Apple, one of the most profitable companies in American history, has shielded billions of dollars from tax collectors around the globe by moving revenue to offshore subsidiaries and taking advantage of tax loopholes, according to company documents and tax experts.

Apple has more than $100 billion in cash assigned to foreign subsidiaries, where it is not taxed by the United States. Some of those subsidiaries, though technically lodged in Europe, are fully controlled by Apple’s executives in Cupertino, Calif.

When Mr. Cook and other top-ranking Apple executives appear tomorrow before the Senate Permanent Subcommittee on Investigations, lawmakers are expected to question them on Apple’s use of tax loopholes and shell companies to escape paying corporate income taxes on much of its profit.

Mr. Cook is expected to tell lawmakers that Apple is the largest corporate income taxpayer in the United States, according to a copy of his testimony posted online by the company. Apple, according to that testimony, paid nearly $6 billion in federal taxes last year, and “does not use tax gimmicks.” Moreover, Mr. Cook is expected to call for a sweeping reform of the federal corporate tax code. In particular, he will call for lowering rates on companies moving overseas earnings back to the United States.

“What he’s asking for is a reward for having gamed the system,” said Edward D. Kleinbard, the former chief of staff at the Congressional Joint Committee on Taxation, and now a law professor at the University of Southern California.

Apple referred all questions to its posted testimony.

The Senate Permanent Subcommittee on Investigations, led by Senators Carl Levin, a Michigan Democrat and John McCain, an Arizona Republican, has been investigating technology companies, including Hewlett-Packard and Microsoft, for years over complaints that such firms are taking advantage of an outdated tax code.

Apple provides a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profit at companies like Apple, Google, Amazon, H.P. and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work.

Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profit to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. As of last year, the 71 technology companies in the Standard Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S. P. companies’.

Article source: http://www.nytimes.com/2013/05/21/business/senate-panel-is-expected-to-castigate-apple-on-tax-tactics.html?partner=rss&emc=rss