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Comment by d_t_w | Hacker News Reader

A message to Apple from anyone who doesn't have rocks in their head:

You shift profits to avoid tax, don't play coy.

The era of tax being optional for multinationals is drawing to a close. You make your profit, you pay for access to the market, no exceptions.

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Of course they did (the loophole is now closed), but the point here is that this scheme was entirely legal. The EC is now saying that even though it was legal, they owe the tax anyways. That is not how things should work in a system based on the rule of law and fairness.

Imagine for a moment that your own government raised your personal tax rate and said that since they felt the previous tax rate was too low, you also owe taxes from the past.

"Member states cannot give tax benefits to selected companies - this is __illegal__ under EU state aid rules," the commissioner said.

"The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years."

http://www.rte.ie/news/2016/0830/812819-apple-tax-ireland/

It seems hard to believe that Apple was receiving special treatment when practically every MNC has been using this very same loophole. But at this point it is he said/she said. This loophole is now closed, so the EC pursuing this feels more vindictive than anything (especially since the EU has had it out for US tech companies for awhile now).

It's likely that Google, Facebook, Ikea, et al. will receive similar consequences in the near future. Apple is just the first to receive a slap in the wrists. Hopefully this will reach beyond Ireland and similar investigations will be done in Netherlands and Luxemburg.

A lot of Europeans (me included) are not at all happy to see massively profitable companies operating in Europe without paying practically any taxes. This makes it impossible for European companies to compete with them and I'm very glad the authorities are looking to level the playing field and bring in some tax revenue while doing so.

It seems Amazon[1], Starbucks[2] and Fiat[3] are being investigated in Luxembourg and the Netherlands. So, Apple is not the only one, yet.

[1] http://www.bbc.co.uk/news/business-30844962

[2] http://ec.europa.eu/competition/elojade/isef/case_details.cf...

[3] http://ec.europa.eu/competition/elojade/isef/case_details.cf...

EDIT: Formatting

I am a Luxembourger and I fully agree that the EU must close these kinds of tax loop holes. In the past my country made a little money out of these tax loop holes, this was immoral money that my country did not even need. Doing this, other European countries lost a lot of tax income. The only ones winning big time in scheme were the international companies abusing the EU and its people.

Just out of curiosity, why would tax competition be considered bad? It is generally accepted that monopolies and cartels are bad for the free market, but when it comes to governments and the services they provide, we're completely OK with tax cartels. These EU and OECD tax agreements basically amount to a tax cartel, where governments agree they'll fix their tax rate regardless of the infrastructure and level of services they provide...

> Just out of curiosity, why would tax competition be considered bad?

In the European union, where funds are easily transferred between subsidiaries in different countries, tax competition by individual member states can have particularly harmful effects on the public economy as a whole.

In a typical multinational corp tax avoidance scheme, a coproration has a subsidiary A in e.g. Ireland and has a very small corporate tax rate on profits. Then another country, e.g. Netherlands gives subsidiary B a tax break on some commodity, typically an IP licensing scheme of some kind.

Subsidiary A licenses some IP from B, and the licensing fees are conveninently 100% of the profits of A, so they're not making a profit in Ireland and don't have to pay tax there. Subsidiary B gets all their profits from IP licensing that pays hardly any tax in the Netherlands.

Add a few subsiriaries and loan arrangements between them (free movement of capital in Europe is one of the fundamental pillars of the EU), and no taxes get paid and all of the profits get funneled into a tax haven such as Bahamas or Caymans.

So while you'd think that tax competition would just be a fair competition when talking about individual countries, at EU scale it ends up being a race to the bottom where a few select countries (Ireland, Netherlands, Luxemburg) get a nominal fee from the multinationals but all European states end up losing billions in tax revenue.

And then there's also the corruption aspect. These tax deals aren't a gesture of goodwill.

> Just out of curiosity, why would tax competition be considered bad?

This is not about tax competition, this is about abusing tax loop holes and trying to avoid paying any tax at all. E.g. before 2015 Amazon declared their entire European income in Luxembourg and payed about 1 percent of tax on that money. This way other (much bigger) European countries like Germany and France lost billions.

You can't have tax competition and freedom of movement of companies, goods and capital. It's the tradeoff in the EU for removing all protective internal tariffs.

