WASHINGTON — The Senate dragged Apple Inc., the world’s most valuable company, into the debate over the US tax code Tuesday, grilling chief executive Timothy D. Cook over allegations that its Irish subsidiaries help the company avoid billions in US taxes.
Cook said the subsidiaries have nothing to do with reducing its US taxes, a message he struggled to convey to the Senate Permanent Subcommittee on Investigations.
‘‘We pay all the taxes we owe — every single dollar,’’ Cook said. ‘‘We don’t depend on tax gimmicks.’’
The Senate subcommittee released a report Monday that held up Apple as an example of the legal tax avoidance made possible by the US tax code. It estimates that Apple avoided at least $3.5 billion in US federal taxes in 2011 and $9 billion in 2012 by using its tax strategy, and described a complex setup involving Irish subsidiaries as being a key element of this strategy.
But Cook said the Irish subsidiaries do not reduce the company’s US taxes at all. Rather, the company avoids paying the 35 percent federal tax rate on profits made overseas by not bringing those profits back to the United States, a practice it shares with other multinationals.
Apple’s enormous, iPhone-fueled profits mean that it has more cash stashed overseas than any other company: $102 billion.
Cook reaffirmed Apple’s position that given the current US tax rate, it has no intention of bringing that cash back to the United States. Like other companies, it has a responsibility to shareholders to pay as little as possible in taxes.
In effect, Apple is holding out for a lower corporate tax rate, and Cook spent some of his time in the spotlight to advocate for one, accompanied by a streamlining of the tax code to eliminate deductions and credits.
Cook, who is more accustomed to commanding a stage in front of investors and techies than facing a congressional committee, took a defensive tone with his opening statement. He punched out words when stressing the 600,000 jobs that the company supports while adding that Apple is the nation’s largest corporate taxpayer.
At the same time, Cook said he was happy to appear to be able to give Apple’s side of the story. ‘‘I’m saying it’s who we are as people. . . . Wherever we are, we’re an American company,’’ Cook insisted when asked about Apple’s use of affiliate companies in Ireland.
It was the first time an Apple chief executive testified before Congress. Cook did so voluntarily. He appeared with Apple chief financial officer Peter Oppenheimer and Head of Tax Operations Phillip Bullock.
Senator Carl Levin, Democrat of Michigan, the panel’s chairman, said Apple’s use of loopholes in the US tax code is unique among multinational corporations.
Apple uses five companies located in Ireland to carry out its tax strategy, according to the congressional report. The companies are located at the same address in Cork, Ireland, and they share members of their boards of directors. While all five companies were incorporated in Ireland, only two of them also have tax residency in that country. That means the other three are not legally required to pay taxes in Ireland because they are not managed or controlled in that country, in Apple’s view.
The report says Apple capitalizes on a difference between US and Irish rules regarding tax residency. In Ireland, a company must be managed and controlled in the country to be a tax resident. Under US law, a company is a tax resident of the country in which it was established. Therefore, the Apple companies are not tax residents of Ireland or the United States, since they were not incorporated in the United States, in Apple’s view.
‘‘Apple is exploiting an absurdity,’’ Levin said at the start of the hearing.
The US tax code contains provisions designed to force companies that sell their products overseas to pay US taxes on the profits from those sales. But certain loopholes allow companies to legally bypass those provisions. The Irish subsidiaries are set up to take advantage of those loopholes, according to the committee’s report.
For instance, Apple has shifted intellectual property rights, like patents, to its Irish subsidiaries, which means other divisions of Apple pay royalties to those subsidiaries for their sales.
Intellectual property rights, like patents, are Apple’s ‘‘golden goose,’’ Levin said.
Apple executives countered that the main company has kept the rights for North and South America, so only royalties for overseas sales flow to the Irish subsidiaries. Also, the Irish companies pay for some of research and development costs incurred at Apple’s headquarters in Cupertino, Calif.
‘‘What Apple is doing is pretty mainstream,’’ said accounting specialist Robert Willens. Shifting around the intellectual property rights has a minor effect compared to the simple avoidance of US taxes by not repatriating profits, he said.