Tim Cook to testify on taxes: Did the N.Y. Times have it wrong? by Philip Elmer-DeWitt @FortuneMagazine May 16, 2013, 1:42 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Cook. Source: Wikicommons FORTUNE — According to the New York Times‘ Pulitzer Prize-winning iEconomy series, Apple AAPL has gone to extraordinary lengths to avoid paying its fair share of taxes — well beyond the usual tax reduction strategies U.S. corporations have long considered fair game. “Apple was a pioneer of an accounting technique known as the ‘Double Irish With a Dutch Sandwich,’ which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean,” wrote Charles Duhigg and David Kocienieswki in their April 28, 2012 piece How Apple Sidesteps Billions in Taxes. “Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.” Next week, more than year after the story appeared, Tim Cook will get a chance to address those charges. Politico reported Wednesday, and we have confirmed, that Cook has been called to testify before Carl Levin’s Senate Permanent Subcommittee on Investigation to answer questions about Apple’s off-shore cash holdings. This will be the second of two hearings the subcommittee has held as it drafts new tax codes designed to capture some of the billions U.S. corporations have saved by shifting profits overseas. Last September, Levin hauled executives from Microsoft MSFT and Hewlett-Packard HPQ on the carpet to explain why they seemed to be laundering money — perfectly legally under current laws — through subsidiaries in low-tax countries. According to a subcommittee report, HP was using a clever trick whereby it loaned money to itself by borrowing a small fortune — between $6 billion and $9 billion — from its overseas operations. Microsoft, Levin charged, used a more complicated subterfuge. It avoided paying more than $6 billion in taxes by transferring intellectual property rights to offshore subsidiaries in low-tax jurisdictions only to turn around and buy back the rights to make sales in the U.S. Apple makes no secret of the fact that it’s holding more than $100 billion in overseas accounts rather than pay a 35% U.S. repatriation tax. For several years the company was part of a lobbying effort led by Cisco CSCO CEO John Chambers that was pushing for a tax holiday like the one enacted during the second Bush administration. That effort that fizzled out a few years ago, although on Thursday Cook told the Washington Post he planned to propose a modified tax holiday plan during next week’s testimony. He said he would offer a “dramatic simplification” of the tax code that would both reduce the cost of repatriation and encourage companies invest the foreign earnings they bring back into new jobs and more R&D. Last month Apple found another way around the problem: It borrowed $17 billion to buy its own stock rather than draw on its overseas holdings, a maneuver that saved the company, according to one estimate, $9.2 billion. Cook may well be questioned about all this next week. What I’ll be waiting for is some evidence that the most serious charges in the Times‘ story are true. Because as near as I can tell, there’s a big difference between what Apple does and what the Times says it did, and it’s this: Apple actually has real operations — not “letterboxes in anonymous offices” — in the countries where its cash is being held. Last quarter, according to company’s latest Form 10-Q, 66% of its reported income was earned outside the U.S. and 70% of its cash was parked there. Apple, for its part, says its been cooperating with Levin’s subcommittee and is looking forward to answering any further questions it might have. “Apple is one of the largest taxpayers in the United States, having paid $6 billion in federal corporate income tax in fiscal 2012,” said spokesperson Steve Dowling in a prepared statement. “We also help create hundreds of thousands of jobs in the U.S. by keeping our R&D in California and creating category-defining products like the iPhone, the iPad and the App Store, which has generated billions of dollars in sales for software developers.” I expect we’ll hear more of the same from Tim Cook next week.