators to argue amongst themselves about how out-of-control the U.S. tax code is. The hearing itself seemed mostly a pointless exercise, as these hearings tend to be, with little promise of any real change. Apple will likely go home to Cupertino and keep doing what its doing, and Congress will continue to disagree over how to appropriately tax businesses.
Meanwhile, Cook gets to continue to raise his public profile as an elite American businessman and cement his company’s stature as critical to the American economy and the overall tech industry.
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