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Apple Would Do Better Spending that Cash

A Senate Subcommittee on Investigations is holding a hearing Tuesday on the rate Apple pays on its taxes, and how the company treats its tax stockpile. The subcommittee, led by Senators Carl Levin of Michigan and John McCain of Arizona, claims Apple has avoided taxes on about $44 billion in foreign profits by way of maneuvering that puts hundreds of billions in revenue outside the taxing authority of any country.

Of course, Apple defends its tax planning and the legality of its foreign cash stockpile.

"Apple complies fully with both the laws and spirit of the laws. And Apple pays all its required taxes, both in this country and abroad," Tim Cook, Apple CEO said to the subcommittee Tuesday.

While Cook conceded in his testimony that certain Apple subsidiaries based in Ireland effectively have no tax residence, few are claiming the company is in violation of the law or its spirit.

Instead, Apple's testimony Tuesday, is symptomatic of the larger issue of corporate tax laws that encourage U.s. corporations to hold over $1 trillion in foreign cash rather than using it to invest in their businesses. To be sure, the Senate gave similar scrutiny to Microsoft (MSFT) and Hewlett-Packard (HPQ) in a September hearing on similar grounds.

For Apple shareholders, Tuesday's hearing should be secondary.

Most investors in Apple haven't been made rich by the company's growing bank account. Instead, they've gained from the company's consistently innovative products and its reinvention of multiple consumer markets.

"Apple safeguards the capital entrusted to it by its shareholders with prudent management that reflects the Company's extensive international operations," Tim Cook said on Tuesday.

It's unclear whether Cook is correct in his assumptions.

While it may be penny-wise for Apple to hold onto foreign cash and wade into a politically charged debate on corporate taxation, investing that cash may actually be of a bigger long-term benefit to Apple shareholders.

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-- Written by Antoine Gara

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