(The US avoids much inter-state tax competition through federal taxes)

The US has tons of inter-state tax competition; federal taxes just comprise the base rate, not the total taxation rate. State governments fall all over themselves to offer special incentives for companies to come in. Or stay, in some cases - a local employer has been here almost 80 years, yet the state and local governments still feel they need a massive multimillion dollar tax break or they'll pick up and leave.

It is bad because it decorrelates the country you make a profit out of from the country you pay taxes on this profit.

The people paying for your product are able to buy it because they live in a country that provides for them, through added value, jobs, health care, infrastructure and so on. If you want to profit from these people's buying power, then you have to conform to that country's rules of business, that's all.

Apple is very happy to make huge sells of iPhones thoughout France, Germany, Italy and such countries, siphoning money from their people to Ireland, without ever contributing as much into the local economy. They employ a few hundred people in Apple stores and hotlines, but compared to their profit it is just ridiculous.

Is that really the case? Apple operates in Ireland and it pays taxes there based on a certain competitive rate it has. If Apple sells phones in certain countries, it has a network of suppliers there and it pays taxes on their business operations there. It seems that you're making the argument that the phones have to be produced in every country where they're sold in order to eliminate trade deficits (the so-called decorrelation of profits and taxes that would result from the importing of a product). But the only way for the other countries to get that tax revenue would be to be competitive enough (through competitive tax rates, availability of talent, infrastructure, legal system, etc.), so that Apple would be incentivized to open offices and move their R&D and pay taxes there. It seems you're arguing that these other countries shouldn't have to compete on these criteria, but should somehow be entitled to that tax revenue or at least to protectionist measures that would make sure that Apple has no incentive to go anywhere else, purely based on the fact that willing buyers purchase Apple's products there. I'm not sure that's a very strong argument because it basically amounts to saying that if you don't force Apple to give some form of a discount to these buyers, they won't be able to buy the product in the future...

The thing about transfer pricing is that it makes the "location where value is created" completely arbitary. It's not where the R&D is done, it's where the shell company that holds the patents is registered.

Apple subsidiaries in random countries selling phones don't pay taxes because they don't make any profit. They don't make any profit because they're "charged" an amount for the phones (and IP, branding etc) that exactly equals the sales.

"decorrelates the country you make a profit out of from the country you pay taxes on this profit": taxes are due where value creation took place. That's called a rule. The EU decided the rule should be changed after the fact, retroactively.

"people paying for your product are able to buy it because they live in a country that provides for them": wow... really? I know governments love considering people's money as theirs, people's lives as theirs, but that's a bit far stretched maybe? I'm not any country's liability. I'm a free man in a free society. Aren't you?

"Without the Glorious State, you wouldn't have had any consumers to make you wealthy!"

Here's a business producing commerce-enabling technology in an extremely valuable manner, hence the profit. Consumers exchanged their earned, post-tax savings for those things and paid additional tax along the way. To act like governments were short-changed is preposterous. It's "you didn't build that" taken to the extreme, and borderline extortion.

Because cartels means something specific to a group of market players and tax means something specific to a nation state.

The two are vastly different, and the first is tolerated only by the latter because it's the best way we know to bring order and organization to trade.

"In the past"

In the past?

This is ongoing - enabled by Junker himself ...

> This is ongoing - enabled by Junker himself ...

No, it is not. Before 2015 many companies (one prominent example being Amazon) declared their entire European income in Luxembourg and payed about 1 percent tax on that money. This tax loop hole has since been closed by the EU, Luxembourg lost about 10 percent of its budget because of this. Today when somebody from e.g. Germany buys a product from Amazon.de, Amazon pays tax in Germany for this product.

This isn't only ongoing, this is by design, and being actively pushed further, because in the EU if you are by definition an equal opportunity tax haven like Luxemburg you are golden.

Luxembourg is like the delaware of Europe, it's a banking and financial institution state and both its own laws and the EU laws and policies it lobbies (and when you effectively are not only Delaware but also the DC of the EU it kinda helps) for ensure that it would continue to operate as one.

The bad thing that Ireland and is a big no-no in the EU is to go to the likes of apple and say:

Hai Apple I really want you inside of me! I know I'm small, and I don't have a huge workforce and internal market, I'm not like Germany. I also don't have a huge economic and financial infrastructure like Luxembourg, Switzerland or UK (London) but I'm a really hard worker! Tell me what skills you need, and I'll educate my people, I'll give you low interest loans to build your shiny offices and I will give you tax deduction if you employ my peeps. I would do all that I can to make sure it will be easy for you to operate here because I really don't have much to offer and I need to compete with the bigger countries since the euro is expensive and the price stability is managed by the ECB and my people need to eat and loans I've been taking on are becoming harder and harder to pay.

