Tim Cook Senate Hearing: How We Can Stop Corporations From Hiding Money Overseas

Tim Cook, head of Apple, will testify before the Senate Investigations Subcommittee on Tuesday concerning Apple's tax policies. As widely reported, like many other U.S. corporations, Apple maintains a sizable stash of cash offshore. In Apple's case about two-thirds of Apple's total cash reserves, or $102 billion, sits in lower-tax countries.

Recently, Apple decided to borrow $17 billion in the U.S. rather than repatriate any of its overseas cash. Moody's estimates that Apple will save $9.2 billion in repatriation taxes, based on the 35% tax rate it would pay to move back sufficient funds to match the dollars raised by its bonds.

Expect to see outrage at the committee meeting as senators puff themselves up with indignation. How dare businesses not pay their fair share? Why should the individual taxpayer pay more taxes while the big corporations avoid payments? You can almost see some of the senators riding on their high horses. But who created all these rules and loopholes? The senators and their colleagues in the House did and the linkages between lobbyists and the Congress may be greater than ever. An April New York Times article discussed how corporations have hired lobbyists who were former aides to Max Baucus, the chairman of the Senate Finance Committee.  At least 28 former aides to Baucus have become lobbyists with clients whom their former boss can help. Baucus himself has received over $5 million In PAC contributions. On the House side, chairman David Camp of the House Ways and Means Committee reported over $3 million in PAC contributions. The total for the entire committee exceeded $42 million in PAC payments.

Smart lawyers and tax accountants, aggressive and well connect lobbying firms, and in many cases pliable congresspersons have combined to create the present situation. While substantial and fundamental changes are required, it is reasonable to be very skeptical that they will occur. Even if the U.S. takes action, the global nature of these corporations (Apple sells more outside the U.S. than domestically) means that an international effort is necessary. The U.S., UK, Australia, and other developed nations need to forge a united approach to this problem. Once they reach an agreement they need to develop a program to "persuade" smaller and more flexible countries to be more responsible in their tax policies. In other words, the big countries need to lean on places like the Caymans if any changes are to occur.

But where will leadership come from? Politicians have and will continue to disappoint. Despite their difficulty in agreeing on most issues, they show bipartisan support for taking actions to generate the most contributions for themselves. Consumers could refuse to buy an Apple iPhone until the tax situation changes, but if Apple introduces the "next big thing" the consumer's resolve will quickly disappear.

Tim Cook and Apple are doing nothing illegal. In fact, they are doing the right thing for their shareholders. In this litigious world, it would not be a surprise for Apple to face a class action lawsuit if it brought back overseas cash today and paid the 35% tax rate.

What needs to happen? An international movement is necessary, headed not by naïve populists but by realistic businesspeople who want to do the right thing while they protect a company's stakeholders. These people do exist. Somewhere. However, Monday, the day before Tim Cook faces outrage, featured former Senator Judd Greg (who previously represented the people of New Hampshire) now representing the Securities Industry and Financial Markets Association, a Wall Street lobbying firm. If individuals, Apple users among them, do not work together for changes to the tax laws, who will?

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Charles Wendel

Wendel is the President of FIC Advisors, a management consulting firm that focuses on working with financial services companies to develop strategies in commercial banking and wealth management.

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