Apple has lost a high profile €13bn (£11bn) Irish tax battle with Brussels in a decision which is a boost to the European Commission’s efforts to clamp down on favourable “sweetheart” tax deals for multinationals.
The European court of justice ruling, which had been eagerly awaited, comes after years of legal wrangling over whether the European Commission was right to demand in 2016 that €13bn in “illegal” tax breaks for Apple should be repaid because it gave the iPhone maker an unfair advantage.
The ECJ ruled that a lower court win for Apple should be overturned and backed the commission’s 2016 decision that Ireland had granted Apple unlawful aid relating to the tax treatment of profits generated by Apple’s activities outside the US which Ireland is now required to recover.
The answer is a tax structure that the world’s most valuable company made with the country on the edge of Europe.
Apple created two subsidiary entities in Ireland — Apple Sales International and Apple Operations Europe — that effectively own most of the company’s intellectual property.
Those companies license that IP to other global Apple subsidiaries, and earn income from those licensing arrangements.
So when an Apple iPhone is sold in China, for example, Apple’s Chinese subsidiary must pay the Irish company to reflect the use of the Irish companies’ intellectual property. Only Apple knows what percentage of that iPhone sale is subject to those intellectual property licensing fees, said Robert Willens, a tax consultant and Columbia Business School professor of taxation.
But the result is that profit earned on the sale in China is shifted to the Irish subsidiary, said Willens.
This is when Apple’s agreement with the Irish government — which the European Commission is taking issue with — kicks in.
Ordinarily, those profits would be taxed in Ireland at the relatively low rate of 12.5 percent but — thanks to an agreement between Apple and Ireland — the vast majority of profits in Ireland were attributed to a “head office” not located in any country and therefore not subject to taxes in Ireland or anywhere.
“Apple and Ireland will say that the head office legitimately earned these profits — it’s not just an accounting maneuver — that the head office is really doing things that justify attributing most of the profits to it,” said Willens.
The European Commission takes a different view, arguing that the head office exists only on paper and was created for the sole purpose of allowing Apple to pay very low taxes in Ireland in exchange for Apple’s agreement to invest in the country and to employ a certain number of people there. The EC argues that the the tax arrangement did not reflect “economic reality.”
“This “head office” was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings,” the European Commission said in a press release on Tuesday. The Commission wants Apple to pay €13 billion for the “undue tax benefits” the Irish government afforded the company.
I think it was a polymatter video I watched on the topic that covered the angle of fighting the case just being the Irish government having plausible deniability of not being a tax haven.
I think it was a polymatter video I watched on the topic that covered the angle of fighting the case just being the Irish government having plausible deniability of not being a tax haven.
It seems like a nice windfall for Ireland? They got to lure companies with promises of very low taxes and now the EU says it’s not allowed and their taxes should have been higher. “Sorry about the...
It seems like a nice windfall for Ireland? They got to lure companies with promises of very low taxes and now the EU says it’s not allowed and their taxes should have been higher. “Sorry about the €13 billion tax, nothing we can do.” In an alternate scenario where they didn’t have such seemingly low taxes, that money might have been paid to some other government instead.
I don’t quite know what you mean but I will make some bad guesses: It’s a somewhat direct cost to people who own Apple stock - which is most American investors via index funds, etc. And that...
I don’t quite know what you mean but I will make some bad guesses:
It’s a somewhat direct cost to people who own Apple stock - which is most American investors via index funds, etc. And that includes me. But that’s fuzzy since, while Apple’s valuation is somewhat based on their assets, it’s largely based on speculation about future earnings. I suppose those will be lower, but it’s not all that real to me. Stocks go up and down for lots of reasons. So as costs go, it seems pretty abstract. Not really feeling it.
The opportunity costs are also quite fuzzy since it depends on where you think the money would have gone instead if Apple had a different tax accounting strategy, and there are many possible strategies. Apparently one scenario is that a good chunk of it might have gone to China for sales in China? But I don’t include the Chinese government in “us all.” They are decidedly a “them.” Chinese tax revenue is their problem.
Honestly, I think of anything that weakens corporate accountability to government as a loss to all citizens in democracies anywhere. The degree to which corporations are attempting to supplant...
Honestly, I think of anything that weakens corporate accountability to government as a loss to all citizens in democracies anywhere. The degree to which corporations are attempting to supplant governments is a topic of concern to me, and as such I'm happy enough for China to get some tax revenue in this case in order to prevent broad corporate tax evasion.
