Commission says Ireland granted undue tax benefits of up to €13B to Apple
rte.ie
rte.ie
And with another quirk - this time in US tax laws - the do not even have to pay taxed in the US on those earnings, as they have not repatriated the funds.
How to pay dividends/fund buybacks, without repatriating those funds? Easy: Just issue debt (which your own subsidiary in the British Virgin islands making a killing on IP licensing might want to buy) or have your BVI IP trust fund buy those shares.
Now why would other EU countries let Ireland and the Netherlands get away with these accepted loopholes is a mystery to me, especially since Ireland had to ask for a bailout lifeline, and was in no position to negotiate firmly.
Why the US would allow their truffle pigs to not pay taxes on oversea earnings is clearly the result of expert lobbying.
You don't need expert lobbying. Look at this forum, full of tax-evasion apologists who conflate pragmatism with pedantry.
Pedantry is the one of the most intellectually and emotionally bankrupt moral frameworks. It basically states that if you just think about the rules a lot, then you will find the solution.
I mean, obviously all these politicians and normal people, they've just been getting it wrong all along! To quote other commenters, "Apple did nothing illegal!" The "Tax law is a system of rules!" Just look more carefully at those random tiny rules and then, we don't have to have a discussion anymore! People who don't read the rules carefully enough: "it makes my brain hurt!" Then blame the people who write the rules, or petition for the rules.
Pedantry is the disease, not lobbyists.
I don't know how to convince the pedants though that sometimes, it's ethical to reinterpret the rules.
To clarify, I think we should be asking whether or not what Apple does is ethical. And the answer to that question shouldn't depend on whether or not we're wondering the same about other corporations.
The answer is obviously no, tax evasion / avoidance isn't ethical.
If I ask someone on the street if its okay to steal from the rich, he says "yes" and I steal from the rich, no one would bat an eye if the courts didn't agree with my "interpretation" of the law and put me behind bars. And no one would accept it as a legal defense if I said "but hey, that guy over there said it is okay to do this!" - why should it be different for companies?
1. They have applied their own laws in a way that amounts to subsidies, and
2. The corporate structure turned out to be fictional, and allocations of profits were therefore also fictional. ("Arm's length" and all that.)
They even open the door for national tax authorities to use their findings and evaluate for profit shifting.
This is an inspirational moment - too long have tax treaties favoured those willing to break the spirit of the law and weigh down the little man with the consequences!
I'm assailing this line of thinking in general.
Instead, can we discuss whether or not giant corporations avoiding taxes is ethical, rather than whether or not there's something up with the rules? Do you seriously believe that what Apple and other large corporations do with respect to taxes is ethical?
It's not like there are pre-existing moral rules in the case of taxes -- taxes exist only because of tax law; tax law defines what taxes are, who is to pay them, and how much they ought to pay. Tax law is the only authoritative standard to which someone's behavior re: taxes can be submitted.
I hate Walmart for their ruinous development patterns, but I don't fault them for working within the system they're given. Don't hate the player, hate the game.
Said every gangster ever.
For all the Apple stockholders, it is ethical to follow the rule and reduce taxes. For all the handme-something EU bums it is not.
This is not a 'quirk' as you think. No country in the world, other than the US, tax their corporations on already taxed profits in a different jurisdiction. This actually ends up hurting the US because corporations cannot repatriate already-taxed funds without being taxed again.
First, Apple did nothing illegal. There is no wrong doing here. They pay tax in every country they owe tax. Period.
Second, perhaps it's not Apple that's the problem? Perhaps it's the tax that is the problem.
If you have mega corps building entities outside its main jurisdiction to avoid the main jurisdictions tax burden, perhaps you need to revamp your insane tax code. Hmm?
As companies benefit from this incentive, they lobby to keep it around. Very successfully.
So no, revamping the US tax code is (quite obviously) not an answer to Apple not paying tax in the EU. Having enforced taxation rules that prevent the race to the bottom is. Unfortunately taxation is not in the remit of the EU at the moment. Hence the back door approach through "unfair tax benefits".
We don't need trade deals that harmonize things so countries can, we really need tax deals that harmonize, or at least put minimum standards on taxes.
Why wouldn't something like that fly? Well because if the impression European observers have gotten over the last years is correct, then Apple et.al. basically own US policy on that point, to such a degree that the US actually threatened the Commission against ruling as it did.
So no, Apple did nothing illegal, but what is happening is clearly wrong, and Apple is lobbying to keep it that way. Heavily and successfully. And that is wrong.
For an example of an ethical stance a corporation could take here: IBM was, at least for a while, lobbying for abolishing software patents while at the same time owning a massive amount of them and registering new ones.
A structural fix would be to work towards making the US (and the EU, and all other) political system more resilient to lobbying pressure from powerful corporations.
But that is about as hard a problem as you are likely to find.
I don't see the EU giving Microsoft grief. It'd seem they're paying EU taxes differently than Apple.
Apple paid 0.0005% tax on its European profita. There is no non-'insane' tax code that could compete with that.
"Oh, it's not tax evasion, it's tax avoidance!"
And now "oh, it's not tax avoidance, it's tax-friendly jurisdictions".
