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PD Editorial: Apple and the tax code's rotten core

We'll take Apple CEO Tim Cook at his word.

"We pay all the taxes we owe — every single dollar," Cook told the Senate's Permanent Subcommittee on Investigations on Tuesday.

And why not? When it comes to corporate taxes, federal law is so riddled with exemptions and exceptions, loopholes and allowances that it would be crazy for Apple — or any other multinational corporation — to cheat.

Cook was on Capitol Hill one day after the committee released a report detailing how his company, perhaps the biggest name in Silicon Valley, used subsidiaries in Ireland and elsewhere — some of them with neither offices nor employees — to reduce its tax bite to as little as one-twentieth of 1 percent on billions of dollars in income. A witness at Tuesday's hearing noted that Apple reported 64 percent of its worldwide pretax income for 2011 in Ireland.

The Cupertino-based company recently borrowed $17 billion to pay stock dividends, reasoning that low interest rates make bonds a better deal than repatriating some of those profits, which would then become subject to U.S. taxes.

Apple has demonstrated similar mastery of state tax laws, setting up a subsidiary with a small office in Reno to manage and invest profits from domestic sales of iPhones, iPads and other products. The maneuver allows Apple to reduce or avoid income taxes altogether in California and 20 other states.

Nevada has neither corporate income nor capital gains taxes, making it a popular state to book profits, even for companies whose managers and employees are located elsewhere.

Sorry, there's no app for individuals who would like to live here in Wine Country while recording their income in Nevada, Texas or some other state that doesn't levy income taxes.

The point here isn't to bash Apple, a company that's renowned for its attention to detail on its consumer products. Is it surprising that it's equally attentive to its tax returns?

What the Senate report and Cook's testimony show are the distortions caused by a needlessly complex federal tax system. For all the talk about high U.S. tax rates, Apple's accounting methods show, yet again, that few companies are burdened by top rates. But by allowing so much income to be sheltered, the system shifts the burden to individual taxpayers.


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