May 21, 2013 8:09 pm

Apple chief’s gamble pays off as criticism remains muted

Tim Cook’s bid for the moral high ground in Washington on Tuesday proved surprisingly successful, as the Apple chief executive faced down a hostile US Senate committee over the way the maker of iPhones and iPads avoids paying billions of dollars in taxes.

The hearing marked the most important public appearance so far in the unofficial campaign Mr Cook has run in the year and a half since Steve Jobs’ death: to demonstrate that Apple has developed a sense of social responsibility to match its wealth and influence.

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If Mr Jobs once flew a pirate flag over the Apple headquarters, Mr Cook has been out to prove that it deserves its new-found standing as an American blue chip.

Appearing before the Senate’s investigations sub-committee certainly came with plenty of risk. Defending Apple against allegations that it shifts US profits to low-tax countries – and then shuffles its huge cashflow through a series of Irish entities so that it often doesn’t face any tax bill at all – left Mr Cook at times struggling to defend the indefensible.

Carl Levin, the sub-committee’s majority leader, rounded on Apple executives at the end of the hearing, attacking them for the “huge drain” that resulted from them putting two thirds of their company’s profits into Ireland, even though “95 per cent of the creativity is in California.”

His tirade, however, was the final sally in a session that had been mastered by Mr Cook. The Apple chief, displaying a habitual low-key and disarming directness, took charge early with a declaration about why he had chosen to testify: “I think it’s important for people to hear our story – I want them to hear it from me.”

He also invoked the memory of Mr Jobs, and Apple’s founding in a garage, as he set out to paint the company as an American success story, with innovation, growth and job creation the key issue at stake. If the political theatre of hearings on Capitol Hill is often staged to cast CEOs as the villains, Mr Cook proved adept at turning the plot back in his favour.

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The stance blunted the fiercest questioning from the committee, which had shown its hostility in advance with the publication of a report criticising the company for tax “gimmicks.”

Even John McCain, the minority leader, was muted in his attack when he came face-to-face with the Apple boss. Mr McCain had struck some of the most aggressive rhetoric by accusing Apple of “convoluted and pernicious strategies” that broke the spirit, if not the letter, of US tax law. By the end, though, he shared a joke with Mr Cook about the challenges of handling constant app updates on the iPhone.

On direct questions about tax avoidance, Mr Cook said Apple had both stayed within the law and acted far less aggressively than some in its application of US tax law. The tone of reasonableness enabled him to escape seeming defensive or evasive – even if it did not appease Mr Levin, who continued to fulminate about the devastating effect on the US tax base.

Mr Cook’s public defence of Apple’s tax avoidance was the latest step in a campaign that has included extensive efforts to quell accusations that his company’s suppliers exploit workers in China. He has also fought back against criticism for shipping jobs off-shore by promising to bring some manufacturing jobs back to the US, while heading off Wall Street criticism over Apple’s growing cash mountain with a promise to use part of the money to buy back stock.

A change in US tax rules is now needed to allow Apple to bring back some of its cash stranded overseas in return for paying a “reasonable” amount of tax, Mr Cook said. If Washington goes on to grant such a request, it will have been a worthwhile day.

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