Let's just agree to close the loopholes so that everyone pays their fair share.
Apple's international tax structure was thoroughly documented when they were called up to testify before the Senate, which you can read about in the Senate Subcommittee Memo on Offshore Profit Shifting and Apple[1], and while they do have several Irish subsidiaries, they do not have any subsidiaries in the Caribbean or move any money into the Caribbean.
This is further reinforced in Apple's testimony before the Senate[2]:
> Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”).
[1] http://www.hsgac.senate.gov/download/?id=CDE3652B-DA4E-4EE1-...
So replace my BVI sub with that "fairy tale green island of tax cheat's dreams... "
Edit: Actually, "special rate" is a bit misleading, as it implies Apple went to Ireland and said "hey, we'd only like to pay .05% instead of 12.5%" and Ireland said okay. The way it actually works (as described in the previously mentioned Senate memo) is that ASI (the Irish subsidiary) buys an iPhone from its manufacturer in China at cost for $200, marks it up to $600, and then sells the iPhone to Apple Italy for $600. Apple Italy sells the iPhone to a customer for $600 and recognizes $0 in profit, while ASI records $400 in profit. But ASI claims to not be a tax resident of Ireland and therefore when it buys an iPhone from China and sells it to Italy, that transaction shouldn't be subject to Irish taxes since no economic activity actually occurred in Ireland.
Therefore, the only taxes that ASI pays Ireland are from transactions where they actually sold products in Ireland itself. In 2011 ASI recognized profits of $22 billion, of which $50 million occurred in Ireland, and so they only paid ~$10 million in Irish taxes on that $50 million, leading to an effective tax rate of .05%.
Reading the complaint there is a lot in it about valuation of the intra-company transfers and arms length principle in establishing valuation numbers. I suspect it is there where Ireland and Apple colluded to enable Apple to avoid paying taxed in other EU states. Apple may be saying it is legal but they must know that the deal they got from the Irish Government was too good to be true.
While the volume was small it did not raise alarm bells but the volume Apple is doing it eventually pushed the envelope too far.
Just regulated the transfer of IP rights. If you sell say a patent portfolio for $50m to your British Virgin Island subsidiary, and then make $20bn in profits in the decade thereafter on that BVI sub, it appears the IP transfer was waaaaay below market value. And should retroactively be taxed in the US where we engineers had developed that stuff in the first place.
Problem solved. US tax base restored. Government deficit fixed.
In the current situation, the company placed a bet on those patents. They took risks, every year, for 10 years. And ended up being rewarded for it after some struggle and a lot of research. In your proposed situation, the company would put as much risk in buying the patents. Would still struggle for 10 years. Then, once the ground breaking product comes along and starts generating sales, authorities come in and ask for retroactive taxation because their crown jewel was "clearly under market value"
That honest company would probably not stay in business for very long. Or would not even exist if the founders knew that would be the outcome.
I love US companies making boatloads of cash. I just hate them to get around paying normal taxes here.
It's intended as quite the opposite of a token of respect: the purpose of referring to Ireland as 'Eire' (omitting the accent on the initial 'é' too) is to delegitimise the use of the term 'Ireland' to refer to the Irish state.
If actual Irish people wanted the state to be referred to as 'Éire' in English, it'd be one thing, but we don't. In English, it's name is 'Ireland', and in Irish, it's name is 'Éire'. There's also a diplomatic fudge in that there's an 'official description of the state', which is 'Republic of Ireland', which isn't its official name, but which is an acceptable substitute. And yet, incorrect terminology is still used to refer to the Irish state, such as 'Éire' (being used in English) or 'Irish Republic', and sometimes you find particularly ignorant types refer to it as 'Southern Ireland' (which was the name of a failed attempt at a counterpart to Northern Ireland within the UK, but which never gained any legitimacy) and 'The Freestate' (which carries the implication of British dominion over Ireland).
The norm is to use 'native' names where those people want those names to be used. Both Ireland and Éire are native names of Ireland, just in two different languages.
Or we could have just burned the various EU and international bondholders...
Are there any other countries that tax already taxed overseas earnings? If the sale was made in say China and taxes were paid in China, why does Apple need to pay US taxes?
(This is an honest question, I really don't understand this. I understand _that_ it's US law, I don't understand why)
The correct way of saying this is by 2020 the loophole will be gone for real. Happy tax saving in the interim...
An effective tax rate of 0.005% - when your next door business neighbour is paying 20% - is morally wrong and damaging to society and the common good.
Tax law is a system of rules. There should be no second arbitrary standard people (and companies) should be expected to follow.
But, to your point, laws are the non-arbitrary manifestation of those morals. Indeed there should be no unwritten standard as well. In this case, there wasn't: the Irish laws did not comply with EU law, and EU law take precedence in this matter. Apple should have known that was a possibility, and probably did know but hoped (and lobbied) for the best.
ah, the capitalist angle. unfortunately, the consequences of acting this way are poor for the rest of society.
Rigid adherence to rules without consideration of what's going on doesn't usually end up with a better place.
> Apple creates more, and better, jobs than the book store they shut down to open a showroom.
It's not about Apple's showroom vs book store. Its about Apple's massive cash pile vs hospital services/fire brigade/police dept/infrastructure etc. Those are essential services, and jobs, too.
