Apple executives are set to defend the company’s tax practices and call for corporate tax reform on Capitol Hill Tuesday amid harsh criticism following a Senate investigation.

A report released Monday by Senators John McCain, R-Arizona, and Carl Levin, D-Michigan, charged that Apple “has used a complex web of offshore entities — including three foreign subsidiaries the company claims are not tax resident in any nation — to avoid paying billions of dollars in U.S. income taxes.”

The report says Apple relies on a number of unusual accounting tactics along with a handful of subsidiaries in Ireland — where it has negotiated a tax rate of less than 2% — to reduce its tax bill. The U.S. corporate tax rate stands at 35%.

And The Wall Street Journal says on findings about Apple’s tax practices:

Apple used technicalities in Irish and American tax law to pay little or no corporate taxes on at least $74 billion over the past four years, according to the Senate panel’s findings. The investigation found no evidence that Apple did anything illegal. Aides to the subcommittee said they have never seen a company use a subsidiary that didn’t owe corporate income taxes to any country.

Apple didn’t dispute that entities it set up didn’t pay corporate taxes but denied they were designed to avoid taxes. The company said it pays local taxes on overseas earnings and U.S. taxes on investment income generated at its Irish subsidiaries.

What is so interesting here is that Apple is sounding more and more like any other company that wants to maximize its tax benefits within the existing laws. Taxation of foreign income is an ongoing hot-button and it will be interesting to see exactly how this debate will take place now that it includes Apple. Will the public continue to think that Apple can do no wrong?

Apple’s defense starts out that it is likely the highest paying corporation for income taxes in America. It also talks about employing tens of thousands of Americans and pays billions of dollars each year to the US Treasury in corporate income and payroll taxes. Keep in mind that Apple now has well over $100 billion in cash. The company would also have to pay out billions upon billions of dollars that would be a penalty if the company brought that cash back into the U.S.

The company said, “Apple welcomes an objective examination of the US corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy. The Company supports comprehensive tax reform as a necessary step to promote growth and enable American multinational companies to remain competitive with their foreign counterparts in both domestic and international markets.”

Apple will claim that it has created or supported approximately 600,000 jobs in the US, broken down as 50,000 by the company and another 550,000 or so at other companies. Some 290,000 of those are tied to the new “app economy.” Apple also claims that its 2012 U.S. tax bill of $6 billion is close to $1 of every $40 in income received from corporations. It showed a 30.5% tax rate last year and expects to pay closer to $7 billion in 2013. Here are some additional bullet points:

• Apple has been a powerful engine of job creation in the US.
• Apple pays an extraordinary amount in US taxes.
• Apple does not use tax gimmicks.
• Apple carefully manages its foreign cash holdings to support its overseas operations in the best interests of its shareholders.
• The dividends distributed among Apple’s international affiliates, including AOI, are not subject to US corporate income tax.
• Apple’s cost sharing agreement with two of its subsidiaries supports high-paying, tax-revenue generating jobs in the US.
• AOI performs important business functions that facilitate and enhance Apple’s success in international markets; it is not a shell company.
• Apple supports comprehensive reform of the US corporate tax system.

The company’s full pre-testimony report is here.

Bloomberg reports on efforts to fight tax evasion in the EU:

The agenda for this week will include stepping up the fight against tax evasion after finance ministers from Luxembourg and Austria last week blocked efforts to reach agreement on sharing tax data. The accord aims to set standards for how countries collect data on income residents earn in other nations.

“Priority will be given to efforts to extend the automatic exchange of information at the EU and global levels,” according to the draft.

So, it may be as hard to get an agreement as it will be to implement it.

The equity research team at UBS A.G. (NYSE: UBS) points out that with government bond yields running below expected rates of inflation for maturities of 10 years or less, investors can hardly be blamed for seeking out alternatives to the prospects of accepting negative “real” or inflation-adjusted U.S. government bond yields. A new report covering the UBS Dividend Ruler stocks offers a list of top foreign companies to buy. Investors should remember that foreign tax is often withheld on dividends from American depository receipts (ADRs).

AstraZeneca PLC (NYSE: AZN) kicks off the UBS list. Trading at a low 11.4 times earnings, the European drug giant is up more than 10% this year. The Thomson/First call price target for the stock is $48.91, below its current level. Investors are paid a 5.45% dividend.