Now this is the only way that Ireland can really attract large corporations and make it more lucrative to invest in its industry, this is what effectively every country on the planet does when it wants to grow. And since Ireland can't control it's own monetary policy and currency it also can't just be a cheap place to be, while there is some local variation because of the mandate of the ECB to control the price stability within the Eurozone the prices of many goods and services are quite similar (Ireland is actually more expensive than Germany because it's an island which increases the costs of logistics and it has lower production which means more imports which add costs even if they import within the EU) it needs boost its economy in order to match the salary level of the other Eurozone states and to do it it needs to offer something to corporations.

It can't offer them a huge workforce because it doesn't have one, It can't offer them access to financial and banking infrastructure because it doesn't have that either, what it can offer is English, fund both academic and vocational education and training based on the skills those companies need and give them tax incentives to come and employ Irish people. Ireland isn't Luxembourg Apple didn't set up effectively a "shell" there that's pretty much there for easy tax loopholes and actually employes no one, Apple employees directly over 6000 people in Ireland and indirectly 4-5K more, same goes for Microsoft, Google, Facebook, Amazon and the likes. This isn't some tax break Island that those companies incorporate in by name only and don't actually have staff, companies have "real" employees in Ireland because the Irish "incentives" are tied to direct employment. Ireland isn't trying to create tax loopholes to make a quick buck to split it between a few 100's residents, it tries to keep it's 5M people employed, forcing them to play by the "same rules" as 4 of the world's 10 largest economies is asinine.

"Luxembourg is like the delaware of Europe,"

But most taxes in the US are Federal.

In Europe they are effectively 'state level' - making the problem worse for Europe than for state-by-state tax competition in the US.

Re: your Ireland comment - yes - I see your point, but the issue here is not Ireland having a 'lower tax rate' of 12.5% - rather than they allowed Apple to have 'special privileges' thereby paying next to nothing, right?

> But most taxes in the US are Federal.

Are you sure about that?

It's going to depend very much on where you are, how you're organized, what tax breaks you get, and how much money you make, but states generally have both a) many different kinds of tax: income tax, property tax, sales tax and b) a cumulative higher tax rate. A much higher proportion of my money personally goes to the state than it does to the feds.

In Europe, there are no 'Federal' taxes i.e. at the European level. All taxes are to the 'State'. So it doesn't matter if my analogy is a little bit off.

I am not sure I understand why it makes a difference. If the baseline (federal taxes) are the same everywhere, it's just the same as if there were no federal taxes. States compete and offer special tax breaks on a state level; that's the same situation we had here in Europe, except that the federal government, unlike the EU, doesn't seem to care if states offer a company crazy tax breaks, subsidies, or loans, even if said breaks are a special deal for that company alone.

There are no 'Federal Taxes' in Europe. Corporations don't pay a corporate tax at the European level - just to the states. So there is tax competition.

Right...but the existence of a federal tax is irrelevant; there is still tons of tax competition because the states assess their own taxes. The federal tax rate, from the competitive perspective, is irrelevant because everyone pays it. But every state has different taxes and they compete with each other to give the biggest tax breaks.

For for example you might have:

State A: State income tax: 5% Property tax: 5% Sales tax: 5%

State B: State income tax: 6% Property tax: 6% Sales tax: 5%

Yes, everyone in both State A and B pay, let's say, a federal 7% income tax and payroll taxes. But the state taxes make a huge difference. State says to Wal-Corp - build a store here and you'll be exempt from property taxes and sales tax for 5 years, and we'll give you a special state income tax credit that reduces it to 3%. That's the kind of deal making we have going on with states, except the federal government doesn't intervene to stop it like the EU did here.

Also the EU budget is tiny relative to states, around 1% of GDP.

It was more of a humorous remark, Delaware is more about the laws and courts that govern corporations rather than a simple tax break.

http://www.newsworks.org/index.php/local/brandywine-to-broad...

From the EC's press release:

> Since June 2013, the Commission has been investigating the tax ruling practices of Member States. It extended this information inquiry to all Member States in December 2014. In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. In January 2016, the Commission concluded that selective tax advantages granted by Belgium to least 35 multinationals, mainly from the EU, under its "excess profit" tax scheme are illegal under EU state aid rules. The Commission also has two ongoing in-depth investigations into concerns that tax rulings may give rise to state aid issues in Luxembourg, as regards Amazon and McDonald's.