They are doing nothing of the sort. They are demanding 'resources' (money) from the shareholders. So please, don't be mad.
The US government came out against this ruling, suggesting that US corporations are disproportionately targeted by the EC tax rulings.
>The commission has initiated investigations into tax rulings that Apple, Starbucks Corp., Amazon.com Inc. and Fiat Chrysler Automobiles NV. received in separate EU nations. U.S. Treasury Secretary Jacob J. Lew has written previously that the investigations appear “to be targeting U.S. companies disproportionately.”
>“There is a possibility that any repayments ordered by the Commission will be considered foreign income taxes that are creditable against U.S. taxes owed by the companies in the United States,” the paper said. “If so, the companies’ U.S. tax liability would be reduced dollar for dollar by these recoveries when their offshore earnings are repatriated or treated as repatriated as part of possible U.S. tax reform.”
http://www.bloomberg.com/news/articles/2016-08-24/u-s-treasu...
The reduction in tax liability happens when the earnings are repatriated per this quote. If these companies are storing this cash overseas in a bid to avoid paying taxes on it with no intention of repatriation until a tax holiday then why should we care?
It's great that there is a supra-national authority forcing the states to cooperate on getting multinationals to pay reasonable taxes, because it wouldn't happen otherwise.
According to Wikipedia (just listing the IT-companies):
* Adobe Systems
* Apple Inc.
* IBM
* Microsoft
* Oracle Corp.
* Yahoo!
Competing on tax rates and negotiating tax deals were a huge MNC like Apple pays a ridiculous 0.005% is bad: morally wrong, cuts to public services, increases unjustifiable economic inequality and is just not fair on other much smaller firms who have to pay full whack on the tax.
Apple, FBK, etc don't see it like that - they will engage in aggressive tax planning to minimise their tax, hoarding billions of dollars. And its not like they do anything productive with their cash pile; its not like it goes to higher pay checks for their Asian workers. Instead, its spent on share buybacks to prop up sagging share prices and keep Wall St happy.
Here's a better approach: tax companies on their profits and remove or reduce income tax and capital gains tax. This aligns incentives to:
1. encourage and reward founders to start new business
2. the most valuable employees tend to be mobile ones - a core EU principle is free movement so compete for the best employees by lowering taxes and giving them great public services. Companies will follow.
3. tax company profits and everyone is on the same level playing field: provides an incentive for companies to reinvest their profits into growth (and indirectly jobs).
And share buybacks are returning capital to the owners of the business, which is why they invested in it in the first place. The owners can then make their own choices about how to allocate capital productively.
In theory.
We are having this debate because in practice some are taxed at 20% and others practically nil.
I'm arguing for no negotiated tax arrangements, indeed I have been giving thought to a progressive tax regime for companies. That would be interesting to evaluate.
> And share buybacks are returning capital to the owners of the business
Which is why I am not sure buy backs should be taxed. Either a company invests its earnings, or else it returns them to shareholders who can decide to identify growth opportunities, as you suggest.
I think I'd rather see lower unemployment than higher corporation tax take if that was the choice.
I wonder how much Irelands payroll taxes would have been were the corporations not to have set up shop in Ireland, they would have just gone somewhere with a decent tax arrangement.
Unemployment in the 70's and 80's was brutal in Ireland, personally, I think the government at the time made the right choice, however, this "selective treatment" allowed Apple to pay tax rate of 1% on European Union profits in 2003 down to 0.005% in 2014, FFS.
A better question is where the world would be if nation states wouldn't allow multinational companies to pay only negligible taxes by taking part in a race to the bottom.
With tax deals like this one you're just ripping other countries off.
You mean countries competing for business? Why is that bad?
It would sound ridiculous if you applied it to companies "Car companies offering lower and lower prices is just a race to the bottom! If this keeps up we'll have no car companies as they'll all be bankrupt!".
Also your comparison is pretty bad. The direct cost per unit is pretty high for a car in a car company, the one for a company in a country is negligible. So it's more like a publisher selling digital goods, except that there's no copyright, preventing the others from selling exactly the same for a lower price.
I think it's a bad idea to tell a country that they can't charge a lower price (taxes) in order to sell more business (have companies move there).
And you can go lower than that amount if you attract an abnormal amount of companies through an abnormally low tax.
That constant pressure to do more with less... deadly.
With "beneficial" (sic) mutations like this one you're just ripping other organisms off.
Ireland isn't somehow magically fitter than other countries and thus able to offer 0.005% corporate tax. It's only relying on attracting an above-normal amount of companies by having low taxes and draining other countries of their tax benefits in the same turn. It wouldn't work if everybody was doing it. In fact countries would just turn to shit.
It seems to fit like a glove, with ruthless disregard for any kind of sustainability, draining parasitic/symbiotic relationships and all.
Next, Luxembourg and Netherlands.
Unemployment is still high in certain areas. The bank bailout crippled the country, forced really high taxes on those who really shouldn't have been held accountable (low income earners).
That said, Apple (and many other mult-nationals) seized an opportunity and ran with it. The moral responsibility to pay taxes should be on the CEO and the board.