Total S.A. (NYSE: TOT) operates in three segments in the energy industry: Upstream, Refining and Chemicals, and Marketing and Services. The consensus price target for the stock is $60. Investors receive a solid 5.50% dividend.

The Bank of Nova Scotia (NYSE: BNS) is a top Canadian bank to buy at UBS. The consensus price target for the stock is $67. Shareholders are paid a 4.10% dividend.

Pearson PLC (NYSE: PSO) is an international media and education company with its principal operations in the education, business information and consumer publishing markets. The consensus price target is at $20. Investors are paid a 5% dividend.

Unilever PLC (NYSE: UL), with its hundreds of products used every day, operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Europe and the Americas. The consensus price objective for the stock is $45. Investors receive a 3.20% dividend.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is a leading maker of generic and branded drugs. The consensus price target for the stock is $43. Shareholders are paid a 2.80% dividend.

The Toronto-Dominion Bank (NYSE: TD) is another major Canadian bank to make the UBS list. The consensus price target for the stock is $95.33. Investors are paid a 3.90% dividend.

Sanofi (NYSE: SNY) is another health care product provider that operates through Pharmaceuticals, Human Vaccines and Animal Health segments. The consensus price objective for the stock is $62.70. Shareholders are paid a 3% dividend.

In a world starved for yield, combining foreign dividend paying stocks with a portfolio of solid domestic names makes good sense. Not only are chances for solid total return enhanced, the mere fact that the names are not as correlated to domestic stocks is a positive as well.

On the other hand, higher tax rates may have been the cause. Ironically, experts believe that these taxes could hurt the consumer later in the year, which would undermine improvements in the size of the deficit.

According to the CBO’s monthly budget review:

The federal government ran a budget deficit of $489 billion in the first seven months of fiscal year 2013 (that is, from October 2012 through April 2013), according to CBO’s estimates. That amount is $231 billion less than the shortfall recorded during the same period last year, primarily because revenue collections have been much greater than they were at this point in 2012. In contrast, federal spending so far this year has been slightly lower than what it was last year at this time.

And:

Individual income and social insurance (payroll) taxes together increased by $184 billion (or 16 percent).
Taxes withheld from workers’ paychecks rose by $99 billion (or 9 percent), mainly because of higher wages and salaries, the expiration of the payroll tax cut in January 2013, and increases (beginning in January) in tax rates on income above certain thresholds.

Nonwithheld receipts rose by $80 billion (or 30 percent), primarily because of higher payments made during the tax-filing season (February through April). Those payments—largely representing final payments for the 2012 tax year—increased by $66 billion (or 36 percent). Income tax refunds declined by $6 billion, further boosting receipts. The large increase in payments accompanying people’s income tax returns probably reflects the fact that higher-income taxpayers, anticipating changes in tax law, realized more income in 2012.

Those final payments submitted with 2012 tax returns (net of refunds) were substantially greater than the amounts CBO projected in its February 2013 report The Budget and Economic Outlook: Fiscal Years 2013 to 2023. The agency will issue updated budget projections for the 2013–2023 period next week.

Net corporate income taxes were higher by $24 billion (or 22 percent), probably reflecting growth in taxable profits in both calendar years 2012 and 2013.

The U.S. Department of Justice (DOJ) announced late on Thursday that it filed suit against Chemed and against its hospice subsidiaries. The subsidiaries being sued are Vitas Hospice Services and Vitas Healthcare, with the allegations being over false Medicare billings for hospice services.

Investors need to tread softly here because this could turn into criminal situation if the allegations are proven. The DOJ alleges that Vitas:

…knowingly submitted or caused the submission of false claims to Medicare for crisis care services that were not necessary, not actually provided, or not performed in accordance with Medicare requirements.

Another instance is even worse if it is true. The DOJ said:

In addition, the government’s complaint alleges that Chemed and Vitas knowingly submitted or caused the submission of false claims for hospice care for patients who were not terminally ill.

Shareholders are reacting to claims that Chemed and Vitas violated the False Claims Act and that the companies misspent tens of millions of taxpayer dollars. If proven, that goes well beyond just civil penalties for the executives who participated. Shareholders do need to know that the DOJ ended its release by saying, “The claims asserted against Chemed and Vitas are allegations only, and there has been no determination of liability.”

