The subcommittee said Apple may be inflating the amount of taxes it pays in the U.S. in recent years. For example, in fiscal year 2011, on its 10-K reports filed with the U.S. Securities and Exchange Commission, Apple said it paid $6.9 billion in taxes to the U.S. government, but on its tax return filed with the U.S. Internal Revenue Service, it reported taxes due of $2.5 billion, the report said.
Apple has argued that the three Irish subsidiaries aren't U.S. companies, because they aren't based in the U.S., but they also don't qualify as Irish companies, because management and control of the companies isn't in Ireland.
By running nearly all its non-U.S. sales through the Irish subsidiaries, Apple also avoids paying taxes on sales in other countries, including the U.K., Germany and France, the report said. "The ability to pay taxes of less than 2 percent on all of Apple's offshore income gives the company a powerful financial incentive to engage in convoluted tax planning to avoid paying U.S. taxes," the report said.
Apple CEO Tim Cook and two other executives are scheduled to testify before the subcommittee Tuesday morning.
In addition to the offshore companies, Apple has used loopholes to "circumvent" subpart F of the U.S. tax code, intended to prevent multinational companies from shifting profits outside the U.S., to avoid paying about US$10 billion in taxes each year for the past four, the subcommittee's report said.
Apple isn't alone in using offshore or other tax loopholes to avoid paying taxes, subcommittee staffers said. Many companies take advantage of tax loopholes. During a hearing last September, Levin accused Microsoft and Hewlett-Packard of using other "loopholes and gimmicks" to avoid taxes.
Apple's offshore efforts include subsidiary Apple Operations International, which has no employees and no physical presence, according to the subcommittee report. AOI is incorporated in Ireland but keeps its bank records and holds its board meetings in the U.S., the report said.
Between 2009 and 2012, the holding company, a parent of other offshore subsidiaries, reported net income of $30 billion but filed no income tax return, and paid no taxes, in any country, the report said.
Another Irish company is Apple Sales International, which had sales revenue of $74 billion between 2009 and 2012, the report said. ASI reported income of $22 billion in 2011 and paid taxes of $10 million, for a tax rate of 0.05 percent, the report said.
ASI buys Apple products from a Chinese manufacturer, resells them at a "substantial" markup to other Apple affiliates and retains the profits, the report said.
Apple Operations Europe is a third subsidiary that Apple says is not a resident of any country for tax purposes, staffers said.
Subcommittee staffers questioned Apple's use of the offshore subsidiaries, which are supposed to maintain arm's length relationships with the corporate parent in order to take advantage of so-called transfer pricing deals that allow companies to shift assets and costs to other countries. Most officers of the three offshore companies examined by the subcommittee are executives with Apple, the subcommittee said.
Nearly 64 percent of Apple's global sales are attributed to its Irish subsidiaries, even though 95 percent of the company's research and development activities happen in the U.S., staffers said.
Apple holds $145 billion in cash and other securities, with $102 billion located outside the U.S. It has no plans to return that money to the U.S. until Congress creates a more favorable tax environment, the report noted.