In 2014, Apple made a profit of $78.5 billion.
That would explain why the percentage went a lot lower.
The ruling, as far as the EU are concerned, is that Ireland gave Apple a deal more beneficial than anyone else. But the basis for this claim is how the tax was charged. Instead of charging Irish tax for all income for the company, they charged what was reported in Ireland. The issue that needs to be resolved is did they pay tax anywhere else on the remaining profits. The US said they did but the EU say they dont think so.
Taxes (at least personal taxes) are a user fee. Every time an employee snuffs at an offer in Missouri or Bangladesh, they are implicitly signalling a preference for quality-of-life elements.
It's always the Achiles' Heel of the One Simple Trick that laissez-faire capitalists continually propose: that the world is more messy and complicated than: make countries = businesses.
1. Negotiate special tax privileges for a company
2. Have them set up shop in your country
3. Allow them to pay little tax for several years
4. Have federal authority sue saying that the deal in #1 is illegal
5. Collect back taxes based on normal tax rate and not the special deal in #1
Question is: Did politicians, who created such laws, received bribes?
> The amount of unpaid taxes to be recovered by the Irish authorities would also be reduced if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts.
I wonder how much of the 14B could be offset by this? I suppose there's a chance that it all might be.
I have no love in my heart for Apple.
At the same time, it's not like they don't have enough lawyers. So I have to assume that anything involving billions of dollars would be strenuously vetted. I might be wrong, but I'm starting from there.
And if they were supposed to pay taxes, they were supposed to pay them. Purposefully evading taxes is wrong. Avoiding taxes is another matter. Complex tax codes to change society work because we assume that people will be actively avoiding them. So good for them. They're playing the carrot and stick game that governments like us all to play.
If true, this means that they did the right thing that the best-informed legal minds could offer in order to legally avoid taxes. It worked for a while then suddenly the rules changed. And they changed not just for the future, but retroactively.
What occurred to cause a rules change? It wasn't the law. It wasn't Apple's behavior. It became a story in the U.S. about how companies are getting away without paying their "fair share". The EC was the one that acted, and the only thing that makes sense to me is that the EC saw an opportunity and appointed a commission. Not arbitration, not a criminal or civil trial. A commission.
Quite frankly, this looks like a stick-up. Apple's a big company and can take care of itself. I really hope that the same kind of thing doesn't happen to mid-sized and smaller companies trying to eek it out in the EU. It's not just bad for the companies involved: it's bad for the reputation of the union as a whole. You can't keep changing the rules up if you're trying to tweak regulatory issues to promote long-term growth. Nobody with any sense is going to trust you.
What I am sure of is that anytime the company with the biggest market cap takes a hit like this? Ten thousand other companies are paying very close attention. Even if Apple took a gamble and lost, other folks have to ask themselves when it comes to regulatory issues in the EU, what kinds of gambles they are taking without even knowing it.
Of course, I simplified the story to make my general point. In the version with more details, Ireland even had their own investigation and worked everything out with Apple. But the EC decided that wasn't good enough.
It's really quite breathtaking. They had to pay 11 years of taxes. How many companies would be able to do that?
The article says that it will be paid back to Ireland, yet it looks like Ireland was somewhat complicit in allowing this fraud to continue for so long? ' Is this just how it works, money goes to Ireland, and then recovered by Europe?
The EU has now determined this was an illegal tax benefit provided by Ireland, so Ireland must now collect the tax as if it had done so at the time. There is no penalty but interest must be paid.
This is not your normal run of the mill tax avoidance case (or a fraud as you've mentioned) although it appears to look the same. This was Apple benefiting from decisions taken by Ireland that Ireland should not have made.
Edit: Maybe "fined" is not the correct term for this, but my understanding is that Ireland had granted Apple tax benefits which they shouldn't have granted. Isn't Ireland in the wrong here, rather than Apple?
The EU has now stepped in and clarified that Ireland should not have allowed this in the first place.
Would you feel that it is fair that you have to pay up, instead of the institution that wrongfully offered you tax refunds?
That said, I think Ireland owes the ECB money too, so they'll probably use that money to repay their debt?
EDIT: Corrected EU->ECB as pointed out below.
Even a patent troll could do better than Ireland...
Also, do you really think that Apple made only 50 million in Europe in 2014? What is it? A startup?
Also the income statement says: All numbers in thousands
So you need to add 000 to the end of those numbers
Regardless, that's their global financial accounting. It doesn't detail out the EU revenue/taxes in particular. The article linked discusses that specifically. That's where the 0.005% number comes from.
Find me those numbers, not those of the US parent company Apple, and you have an argument.
https://fred.stlouisfed.org/graph/fredgraph.png?g=6ThF
I wonder how much of that is due to tax avoidance, whether legal or "unexpectedly illegal" (as in Apple's case).
If governments around the world follow the lead of the EC, I would expect a noticeable decline in corporate profitability over the next five to 10 years.
Note: I just generated the plot above as a png at the St. Louis Fed's FRED website, and I don't know how long the image will remain available. To recreate it, plot the "Corporate Profits, Adjusted" series divided by the "Gross Domestic Product" series, using the same units for both series (e.g., nominal billions).