The DOJ said:

The companies allegedly paid bonuses to staff based on the number of patients enrolled in the program and based on patients who were admitted for longer lengths of stay, and took adverse employment actions against marketing representatives who did not meet monthly hospice admissions goals.”

Vitas is the largest for-profit hospice chain in the United States, with hospice services in 18 states. Chemed acquired Vitas back in 2004. Chemed’s shares are down 18% at $66.60, and the 2 million shares traded before noon are already more than 10 times the 150,000 or so shares traded on an average day. After the drop, Chemed is worth only about $1.23 billion, and its 52-week trading range is $54.06 to $82.00.

There are more than a couple of things to consider here, but Moody’s projected that Apple saved $9.2 billion or so by issuing this debt rather than repatriating its cash held overseas. It has been very controversial for companies to not repatriate their overseas cash. Many people in the public consider this corporate tax evasion. Will they think that when it pertains to Apple?

For starters, Apple paid about $6 billion in federal corporate income taxes in 2012. The interest payments on the $17 billion will come to just over $300 million because Apple’s borrowing costs are so low. To repatriate $17 billion, Moody’s showed that some 35% of the overseas capital would be taxed. That means that Apple would have had to bring back in about $26 billion and then give more than $9 billion to the government.

Bloomberg broke this down in detail today.

Another consideration is the Moody’s rating this week on the Apple debt issue. The ratings agency shared its logic as to why Apple was not Aaa rated. The ratings agency said:

We assigned Apple a Aa1 rating and not a Aaa rating for three main reasons: the business risk inherent in the consumer technology sector; the potential for the company to adopt an increasingly shareholder-friendly financial policy; and the possibility that the company’s diminishing US cash holdings will eventually require it to issue more debt to meet shareholder payouts.

The public needs to understand one thing about U.S. companies “hiding cash overseas.” Some companies may do this solely to avoid tax, but if a U.S. company is doing business overseas it must do that business in a locally domiciled corporation in that country. That money is taxed in that nation, if the company was profitable. For these companies to then bring that capital back into the United States, there is a tax (or penalty) for doing so on top of the tax paid overseas.

Not paying taxes on overseas cash may be controversial to many who want more government revenues. It is a very complicated issue. The thing here is that this was a no-brainer decision for Apple. Do the math: about $300 million per year in interest or a bill of $9.2 billion — what would you do if that was your money?

Terms and the size have not yet been formalized. So far we have seen that Apple will have two floating rate notes with maturities in 2016 and 2018. Then there will be fixed rate notes and bonds due in the years 2016, 2018, 2023 and even 2043. Be advised that Fitch gave Apple a much more cautious preliminary corporate credit rating profile yesterday that put it behind Microsoft Corp. (NASDAQ: MSFT) and other technology giants.

Apple will use the net proceeds from sales of the notes for general corporate purposes. This is said to include the repurchase of its common stock and payment of dividends under its recently expanded program to return capital to shareholders. On April 23, 2013, the consumer electronics giant announced that it has increased its existing share repurchase program authorization from $10 billion to $60 billion and raised its third quarter 2013 cash dividend by 15%.

This debt offering gives the company better access to capital in America where the repurchases will occur. As I said in our CNBC dividend interview with Mario Bartoromo on Friday, the bulk of Apple’s $100+ billion in cash is now overseas because that is where so much of its sales take place. To repatriate that capital would come with an added taxation, and the company obviously feels like it is cheaper to borrow money in the debt market than it is to pay higher tax rates.

To help pay for these new budget commitments, the Senate is again looking to raise new revenues through tax hikes. This game plan does not sit well with the Republican-controlled House. They not only are unwilling to raise tax rates again, they are unwilling to eliminate additional so-called loopholes at this time. One of those loopholes is the tax-free status of municipal bonds.

One of the best way for investors to own a basket of municipal bonds is through closed-end funds. Not only do they provide diversity by owning large portfolios of different bonds, they generally pay investors tax-free income on a monthly basis. The fixed income team at UBS A.G. (NYSE: UBS) has scoured the municipal fund universe, and have five top names from closed-end fund giant Nuveen rated as funds to buy.

UBS has screened for nonleveraged funds that are trading at or below their net asset value (NAV). These are the closed-end funds to buy.

