Apple CEO Tim Cook On Taxes And Manufacturing In China

• Tim Cook, CEO of Apple Inc. AAPL, was recently featured on 60 Minutes.
• The Chief Executive looked into several issues, including corporate taxes, encryption technology and manufacturing in China.
• So, let’s take a look at what Mr. Cook said about the company’s tax structure, the accusations about tax evasion, manufacturing in China, and the market in the Asian country.

Although it is based off California, Apple has roughly one million people manufacturing its products in China. But, why isn’t it bringing those jobs home? 60 Minutes’ achor Charlie Rose asked. Furthermore, why does the company get to not pay U.S. taxes on the approximately $200 billion it keeps abroad?

The Tax Issue

Apple makes more than 2/3 of its revenue overseas. “Rather than bring it back and pay hefty U.S. taxes, Apple, like many U.S. multinationals, parks billions of dollars in overseas income in subsidiaries in countries like Ireland,” the report elucidated. While the practice isn’t illegal, it has been long discussed in Washington, where policy makers want to reform the corporate tax code and bring that money back to the U.S.

Related Link: Apple CEO Tim Cook On Innovation, Encryption And National Security

However, Cook assured, Apple pays more taxes in the U.S. than anyone else. But bringing overseas revenue home would cost the company 40 percent, he added, assuring that this does not make any sense.

“This is a tax code that was made for the industrial age, not the digital age,” Cook stated. “It’s backwards, it’s awful for America, it should have been fixed many years ago.”

The Chinese Market

Talking about China, Cook said he was certain the market there would be larger than the one in the U.S. quite soon – in sales doubled in the country last year. And, it’s not just the sales numbers that tell him this, it’s also the “numbers of people moving into the middle class,” he assured. “That, for a consumer company, is the thing that really begins to grow the market in a big way.”

Chinese Hands

Most of Apple’s products are manufactured in China. As stated above, about 1 million people work for Apple contractors in China – the largest of the being Hon Hai Precision Industry Co., Ltd.-ADR HNHPF, a.k.a. FoxConn.

However, Cook added, it’s not because of the vast and cheap labor force that Apple picked China to manufacture its devices.

“It’s skill,” he ensured. “China put an enormous focus on manufacturing, in what we would call vocation kind of skills. The U.S., over time, began to stop having as many vocational kinds of skills.”

However, many customers and human rights activists are concerned about the work conditions and low wages in these Chinese facilities. Nonetheless, Cook guaranteed that Apple looked very carefully into this to avoid unfortunate events. “We are constantly auditing our supply chain, making sure that safety standards are the highest, making sure that working conditions are the highest. All of the things that you would expect us to look for -and more, we are doing it.”

However, 30 percent of the facilities that make Apple products around the world still do not comply with the company’s standards, Rose stated.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.