Excerpts from: http://www.washingtonpost.com/sf/business/wp/2016/08/13/2016...
Q: What do you say in response to Nobel economist Joseph Stiglitz’s comments on Bloomberg [television], where he called Apple’s profit reporting in Ireland a “fraud”?
Tim Cooks answer: I didn’t hear it. But if anybody said that, they don’t know what they’re talking about. [...]
Apple evaded taxes and consider it right :(
If people want companies to pay certain taxes, they should vote for politicians that pass laws that require companies to pay those taxes..
In any case, we should be taxing land value. That's harder to avoid: you can't hide land.
The EU treaty is Irish law as well and lawyers from all over the union (myself included) have been looking on at this blatant violation of EU rules for years wondering how long multinational companies would be able to keep the schemes alive.
The Irish people have voted for politicians who adopted the EU treaty which bans subsidies to large corporations. The Irish people benefits when subsidies to French, British or German corporations are curbed. Under EU law, Apple has been obliged to pay ordinary Irish taxes all along. The whole arrangement has clearly been illegal and it is hardly a surprise to Apple and its army of lawyers and accountants that sooner or later justice would catch up.
Competitors that cannot secure such individual tax agreements are hurt by this. I sincerely hope that other multinationals with similar schemes will be next.
Apple will likely bring this ruling before the European Court of Justice but it is very unlikely that they will succeed in changing the outcome. From a legal point of view this is a very simple matter and it is an embarrassment to the whole EU system that it took so long to do something about it and that other multinationals still enjoy tax subsidies in Ireland (and likely elsewhere in the union).
The EU has decided that all revenue income for that company should be charged in Ireland, although the US say they have also paid tax in the US.
Fundamentally Ireland is saying it did not give a "deal", the EU is saying it calculated the tax incorrectly and the US is saying that the EU's findings are based on no tax being paid elsewhere which was not the case.
As was also pointed oout, Ireland seems to be the scape-goat for all EU decisions. The Irish bail out has already been mentioned in this thread, but for those who are unaware of what happened here is a simple break down.
German companies bought binds in banks (like shares). When the banks started to fail, Germany told Ireland that the tax payer had to pay the bond holders all the investment money and the interest. However if the tax payer had purchased these bonds, they would have never received anything back. They also told Ireland that if they tried to burn the bond holders they would incur trade embargo's to stop Ireland trading in the common market (Ireland makes a loot of money from exports to Europe). So basically it was pay the bond holders or you will have no income.
Whether or not there is an agreement between Apple and Ireland or just an understanding that Ireland would not tax them on almost any income is irrelevant. The point of the matter is that the effect of the scheme has been that Apple has paid next to nothing in tax on all European profits in more than a decade, spanning from the sale of your first iPod to your newest iPhone. That income has been channeled through the Irish companies and Ireland has not taxed it with it's usual corporate tax (which, by the way is now merely 12.5 percent). It is appalling.
That's the crux of the overall matter, from a political point of view. Ireland benefits from the European market disproportionately more than the EU benefits from Ireland. This is why Ireland ends up being "a scapegoat" - because nobody is particularly happy about their status as the onshore tax-haven of choice for healthy US multinationals, so every time they end in a pickle, they have very few friends (and with Brexit, they effectively lost their biggest one).
Are you serious? Subsidies to German and French corporations were not curbed they were replaced by the ludicrous loans that the Germans and the French give out to the "poorer" and "less industrious" EU member states so they in term can go around and buy German goodies.
And when this Ponzi scheme blows up because of a financial crisis they force you to take on even more loans to pay back the debt you own all while preventing you from writing off debt or going bankrupt with threats of shutting off your banks because you do not control your own currency.
During the bailout term the EU/ECB adopted a far harder stance against the country than the IMF advocated.
And doubtless on the back of this case there will be a legal action in Europe and a resulting large fine on Ireland.
You just don't get the feeling that this sort of treatment would be given to Germany or France.
Yes. To the tune of €13bn.
At the scale Apple operates their legal team should be considering whether the deals they negotiate are legal in all the applicable jurisdictions, not just the local one. The Irish government should also have done a better job, so part of the blame lies with them, but that doesn't free Apple of all responsibility.
In any case, we should be taxing land value. That's harder to avoid: you can't hide land.
You can hide who owns it.
And then someone close the the Government leases back said land for 99-years with little to no actual "rent" money and you're back at step one of the problem.
How do you tax companies which rent their office/production space?
Isn't taxing land punishing companies planning for growth? It is not uncommon to buy/rent spaces which you don't need now but you know will be needed in the future?
How do you deal with real estate investors?
It just so happens that their job, as they understand it, is attracting multinational corporations by having much lower taxes than their neighbours.
Equal treatment of everyone is a critical aspect to prevent corruption and an unfair market. Selectively lowering taxation is illegal, and I don't find that wrong at all.
There definitely is now though and you can be sure legal teams around the world will be advising senior leadership teams to rearrange their corporate structures accordingly.
We should heavily penalise this, as AAPL literally stole money from both US and EU people. Because of this arrangement: Apple paid less taxes in US, hence US people have worse roads, healthcare etc. To the same in EU (but here by bad IE decision). Money taken is on AAPL accounts now.