Nuveen Muni Value Fund (NYSE: NUV) is trading at a slight discount to its $10.31 NAV, and this fund pays an annual dividend of $0.44. This translates to a current 4.35% tax-free yield paid to investors monthly.

The Nuveen Select Tax-Free Income Portfolio 3 (NYSE: NXR) makes the UBS list. Trading at a solid 3% discount to its $14.94 NAV, the fund pays a yearly $0.63 dividend. This provides investors a 4.37% tax-free yield paid monthly.

Nuveen Select Tax-Free Income Portfolio 2 (NYSE: NXQ) is also on board. It trades at close to a 3% discount from its listed $14.37 NAV, and investors are paid a $0.63 annual dividend. This equals a solid 4.52% tax-free yield also paid monthly.

For investors living in California and looking to avoid federal and state income taxes, the UBS team recommends the Nuveen California Muni Value Fund (NYSE: NCA). It trades at a 2.5% discount to the funds $10.38 NAV. Investors receive a $0.47 annually, which translates to a 4.63% tax-free monthly dividend for investors. When California state income tax is figured in, the tax-exempt percentage may be even higher for investors if they are residents of that state.

Investors in the state of New York may want to look at the Nuveen New York Municipal Value Fund (NYSE: NNY). It trades at a very slight discount to the funds $10.26 NAV, and investors are paid a $0.40 annual dividend. This equals a 3.879% annualized yield. Again, taking into consideration state and local New York taxes, the tax-free return may be considerably higher.

There are also two key municipal bond exchange-traded funds (ETFs), although these are presented as alternatives to the closed-end funds, as many investors have turned more to ETFs over the old closed-end fund structure. One is the iShares S&P National AMT-Free Muni Bond (NYSEMKT: MUB), with a 2.83% yield before adjusting for after-tax equivalents. It trades about 250,000 shares per day. At $110.17, it has a 52-week range of $107.95 to $114.52. Another muni-ETF is the PIMCO Intermediate Municipal Bond ETF (NYSEMKT: MUNI), with about a 2.14% yield before adjusting for the tax basis. Unfortunately it trades only about 30,000 shares per day. It has also slid with the muni market, as the price of $54.12 compares to a 52-week range of $53.59 to $57.47. The iShares version has been around since 2007, but the PIMCO version is still very new.

Overly zealous politicians may again try to remove the tax-free status of municipal bonds. At some point they may even achieve that goal on the super wealthy — say, people making more than $5 million per year. However, this is a very sore subject with states, counties and municipalities, as any change in tax status may raise their borrowing costs. With many states and cities struggling to pay their bills, this change does not look imminent.

A projection of 116,000 full-time jobs is certainly a big draw inside the study data. It is derived from the fourteen oil and gas-producing counties and six more surrounding counties which are deemed to be staging areas.

Texas itself is winning as well. The study showed that the fiscal impacts to the State of Texas from the Eagle Ford in 2012 alone were over $2 billion dollars in state and local government revenue. The tax revenue impact was said to be over $1 billion in total local government revenue and about $1.2 billion in State revenue in 2012.

We do not yet have the full study results, which are to be available later in the week. Some of the summary notes show that the Eagle Ford generated $61 billion and 116,000 jobs for the 20-county region in 2012, ultimately getting to $89 billion annually and 127,000 jobs for the 20-county region by 2022. After looking at the prior year’s projection from the Center, the numbers even from 2021 to 2022 look to have great gains: The study projected that by the year 2021 the Eagle Ford Shale could produce around $62.2 billion in output and up to $34 billion in gross regional product.

The Center for Community and Business Research showed that the 2011 impact included over $19.2 billion in output, about $10.5 billion in gross regional product, $211 million in local government revenue, $312 million in state revenue, and 38,000 jobs.

Another source for tracking these developments in the Eagle Ford Shale is the EagleFordShale.com website. Their most recent data showed that the Eagle Ford regional rig count was at 240 as of March 22, 2013.

This is a topic that needs to be closely monitored ahead. Merely mentioning “shale” kicks up environmental groups and stirs up those who want the world to run on alternative and renewable energies. But then there are the hundreds of thousands of jobs around the country supporting the shales that require no taxpayer subsidy and which are high-paying jobs. You also have to consider the billions and billion of dollars in state, local, and even federal taxes which come from the shale oil-producing regions.