Surely the cost is primarily the lost tax revenue? I also don't really understand how Apple minimizing its tax burden is really bad for Apple shareholders?
Surely the cost is primarily the lost tax revenue? I also don't really understand how Apple minimizing its tax burden is really bad for Apple shareholders?
Well, it depends if you’re talking about paying taxes now or not paying taxes before. In the first part of my post, I meant a more short-term interpretation: Apple paying more taxes now is bad for...
Well, it depends if you’re talking about paying taxes now or not paying taxes before.
In the first part of my post, I meant a more short-term interpretation: Apple paying more taxes now is bad for Apple’s shareholders. It’s a gain for Ireland and loss (cost) for Apple.
I'm not sure tax avoidance can be stamped out because it means doing things that are legal - or at least, they thought it was legal at the time. But maybe it results in more uncertainty and...
I'm not sure tax avoidance can be stamped out because it means doing things that are legal - or at least, they thought it was legal at the time. But maybe it results in more uncertainty and skepticism about whether a particular tactic stays legal in the EU.
I don't have a reliable source for this, but apparently the legal issue is that it's not okay for an EU government to give certain companies extra tax breaks, instead of having the same tax rates for everyone. So maybe companies will be more skeptical about promises like that?
You can change laws – for example the UK has recently decided to abolish the non-dom tax status (effectively it allows foreigners to avoid paying tax on their overseas income), the OECD has...
I'm not sure tax avoidance can be stamped out because it means doing things that are legal
You can change laws – for example the UK has recently decided to abolish the non-dom tax status (effectively it allows foreigners to avoid paying tax on their overseas income), the OECD has (partially) implemented OECD Pillar Two (mandating a 15% minimum tax rate), etc.
More vigorous enforcement is also important – a lot of tax games rich people like to play involve trying to find ways to hide trails of ownership (hence the popularity of instruments such as discretionary trusts) and trying out new schemes to avoid paying tax. At the point where tax authorities investigate more deeply and bring more frequent cases (as well as the host of other measures available to them) people become less willing to try creative schemes to avoid paying tax because the risk you end up in court is higher.
Funding tax authorities also tends to mean they spend less time chasing poor people to boost their stats (e.g. hassling people earning not very much money so that they can say we had X prosecutions this year) and more time investigating the wealthiest.
I don't have a reliable source for this, but apparently the legal issue is that it's not okay for an EU government to give certain companies extra tax breaks, instead of having the same tax rates for everyone.
The issue as I understand it is that Ireland breached EU state aid rules in doing this (which is definitely true). The EU runs a single market, and of course a perennial fear is that some countries which can borrow lots of money very cheaply (e.g. Germany) will try to get into the industrial policy game to compete with China, South Korea, Taiwan, etc and start subsidising their industries; this would be 'unfair' in some sense to everyone else
Yeah, tax avoidance indicates a loophole that could be closed. Governments could certainly be faster about changing tax rules when they see they're being gamed. It's a bit harder when it's the...
Yeah, tax avoidance indicates a loophole that could be closed. Governments could certainly be faster about changing tax rules when they see they're being gamed.
It's a bit harder when it's the government itself that wants to do it, like in this case.
I'm not sure you could say "got to", when the Irish government has been fighting this on Apple's behalf for some time. I can't tell you how bewildering it is to watch your own government arguing...
I'm not sure you could say "got to", when the Irish government has been fighting this on Apple's behalf for some time. I can't tell you how bewildering it is to watch your own government arguing in court against receiving €13 billion for its own coffers in the middle of a housing supply crisis. Maybe now they'll build a few fecking houses with it.
Because for Ireland to continue to serve as a corporate tax haven it needs to have the capacity to sign and maintain this sort of tax "deal" into the future?
Because for Ireland to continue to serve as a corporate tax haven it needs to have the capacity to sign and maintain this sort of tax "deal" into the future?
From the first few paragraphs of the article
From other quite interesting article on CNBC : https://www.cnbc.com/2016/08/30/how-apples-irish-subsidiaries-paid-a-0005-percent-tax-rate-in-2014.html
Previous discussions can be found here.
But previous link do not contain any discussion?
More to highlight that there is an original post on this topic and that split discussions will occur.
