Tim Cook went before the Senate yesterday, answering accusations that Apple is keeping billions from the IRS' clutches by holding it in overseas subsidiaries. Only that money isn't actually overseas, the New York Times reports—its $102 billion in offshore profits is managed by a subsidiary based in Nevada and is held in a New York bank. But because the money is earmarked for two Irish subsidiaries, the tax code says it's nontaxable. Apple is hardly alone: More than $1.6 trillion designated as "permanently invested overseas" is currently being held by US-based multinationals.
The government estimates it would get an additional $42 billion this year alone if foreign profits were fully taxed (for context, the Times notes that sum would have shaved the sequester's spending cuts by about half). But companies counter that they can't compete on a global scale with America's 35% tax rate, and many, including Apple, are now pushing government for a "repatriation holiday," which would allow them to bring the money home at a heavily reduced rate. "The offshore companies are a fiction and the statement that the money is offshore is a fiction," says one former Congressional Joint Committee on Taxation staffer. "What they are asking for is a reward for having gamed the system."