Long story short: Apple promised IE to incorporate there, to do a lot of business through IE, to open job positions. In exchange they asked for low special tax. They also said: if no low tax for us, we will do all this things in different country.
Questions: 1. how far is this from extortion? Should we allow this? 2. did IE gov make a good decision (14mld is of lesser value than apple benefits given to IE) ? 3. why this was decided non publicly? 4. should we allow corpos to make such decisions (dodge taxes) ?
This is NOT extortion or bribery, just everyday business. It happens every single day even between US states, not to mention nation-states. Business is competitive and that's a good thing.
AAPL in this case has deferred taxes on profits with their structural arrangement, NOT avoided them. To call it theft is extremely ignorant of how taxes and governments work.
As you put it, it doesn't sound like extortion at all.
It sounds like a business negotiation.
Like negotiating for a place you want to rent or whatever. If they don't accept your terms, you take your business elsewhere.
Extortion necessitates an actual threat of harm.
"I'll take my business elsewhere" is not that, since Apple's business wasn't Ireland's in the first place.
And you are completely wrong to say that this decision resulted in Apple paying less taxes in the US. They paid less taxes in Ireland not the US.
Well you have US Govt now arguing on behalf of Apple, which suggests that US people were not going to be the losers.
The losers are people of other countries where Apple and other MNC's don't pay their fair share of taxes.
The plan is to hoard this money in low tax jurisdictions and I guess for 2 purposes 1. wait for a lower tax rate amnesty to be offered in US 2. use cash hoard to undertake overseas acquisitions to grow the US Company and by extension US influence.
Apple finds it better to take loans out in US for its cash needs there and write them off against US incomes inspite of sitting on more than 100b in cash reserves.
Apple's mechanism of theft: Create products that people want so badly they give Apple their money in exchange for products and services from Apple.
Don't conflate the US Government and the US People. The US people don't benefit from money given to the government.
Please see: Wars, bank bailouts, and "regulatory capture".
Having to pay back the taxes that were due is not a punishment, it's simply restitution.
Meanwhile the EU is not a tax collection body, it does not set tax policy and it does not issue tax rulings. It has no power to do this and I'm unaware of any countries that want it to have this power.
In my opinion it is highly unethical to construct such financial mechanisms with the only aim to reduce tax payments.
Of course, Apple and the Irish tax authorities dispute that and the case is going to court.
These companies buy up 1 person offices to use as PO Boxes. Land isn't representative of profits flowing through a place.
I'm not sure about US states (I would have thought they are considered sovereign member states of the Federation, but I haven't researched the issue), but the much less incorporated European Union certainly consists of "sovereign" states.
Or was it just a linguistic shortcut for "Ireland has submitted itself under treaties and laws of the European Union"?
"the Commission says both companies should have been taxed by Ireland on the basis of their worldwide income."
"These profits allocated to the 'head offices' were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force."
It seems it is not an Irish problem, but more a European one, and it appears that there are some technicalities that allow the EU to request Apple to pay taxes.
Let's not forget that regardless of Apple complying with local tax authorities, these laws may be against EU treaties... "[the Treaty] generally prohibits State aid unless it is justified by reasons of general economic development"1
Let's see how this pans out.
1: http://ec.europa.eu/competition/state_aid/overview/index_en....
But Apple used those cuts, sold products all over EU and then tried to pay (or actually not pay) their due taxes to all those EU countries where it did business back in Ireland.
Apple was not trying to use the Irish law, Apple was trying to use a loophole in EU that didn't actually existed and got caught.
This is already done, and depending on where you live it is quite expensive. It is also in addition to all of the other taxes someone is paying.
Would you also tax virtual property? I guess that would be things like domain names.
It is legal and not unprecedented to require additional payments for the past after a change of tax-law.
This isn't about fairness but instead so that other countries don't have to correct their spending issues and can inflict the same pain on their contemporaries.
Even in the US there are politicians who want to have all states implement similar taxation rules or penalize those who move one state to live in another. The absurdity of taxation rules never ceases to amaze me, let alone the punitive actions of politicians who go after people and groups who don't adhere to their rules.
Worse, the EU tends to think of beneficial tax polices to people and corporations as subsidies where in the US the government calls it a tax expenditure.
People need to wake up. Taxation view points are closely paralleled to privacy issues. Politicians and many left leaning groups think that all money belongs to government as do most rights. The same goes for privacy rules, in that many think you should have protection only from other individuals and private groups by government does not have to grant the same and in fact can decide how much you should keep.
That is most definitely not fraud. Fraud involves deliberate deception for unlawful gain, none of which are involved in tax shopping.
I don't think 'fraud' means what you think it does.
is the link to the EU press release that answers your question. Irish govt. tax deal is in violation of EU tax law and the EU recommend that the Irish govt. seek recompense to the tune of €13bn plus interest.
> The two tax rulings issued by Ireland concerned the internal allocation of these profits within Apple Sales International (rather than the wider set-up of Apple's sales operations in Europe). Specifically, they endorsed a split of the profits for tax purposes in Ireland: Under the agreed method, most profits were internally allocated away from Ireland to a "head office" within Apple Sales International. 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. Only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland. The remaining vast majority of profits were allocated to the "head office", where they remained untaxed. ...
