On May 21, 2013, the Permanent Subcommittee on Investigations (the “Subcommittee”) of the U.S. Senate Homeland Security and Government Affairs Committee held a hearing that examined how Apple Inc. “has used a variety of offshore structures, arrangements, and transaction to shift billions of dollars in profits away from the United States and into Ireland, where Apple has negotiated a special corporate tax rate of less than two percent.”[1]  The hearing included testimony by Apple’s CEO, Tim Cook, the U.S. Treasury’s Assistant Secretary for Tax Policy, Mark Mazur, an IRS official responsible for transfer pricing enforcement, and others. The subcommittee and some of those testifying made specific recommendations for tax reform.[2]
The hearing was widely reported in the United States and elicited diverse editorial comment in many U.S. and a few foreign periodicals. Many painted Apple’s tax planning as so exceptional and aggressive as to require immediate action. In the author’s experience, however, the tax planning described during the Subcommittee’s hearing has generally withstood the scrutiny of U.S. tax audits. In fact, Apple’s planning is typical of the type implemented by numerous U.S. multinational technology companies in the last 25 years.[3]  Notably the IRS was not criticized for lax enforcement effort during the hearing.
The Subcommittee is chaired by Senator Carl Levin (Democrat, Michigan ) who has held various hearings during the past few years to elicit support for tax reform by highlighting what he, and other members of his committee, characterize as aggressive or improper tax planning.  While the Subcommittee’s work may increase momentum for corporate tax reform by drawing media attention to some high profile tax issues, its influence is practically limited.  Another committee, the Senate Finance Committee, chaired by Senator Max Baucus (Democrat, Montana), is responsible for drafting tax legislation in the Senate.  That committee has relatively more experience and tax expertise.
Comprehensive tax reform legislation is expected to be prepared by the staff of the Senate Finance Committee by year end.  That committee therefore will be ready with legislation in the event political events create an atmosphere for serious negotiations on tax reform.
 

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[1] A memorandum detailing the findings of the subcommittee can be found at the subcommittee’s website: http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-and-the-us-tax-code_-part-2.
[2] See the Subcommittee’s site for the written testimony and the Subcommittee’s recommendations.
[3] Readers wishing more details should review the material on the Subcommittee’s website.