as we looked at that analysis, we felt strongly that it was in the best interest of our securelders for us to the debt. >> ok. let's assume that we simplify this. ireland gave you a two percent rate that was negotiated for your company. correct? >> we went there in 1980. they were very much recruiting technology companies at that time. $100 is -- was a small million business that had no operations in europe. as a part of recruiting us, the irish government did give us a tax incentive agreement to enter their. ance then, we have built up sizable operation there, nearly 4000 people, we're building a a new site, continuing to grow. people there our are very fundamental for understanding the european market and servicing our customers there from texas --

tech-support to sales and resource support. we have a strong presence. >> i guess my question is, if ireland recruited you back when you're a 100 hundred million dollar company and gave you a , how do we ifal we are setting tax policy, how do we do it in a way that there is not going to be -- correct me if i'm wrong, but i believe that probably three fourths of eye to theile growth will be in emerging markets -- would you disagree with that ech? net new growth in mobile activity will be out in emerging markets as opposed to europe and north america? >> significant amount -- i amateur the exact number. the significant amount of growth will be emerging markets. >> the point i'm trained to get to, let's this in simple fight our tax code.

, we clear out all the underbrush and take away some of the goodies in some sectors of our economy. we understand the reality of international moving of capital because of international economies and international trade. what keeps another country and one of these markets from undercutting us once again like ireland did in 1980? >> the u.s. has such enormous advantages. the barrier right now in terms of repatriating cash is that it is three patriot at the 35% level. our proposal -- i am a bit different than my peers here am i am not proposing zero. my proposal is that we 11 eight -- a lemonade all corporate tax expenditures, get to a very simple system and have a reasonable tax on bringing

money back from overseas. if we did that, i think many companies would bring back capital to invest in the united states and it would be great for the economy. >> what about the other way, what would it cost you to move out of california? and go entirely to ireland, or to a country that is going to be -- china, for example. if you get that deal with china mobile soon. that's a big one. , in terms ofu relative cost analysis and the benefit analysis, what keeps you from moving out of california? >> we are an american company. we are proud to be an american company. we did the vast majority of our r&d and california. we are there because we love it there and this is where we can create and make things that people have not even imagine

yet. >> that is an intangible? not something that you can reduce -- >> i am saying it is who we are as people. we are an american company. whether we are selling in china or egypt or saudi arabia. wherever we are, we are always an american company. of movinger thought our california headquarters to another country. ands beyond my imagination i have a pretty wild imagination. it is beyond it. -- the corporate bonds you issued, do you think, i am not being judgmental, i understand the business rationale behind it in terms of low cost of capital, do you think you should be able to in -- deduct interest on those? the corporatef

expenditures to do away with? >> it could be one of the corporate expenditures to do away with. the way the tax code is written currently, it would be deductible. it would be a very small percentage of the overall that we pay. we have paid $6 billion at an effective rate of 35%. it is certainly one of the things i think this group should talk about in terms of doing comprehensive tax reform. this is complicated, but somewhere along the way, you are deciding how to divide the sale proceeds. onnow some of it depends where the sale occurs. some of it depends on a decision you're making internally about where to allocate what you are getting for your intellectual property. where is that decision being made and what do you base it on,

in terms of how much money comes american companies that are paying taxes versus how the is attributable to international companies? >> a good question. today, everything that we sell in the u.s. is taxed in the u.s.. for a foreign country, when we sell something in a country it is taxed in the local market. if it is one of the countries that are being served from units arehose generally sold by an irish subsidiary. to thecome is taxed degree it needs to be in the local jurisdiction, and then the proceeds move to an irish sub, in many cases called aoi.

which acts as a holding company and in desks apple's earnings. then we pay taxes on those united states. >> does any of the proceeds of the thousands of dollars to have gotten from me over the years, do any of the proceeds actually in ireland or any of the international companies under intellectual property atco bullock canr. answer this better than i. >> the answer to that is no. 100% of the profits on any sale to a customer in the united states, whether it is through the channels or our online stores, all of that is fully taxed in the u.s.. there is no outbound payment going offshore. >> thank you.

let me pick up where senator mccaskill left off. this is complex. it has to do with, how do you allocate income, what kind of transfer price is appropriate. i did notice that your u.s. sales are about 39% of total sales rated international is about 61%. income about 35% in the u.s.. international sales, 61% and about 65 income. please explain that. it is pretty close. if i were looking at that, you are getting close to pretty proper allocation between sales and income. can you explain the disparity atco >> sure. , apple's macintosh a larger percentage of sales in the u.s. and internationally. , ite launched the iphone

became a larger percentage of our international business and it did a part of our u.s. business. we have this base of macintosh sales in the u.s. the iphone has higher gross margins than our macintosh business. it is logical that the international business would carry higher margins generally and our domestic. a morecally, you have profitable product mix internationally. does. >> i was talking about the beneficiaries are of your very good tax rates overseas. i would point out, if we ever do and incentivize companies to bring some of that money back home, the way current tax law is written, you get a deduction for foreign taxes paid, correct? >> that is correct. it is actually a credit, dollar for dollar credit that you pay on foreign taxes. >> as a result, apple has a lot