Inforgraphic from same link, notice the text to the left in the red box.
http://ec.europa.eu/competition/publications/infographics/20...
TC's answer was about repatriating money, not about tax reporting in Ireland. I'm not sure why he chose to answer that question, but the reporter let him get away with answering a totally different question.
Apple followed the law. End of story. The issue is that the EU found that the law was illegal under state aid rules.
So it is AAPL's lawyers' fault, in the end. Hence, AAPL's.
This is another issue why I am strongly against the EU. You can find out that a country is behaving illegally when WRITING ITS OWN LAWS...
So you cannot even be sure to be abiding by the law if you obey a country's laws.
http://ec.europa.eu/internal_market/scoreboard/performance_b...
That can happen in every country which has a constitution.
That's true whenever you have international treaties. The WTO has plenty of clauses that go very close to disallowing this type of stuff in slightly different contexts. Same applies to the states within the US. They are bound by federal law in many ways.
When you can't write your own laws, and you don't get to elect who does, you're not really sovereign.
http://www.newsweek.com/brexit-eu-leave-democracy-immigratio...
I just fully disagree with using the term fraud to describe what happened.
The EU, did it go hard after VW? But when it comes to the small fry, rules is rules.
(There's lots of stuff that's not taxed. Eg not a lot of people complain about not taxing capital gains of home owner/occupiers.)
If you want to completely reform our taxation system, sure, whatever. But that doesn't impact Apple's liability under the current one.
Also, because this is a valid and consenting agreement between Apple and Ireland, two consenting adults.
People making profit isn't something we need to discourage.
How about taxing CO2 emissions and eg alcohol consumption instead? (Something we can live with less off.)
And the old classic: put most of the tax burden on unimproved land value. Land's supply is fixed, so there's no economic impact at all.
But fair point. And because the bigger players who can hire expensive accountants can always mask their profits, we shouldn't tax profits. It's too malleable. Hey, even VAT is a better tax.
The government gets revenue from taxes to provide services. If everyone were to do what Ireland is doing then goverments either have to raise money by increasing other taxes or reducing services.
Either way individuals and society lose. Nobody wins from this race to the bottom.
The bigger question is the presence of these convenient loopholes in the global financial system that benefit the wealthy and privileged but leave everyone else facing clear cut laws that cannot be evaded without serious consequences.
Questioning the legitimacy of taxes, or even society, and getting pedantic about laws in this context seems little more than a self serving tactic to avoid admitting this is obviously wrong. Especially when everyone else without exception is paying their fair share. Here is a better idea, pay your share and then start a debate about taxes and society if you want.
This stinks of ex post facto lawmaking in order to get money from a corporation, and it seems there are a few of us who object to that. I'm all for changing the laws in the present, but I consider ex post facto laws a far worse solution than the disease.
1. Foreign deductions are taxed based on the difference between the locale where the earnings are made and the locale the service/product is provided from. Where the sales division is located has no relevance to taxability, and deductions for sales costs are treated as any other internal service.
2. IP is enforced on the national level, and should not be eligible as a foreign deduction. Good-will also follows the local market.
3. Documentation should be provided that foreign costs are real, and that they are actually taxed. Tax agreements should be null and void if systematic abuse is uncovered.
The problem right now is that no company can compete against these cheats.
Personally, I think Ireland has scammed the rest of Europe for long enough by now.
Likewise, I wouldn't be surprised if a large part of India's competitiveness in asses-in-seats outsourcing is created by artificial tax rule phenomena - and various constructs to exploit these.
The initial implication is that Apple specially negotiated a lower tax rate for itself in Ireland. But if you read through the European Commission press release[1], it's not that a special rate was negotiated, but rather Apple Sales International (the Irish Subsidiary) only pays Irish income tax on the portion of its income that comes from within Ireland, which is correct according to Irish tax law. But there's nothing particularly special about this setup that applies only to Apple, and from what I can tell, any other corporation operating in Ireland could have also set up this arrangement and is subject to the same rules.
It doesn't make sense to me that the EU can compel Ireland to collect more taxes from Apple, if according to Irish tax law, they've already paid what they owe for Irish sales, and they don't owe taxes for non-Irish sales. Now, there is a separate question, which is can/should every other EU country go after Apple's local subsidiaries for failing to pay sufficient income tax in their own countries (by transferring the profits over to Ireland)? The answer to that is probably yes. If Apple sells an iPhone in Italy for a profit, it should pay Italian taxes on those profits, and should not be able to avoid Italian taxes by booking the profit in Ireland. This is touched upon in the press release:
> The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period. This could be the case if they consider, in view of the information revealed through the Commission’s investigation, that Apple's commercial risks, sales and other activities should have been recorded in their jurisdictions. This is because the taxable profits of Apple Sales International in Ireland would be reduced if profits were recorded and taxed in other countries instead of being recorded in Ireland.
It seems more logical to me to conclude that that Apple doesn't owe more taxes to Ireland, instead they owe more taxes to all the other countries in the world where they operate but have avoided taxes by transferring their profits into Ireland.