I think it was a polymatter video I watched on the topic that covered the angle of fighting the case just being the Irish government having plausible deniability of not being a tax haven.
It seems like a nice windfall for Ireland? They got to lure companies with promises of very low taxes and now the EU says it’s not allowed and their taxes should have been higher. “Sorry about the €13 billion tax, nothing we can do.” In an alternate scenario where they didn’t have such seemingly low taxes, that money might have been paid to some other government instead.
It was a nice windfall for Ireland, and a cost to us all.
I don’t quite know what you mean but I will make some bad guesses:
It’s a somewhat direct cost to people who own Apple stock - which is most American investors via index funds, etc. And that includes me. But that’s fuzzy since, while Apple’s valuation is somewhat based on their assets, it’s largely based on speculation about future earnings. I suppose those will be lower, but it’s not all that real to me. Stocks go up and down for lots of reasons. So as costs go, it seems pretty abstract. Not really feeling it.
The opportunity costs are also quite fuzzy since it depends on where you think the money would have gone instead if Apple had a different tax accounting strategy, and there are many possible strategies. Apparently one scenario is that a good chunk of it might have gone to China for sales in China? But I don’t include the Chinese government in “us all.” They are decidedly a “them.” Chinese tax revenue is their problem.
Honestly, I think of anything that weakens corporate accountability to government as a loss to all citizens in democracies anywhere. The degree to which corporations are attempting to supplant governments is a topic of concern to me, and as such I'm happy enough for China to get some tax revenue in this case in order to prevent broad corporate tax evasion.
Surely the cost is primarily the lost tax revenue? I also don't really understand how Apple minimizing its tax burden is really bad for Apple shareholders?
Well, it depends if you’re talking about paying taxes now or not paying taxes before.
In the first part of my post, I meant a more short-term interpretation: Apple paying more taxes now is bad for Apple’s shareholders. It’s a gain for Ireland and loss (cost) for Apple.
Yes but it's a gain for the public in many countries as it is a step further to stamping out tax evasion and avoidance?
I'm not sure tax avoidance can be stamped out because it means doing things that are legal - or at least, they thought it was legal at the time. But maybe it results in more uncertainty and skepticism about whether a particular tactic stays legal in the EU.
I don't have a reliable source for this, but apparently the legal issue is that it's not okay for an EU government to give certain companies extra tax breaks, instead of having the same tax rates for everyone. So maybe companies will be more skeptical about promises like that?
You can change laws – for example the UK has recently decided to abolish the non-dom tax status (effectively it allows foreigners to avoid paying tax on their overseas income), the OECD has (partially) implemented OECD Pillar Two (mandating a 15% minimum tax rate), etc.
More vigorous enforcement is also important – a lot of tax games rich people like to play involve trying to find ways to hide trails of ownership (hence the popularity of instruments such as discretionary trusts) and trying out new schemes to avoid paying tax. At the point where tax authorities investigate more deeply and bring more frequent cases (as well as the host of other measures available to them) people become less willing to try creative schemes to avoid paying tax because the risk you end up in court is higher.
Funding tax authorities also tends to mean they spend less time chasing poor people to boost their stats (e.g. hassling people earning not very much money so that they can say we had X prosecutions this year) and more time investigating the wealthiest.
The issue as I understand it is that Ireland breached EU state aid rules in doing this (which is definitely true). The EU runs a single market, and of course a perennial fear is that some countries which can borrow lots of money very cheaply (e.g. Germany) will try to get into the industrial policy game to compete with China, South Korea, Taiwan, etc and start subsidising their industries; this would be 'unfair' in some sense to everyone else
Yeah, tax avoidance indicates a loophole that could be closed. Governments could certainly be faster about changing tax rules when they see they're being gamed.
It's a bit harder when it's the government itself that wants to do it, like in this case.
I just posted about ASML which seems like another example.
I'm not sure you could say "got to", when the Irish government has been fighting this on Apple's behalf for some time. I can't tell you how bewildering it is to watch your own government arguing in court against receiving €13 billion for its own coffers in the middle of a housing supply crisis. Maybe now they'll build a few fecking houses with it.
Because the Irish government knows that the only reason for Apple to be there at all outside of retail stores just evaporated.
Because for Ireland to continue to serve as a corporate tax haven it needs to have the capacity to sign and maintain this sort of tax "deal" into the future?