more money than when you repatriated. the u.s. government would be a net fishery if we ever get our tax house in order. >> to the extent of repatriation, yes, that would yield more u.s. tax. >> i would imagine you notice better than anybody, because you are a large corporation, my guess is that you have full-time irs agents stationed in your full-time doing a audit nonstop. is that the accurate? >> that is correct. we are under audit in a number of jurisdictions around the world, including the u.s., not unlike many of our multinational cures. -- peers. nod,sically giving you the saying your following tax law. >> a look at it in detail, yes. >> mr. cook, talking about the beneficiaries of your excellent products, regular tax rates and

corporate profit, shareholders. can you describe your shareholders in general? >> peter king probably add more. on its own, it is part of the underlying index of the stock market. a number of mutual funds. top 50roughly shareholders own about half the company. these include public employer , mutualirement systems funds where people are saving , and alsoment individual retail shareholders as well. >> in the top 50% is widely dispersed and those are large funds that have very diverse shareholder base? .> absolutely >> those folks benefit from the

fact that apple is able to retain more of its profit by not paying him to foreign governments. >> yes. they also receive our dividends. >> in addition to u.s. and state income taxes, what other taxes in the u.s. does apple he paid? >> last year, more than $325 million in federal employment taxes that apple paid, in addition to our employees. of years,ast couple we have paid nearly $100 million to state and local governments. poverty taxes, and various other fees. last year, we collected and remitted and paid approximately $1.5 billion in sales tax. >> close to $2 billion in total. clarify, it was a little

over $1.3 billion. talking about transfer pricing and allocation of income, you face the same dilemma between states, don't you cu? which state claims how much income? the income that the company generates in the u.s., the approximate 40% that you alluded to earlier of our total global profit, which is relatively commensurate with our u.s. customer base, that income does get apportioned around and divvied up amongst the states under a slightly different system. it does get allocated out. >> what is the base of that allocation and how that differ from trying to allocate income tween different countries acc? >> that varies by state. based on relative sales, sales to customers in that state over

total sales to mystically. some states use a multifactor test. they may look to sales property and payroll. >> do have to negotiate between the states? forou end up paying more state income tax -- more than 100% echo >> it is not over 100%. in ourpproximately 100% fact pattern, it is not double taxed. it does approximate 100%. >> that is a similar type of problem, trying to allocate between different countries, isn't it? you had given state apportionment of ways, yes. >> tommy a little bit about the taxes you paid to foreign countries. give tax or sales tax, me some relative amount.

>> there is a combination. last year in fiscal 12, the company paid a little over $900 million in international income taxes around the world we are projecting that to the larger this year. is significantly larger than a few years ago. in addition, i don't have the .tatistics available i would imagine similar to the u.s., there is employer contributions for payroll tax, for employees outside the united dates, and a considerable fat and gst that gets collected and remitted by the company to various countries around the world. >> total worldwide employment, homages base in the u.s. and how much overseas? of our 75,0000 employees are here in the united states. >> even though 60% of sales are

overseas, what percentage is that? almost two thirds. >> that is also influenced by our retail stores. 400 retailly over stores, about 260 are here. that influences it. >> thank you. >> thank you. senator ayotte. >> thank you. i want to thank the witnesses were being here today. mr. cook, is there any dispute haveis hearing that you complied with tax laws? >> i have heard no dispute of that. >> one of the issues that i heard raised when you are being asked a question about the issue that is102 billion present overseas that you have now is this idea of repatriation. you had said that he would be willing to pay some rates on

repatriation. whatlook at tax reform, do you think is the rate, thinking not only of apple, but of multinational corporations around the world, if we do tax reform, and say we sympathize deductions are eliminated and we take that and put that into reducing the rate, what rate you think we have to be yet to be competitive in terms of making sure that we have investment here? >> i think the rate on the u.s. from, in my judgment, most of the studies i have seen, it would need to be in the mid- 's as expenditures are dropped out. in terms of a rate on bringing back foreign earnings, a huge number of companies to be incentive to you that it would need to be a single-digit number.

that, you wind up in a revenue neutral situation, which means that some companies may pay a bit more. i think we would be one of those. other companies would pay less. more important than all of the tax, it would be great for growth. that is the reason i feel so adamant about doing this. >> as i understand it, let's say you are building a data center here, the new facility here. right now that money you have overseas, you can't use that to invest in plant facilities here. >> that is correct. cashn't use our overseas to make any investments in the united states. >> if you are in our position, thinking about tax policy and making sure that our country remains competitive, how important do you think it is

that we change the tax code to ensure that this remains a good place for investment? consuming, i understand there are many other advantages to being here. but you are not the only corporation that has significant money overseas right now that we would like to see come back. what do you think that would do in terms of our economy? it is vital to do, great for america to do. i think it would give us a much stronger economy if we did that. it would create jobs and increase investment. and forcehole weight behind it. >> if we create more jobs and increase investment, is in that more taxes that can be collected here as well in terms of thinking about the fiscal state of the country? >> it is. i think that is an excellent point. all ships rise with the tide. >> especially where unemployment is right now.

i wanted to ask you about the issue of thinking about tax reform, the issue of a territorial rate. how important is it that as we on arward, hopefully bipartisan basis, to reform the code, to really create a better dynamic, simpler lower rates for investment here that a component be a territorial rate? [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013]