However on the other hand Ireland enticed many big companies to their country on the promise of lower tax. You can't blame Apple for taking advantage of such an offer. They followed the letter of the [Irish] law as far as I can tell (unless someone can correct me?).
I think this could end up being terrible for Ireland in the longer term. Then again perhaps the EU knows that they can't really go anywhere else now so will just have to put up with the new rates or not do business?
It is far from a cut and dry situation IMHO.
There's two separate issues. One, Ireland is cutting taxes far below the EU average to attract all companies they can. That's a dick move, but welcome to politics, it's fully legal. Two, Apple has received further tax breaks on top of that, reducing their tax rate from a crippling, communist 1% to an effective 0.005%. The European Commission found only the second deal to be illegal, and Apple just has to repay the tax difference to the regular Irish levels.
Ireland is still a tax haven, just slightly less unfairly advantageously to Apple.
Allowing people and their companies to keep more of their money while creating tons of jobs in a high unemployment country. What a dick move indeed. /s
Oh? Apple, Google and other US-based multinationals are owned by their European employees?
> creating tons of jobs in a high unemployment country
Less creating, more shifting them from other countries. It benefits Ireland at the expense of the rest of the Union.
They can keep the vast "majority" of the (read: "well paid") jobs in Cupertino with Stanford, UCBerkeley, CalTech, etc grads. All the while reaping the tax haven benefits abroad.[0]
[0] Found a better source, 6.5K employees in Ireland: http://www.independent.ie/business/irish/25pc-of-apples-euro... , with 1000 to be added by 2017.
Their center in Cork, Ireland is a distribution base, which is different than the product design, R&D, and development that goes on in America. Compared to the amount, in billions, of taxes avoided, the "Tons of jobs" grandparent is claiming doesn't seem to be true.
How much do you pay when you buy an iPhone?
How much do you think a business that gives iPhones to its employees pays per iPhone?
If they pay half of what you pay, per phone, is it unfair?
Sure. maybe there's a 50% spread between those price points.
But they still pay orders of magnitude more money to Apple than you do.
.00005% of $big_pile_of_money is a better deal to Ireland than 10% of $0, because Apple HQ'd elsewhere.
The Netherlands are naughty, too, due to a strange coincidence Ikea Germany has to pay fees of exactly its profits to Ikea Netherlands each year. I think the bigger countries should use their power to end this ruthlessly, since in the end also the smaller countries would benefit if the race to the bottom stops.
2. Ikea Netherlands has several offices and a lot of employees in Netherlands. They likely provide some services to Ikea Germany.
3. Licensing cost, may have profit component. E.g. I can sell you the franchise for restaurant which takes base cost + some % of your profits.
There are far more obvious tax loopholes that should be closed first, before worrying about taxation shifting between developed countries which taxes on roughly same scale.
Not for foundations [0]. This is not about some procentual differences, it is a big loophole in the Dutch tax code, Ikea benefits from.
I just want to point out something that is often neglected. EU Commission is basically a referee entity. It all starts with someone making a formal complaint about Apple or Google or Amazon and then they check into it. And in MOST cases the complainers are other US companies that feel that their complaints are being neglected in their own country(ex Yelp)
[1] http://www.oecd.org/ctp/consumption/revenue-statistics-and-c...
If I owned a small country on an island, I would be more than happy to allow Apple to imagine its profits were on my island and I would only charge $5M for the privilege. And I would be grateful for the $5M.
What would you do with your small island?
Perhaps Ireland should be punished (though the government is already arguing there is reputational damage), but you really cannot reasonable argue that Apple is not culpable.
I don't think you get the issue here, a company in the USA can't just come to EU and sell their products without paying taxes... much less a company from a non existing wannabe country.
What reasons would make you believe that?
What can Ireland/EU actually do? Apple is a bigger player in the world economy than Ireland.
Spot on. I'd also add:
3) English-speaking 4) Close ties to the UK
This has worked, but I wonder if the EU is going to cause another country to exit with this ruling?
Seriously, what does Ireland gain if it loses a ton a jobs due to this?
Then last of all, they are fooling themselves if they don't think EU based companies aren't receiving similar deals. This seems concentrated only on US based companies for the time being.
Finally consider this, countries which lowered their corporate rates found increases in wages and taxes. This includes Canada and Japan
AFAIK, Fiat isn't US based (http://www.wsj.com/articles/eu-rules-that-starbucks-fiat-ben... neither are FC Barcelona, Real Madrid, and several other Spanish football clubs (http://europa.eu/rapid/press-release_IP-16-2401_en.htm), or Amsterdam, Antwerp, and other ports (http://europa.eu/rapid/press-release_IP-16-124_en.htm)
Significantly lower amounts, yes, but certainly not "only on US based companies"
Taking it broader than tax rulings, many other examples exist.
Meanwhile, I read that both Ireland and Apple are going to appeal this ruling, so one can see this as a shot very close to the bow that doesn't make the ones shot at surrender.
I hope the result will be that the ruling that the deal is illegal will stand, with a smaller payback. Reasons? I think it is immoral that large companies can negotiate such deals, and applaud the EU for standing up against their pressure when smaller countries do not have the spine to do so, but do not think all blame lies with Apple.