Senate Subcommittee Hearings on Apple’s Taxes – Grandstanding Dbags

So let’s talk about today’s Subcommittee hearing on Apple’s use and abuse of the U.S. tax code.   Let me say a few things up front: I’m no sort of Apple fanboy.  I don’t own the stock. I don’t own an Iphone. I don’t own an Ipad.   On the other side of the coin, I’m even less of a fan of populist grandstanding politicians.  Now, let’s continue.

You can read the Subcommittee letter on the hearings here.   If you look at it, there’s nothing insane there.  The facts as I understand them are these:

– the U.S. has a complicated corporate tax code

– Apple ($AAPL, no positions) takes advantage, legally, of the nuances of the U.S. corporate tax code

– AAPL is not breaking any laws

– Congress makes the tax code

– Congress (or at least some members of Congress) would like to close “loopholes” like the ones Apple is using to minimize their U.S. tax bill.

So far so good.     Here’s the important part, though:  you, dear reader, may not like how Apple manages their tax liability.   I may not like how Apple manages their tax liability.   You and I may be outraged – you and I have that right.   Ya know who doesn’t have that right?   Hint: it’s the guys who make the tax code – CONGRESS.

The hypocrisy of these goofballs making laws and then dragging Apple CEO Tim Cook before a committee to chastise him for playing by the rules that they made – while making it clear that they are not alleging any illegality on Apple’s part – is beyond absurd.    Hey Carl Levin – you don’t like the tax code? CHANGE IT!

Of course, that’s what the committee is wants to do – they even say as much in their brief:

“Recommendations. Based upon the Subcommittee’s investigation, the Memorandum makes the following recommendations.
1. Strengthen Section 482. Strengthen Section 482 of the tax code governing transfer pricing to eliminate incentives for U.S. multinational corporations to transfer intellectual property to shell entities that perform minimal operations in tax haven or low tax jurisdictions by implementing more restrictive transfer pricing rules concerning intellectual property.
2. Reform Check-the-Box and Look Through Rules. Reform the “check-the-box” and “look-through” rules so that they do not undermine the intent of Subpart F of the Internal Revenue Code to currently tax certain offshore income.
3. Tax CFCs Under U.S. Management and Control. Use the current authority of the IRS to disregard sham entities and impose current U.S. tax on income earned by any controlled foreign corporation that is managed and controlled in the United States.
4. Properly Enforce Same Country Exception. Use the current authority of the IRS to restrict the “same country exception” so that the exception to Subpart F cannot be used to shield from taxation passive income shifted between two related entities which are incorporated in the same country, but claim to be in different tax residences without a legitimate business reason.
5. Properly Enforce the Manufacturing Exception. Use the current authority of the IRS to restrict the “manufacturing exception” so that the exception to Subpart F cannot be used to shield offshore income from taxation unless substantial manufacturing activities are taking place in the jurisdiction where the intermediary CFC is located.”

Great – you don’t like the rules you made – change them!  Nothing wrong with that.   But don’t act like incredulous grandstanding douchebags in the live hearing, when Apple is playing by the rules YOU made.

It’s not every day that I agree with Senator Rand Paul, but I think he’s on point here:

“If anyone should be on trial here, it should be Congress,” Paul continued. “I frankly think the committee should apologize to Apple. The Congress should be on trial here for creating a Byzantine and bizarre tax code.”

 

It’s pretty rare that I agree with most of what Rand Paul says, but I think that I probably could have just copied and pasted his remarks and avoided writing this post entirely.   I’ll just grab mass excerpts instead. Note that these are excerpts, not complete text:

“Tell me one of these politicians up here that doesn’t minimize their taxes. Tell me a chief financial officer that you would hire if he didn’t try to minimize your taxes legally. Tell me what Apple has done that is illegal…”

xxxx

“I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.

I frankly think the Committee should apologize to Apple. I frankly think Congress should be on trial here for creating a bizarre and byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn’t compete with the rest of the world…”

xxxx

“This committee will admit: Apple has not broken any laws. Yet, they are forced into a show trial at the whims of politicians, when in fact; Congress should be on trial for chasing the profits of great American companies overseas. You haul before this committee one of America’s greatest success stories and you want applause?

I say, instead of Apple executives, you should have brought in a giant mirror, so we could look at the reflection of Congress because this problem is solely and completely created by the awful tax code.

If you want to assign blame, the Committee needs to look in the mirror and see who created this mess, see who created the tax code that drives American companies overseas.”

and from the later questioning:

“I think we need to restate for the record and be very clear here that neither this panel or anyone in the committee has said that Apple broke any laws.  They are brought before this committee and harangued and bullied because they tried to minimize their tax burden legally. I would argue that it would probably be malpractice for them not to do so. If you have a publically held company and you have shareholders and your mandate to your CFO is please maximize our taxes I am guessing that would probably be something shareholders wouldn’t accept. I don’t know of any taxpayers who really do that…”

xxxx

“Yeah and as a policy question talking about taxes, I think, is an appropriate thing for Congress. Bringing in an individual company and vilifying them for doing something that is in every business’ mandate is objectionable. That’s why I object to these entire hearings because talking about policy is one thing.”

What really sucks here is that Congress drags Apple executives in to answer questions that Congress already knows the answer to  (as evidenced by Levin’s lengthy report) !!!   It’s not even like they were questioning Apple to find out *how* Apple was minimizing its tax liability (which would have been reasonable: find out how, and work to fix it) – they already know how – they just wanted to grandstand.  Dog and pony show.   Congress at its worst, in my opinion.

Here’s the full text of Rand Paul’s prepared remarks

And here’s some questioning from Senator Paul to drive the point home.

-KD

disclosure: no positions in $AAPL

related:

Subcommittee Findings

Matt Levine: Senate Discovers There’s a Tax Code

 

 

 

 

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