Apple defends $100B offshore stash

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Apple is under so much pressure in Washington over its offshore cash that it’s doing things it almost never does.

CEO Tim Cook is coming to Washington to testify in front of a panel of senators about stashing more than $100 billion overseas, rather than sending a lower-level executive.

He will offer Congress Apple’s ideas for comprehensive tax reform — an unusual move for the company into the world of policy.

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And Cook is even talking with D.C. reporters ahead of his visit, including POLITICO in a rare interview.

The Apple offensive is a reminder of how powerful even an unpopular Washington remains, when it can still make even a mega-brand nervous.

“We don’t have a large presence in Washington, as you probably know, but we care deeply about public policy and believe creative policy can be a huge catalyst for a better society and a stronger economy,” Cook said in the interview.

He also defended his company’s conduct. “I can tell you unequivocally Apple does not funnel its domestic profits overseas. We don’t do that. We pay taxes on all the products we sell in the U.S., and we pay every dollar that we owe. And so I’d like to be really clear on that,” Cook said.

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Tuesday’s hearing will be political theater at its finest — senior senators on their home turf looking to crucify a high-profile executive for the cameras, with little legislative action ever to result from it.

For Cook, it’ll be the same hot seat before the same Senate committee that summoned Microsoft and HP last year for a verbal bludgeoning — a showdown that hardly stopped businesses from trying to lower their tax bills through controversial means.

Like many other tech companies, including Google and Microsoft, Apple has legally kept money overseas, allegedly to avoid paying steep U.S. taxes. The iPhone maker held $102.3 billion in cash offshore as of March 30, according to a Securities and Exchange Commission filing. That’s a 24 percent increase from Sept. 30.

Veteran tech lobbyist Bruce Mehlman said the entire system needs to be overhauled.

“The tax system is broken; it’s not competitive,” Mehlman said, noting that Apple faces far greater taxes than its tech competitors, like Korea-based Samsung. “The policymakers made the code, and it’s not nearly as flat, simple and logical as it should be, so companies across all sectors do what they can to minimize [their] tax burden and maximize research and product development. Tech is no different.”

Apple only invited new controversy, however, when the company announced last month it had borrowed $17 billion to buy back some of its stock. Rather than tap its overseas cash hoard — a move that would have inflated its tax bill — Apple instead had decided to take advantage of low interest rates and essentially borrow the money.

It’s precisely the sort of move that long has infuriated lawmakers of both parties, who for years have hammered businesses across industries — but especially technology — for their creative tax-avoidance strategies

At last year’s hearing, Sen. Carl Levin (D-Mich.) blasted the entire industry as “probably the No. 1 user of these offshore entities” that allow tech companies to dodge U.S. liabilities.

Levin will again chair the hearing at which Cook, along with other federal officials, are slated to testify. And the top Apple executive isn’t going to find its familiar fanboys on the dais: Sen. Tom Coburn (R-Okla.), for one, infamously said last year he was “livid” at reports of Apple’s tax tactics. Both Levin and Coburn did not comment for this story.

Still, Cook’s new charm offensive doubles as a new strategy for a company that for years relied on its status as a darling of the tech industry, its intense customer brand loyalty and its superstar former CEO, Steve Jobs, to keep it above the political fray.

Where Jobs shunned Washington, Cook is taking a more aggressive approach, opting to face the panel himself instead of sending a lower-level executive to face the onslaught from lawmakers.

“Apple is contributing in a lot of different ways to the economy, and we’re very, very proud of it, particularly in the job-creation area and the work we do to protect our environment,” Cook said.

Cook won’t be alone in advancing that message. The company has built up a lobbying operation to help sell its message, spending $720,000 during the first quarter of the year, a significant uptick in lobbying spending.

Information Technology Industry Council CEO Dean Garfield said that part of the growing Washington footprint is natural, based on Cook’s interest.

“My interactions with Tim Cook suggest that he has an interest in policy and he has an interest in what’s going on in Washington and what’s going on in other parts of the world in the policy environment that impacts their ability to do business,” said Garfield. “He spent time in China earlier this year; his predecessor never went to China. So, I think that suggests a shift, but it’s a shift that is consistent with changing leadership in any company.”

In many ways, however, Apple’s new appetite for Washington is the result of circumstance. The company already is fighting the feds in a landmark case about its e-book offerings, for example, while still battling back criticisms that it outsources too much of its manufacturing to China. The stinging, bad press has resonated with Cook, who has made a number of course corrections since the Jobs era.

His new case: Apple is one of the largest, U.S. taxpayers, if not the largest, cutting a check for nearly $6 billion to the IRS for fiscal year 2012. The company is estimating its U.S. income tax payment for 2013 will be about $7 billion. The tech company has kept its brain trust of employees based in its Cupertino, Calif., headquarters instead of farming out software development and other services to countries like India and China.

Cook cited the company’s U.S. workforce at 50,000 employees in all 50 states and that the company has created another 550,000 jobs in areas like manufacturing and software development. Cook also noted that Apple has created a new industry for developing apps and said Apple has paid out $9 billion in royalties to developers since the app store opened, half of which occurred in the last year.

Apple is also quick to point out that not only is the company paying what it sees as its fair share, but it has also boosted the economy through its app store for iPhone, iPad and other devices.

And Cook is also promoting a $100 million investment in domestic manufacturing, where the company will begin producing a new version of a current Mac product later this year.

“We’re going very deep in this project,” Cook said, noting that not only will the final product be manufactured in the U.S., but so will many of its components. Arizona, Texas, Illinois, Florida and Kentucky are among the states he mentioned as having parts and assembly located.

Cook said he looks forward to telling Apple’s story on Tuesday.

“I hope to make some clear recommendations, and I trust there will be receptive parties there,” Cook said.

This article first appeared on POLITICO Pro at 3:36 p.m. on May 16, 2013.