You do understand it's a two way street? There is a trade imbalance between EU and US aprox 30% in favor of EU. If your point of view prevails EU will loose tax revenue and US will gain tax revenue :).

The bigger problem is that it's a two way street within the EU.

The "smaller" economies have to give incentive to large corporations so they could set up shop. Ireland did it with various incentives, Poland, Estonia and the likes are also doing it with others.

Ireland is in the Eurozone so they can't set up their own monetary policy so they can't offer much in terms of favorable interest and conversion rates to large corporations.

If they can't offer tax incentives companies would be less inclined to set up shop in Ireland if their operating costs would be similar to those in Germany or France. English gives Ireland some advantage but it's not nearly as big as people think, the culture in Germany or France is close enough and you can train people to speak English and with the shared market even import a few 1000's Irish to man the phones.

Apple and the other big guys set up their shop in Ireland because the Irish government gave out huge incentive both direct and indirect it provided funding for training and education for its residents to meet the specific requirements that companies like Apple, Google, and Facebook had. It provided financing, loans and tax breaks to those companies to come in and employ Irish workers and it did it because it's the only way it could compete with the likes of Germany.

Tax loopholes are bad, laws that prevent smaller countries from being competitive are even worse, an equal playing field works when the players are equal, when they aren't "equality" is only advantageous to the strong and established players.

How is that? Does US has sweetheart deals with EU companies? I highly doubt.

Of course it does. Volkswagen has gotten hundreds of millions of dollars worth of incentives from the state of Tennessee for its Chattanooga plant, for example.

http://www.timesfreepress.com/news/business/aroundregion/sto...

I think it's a bit different because it looks like an investment from the government(i.e. public-private partnerships) not a tax break.

"Combined with other property tax breaks, TVA incentives, road projects and other potential tax credits, Volkswagen could qualify for more than $300 million of grants"

what is different about this?

Indeed that's the case though I can't say that I agree with them. The main reason is because these 'special' deals stifle competition and I think that's what the EC rule is all about. I guess it's legal in the US but that doesn't make it "right"(at least in the EU) so I don't mind if the US would tax EU companies more. It would be a win-win for the most of the citizens(EU and US).

It would be Net loss for EU.

I think it would be a win for ordinary citizens(both EU and US) and perhaps each individual state too(unless you consider tax a bad thing) because the taxes help the governments to develop the infrastructure(i.e. schools, logistics etc) thus they can create more value.

I have doubts that these MNCs help the society that much to be eligible for these tax breaks. They are not charities... The loss for the EU as a economic partner is negligible.

> A lot of Europeans (me included) are not at all happy to see massively profitable companies operating in Europe without paying practically any taxes.

From the letter, it seems Apple thinks it should be paying taxes in California rather than were the profits are coming from (the EU). Excepts from the letter: "In Apple’s case, nearly all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States."

The second half of the sentence seems to be a non-sequitur, or intentional misdirection -nothing about it follows from the first half.

I think they should be paying taxes in California too. Seems they would rather not.

http://www.nytimes.com/2012/04/29/business/apples-tax-strate...

Current EU president, Jean Claude Juncker, was the architect of much of the corporate tax avoidance scams for those very same companies, e.g. Amazon

http://www.dailymail.co.uk/news/article-3688861/Jean-Claude-...

You are right, except that Juncker is not the current, but the former EU president.

He has been president since 1 November 2014 and the presidency is in 5 year terms.

https://en.wikipedia.org/wiki/President_of_the_European_Comm...

Agree, we should take them all down.

The EU has been pursuing companies, including domestically based ones, under "illegal state aid" rules for years. Why should US tech companies get special dispensation to avoid repaying state aid ruled illegal that the likes of Real Madrid and Estonian Air (which went bankrupt when faced with the repayments) didn't?

"especially since the EU has had it out for US tech companies for awhile now"

Sorry but this is typical American FUD, European companies are scrutinised on the same terms and when breaking the law or dodging stuff are getting (high) fines as well.

It is not Europe's fault that this kind of news doesn't find its way in the US... .

Bullshit. Yes, all MNCs are dodging taxes where they can, but it's not like their finances are so easy that all you need is One Weird Trick and poof!, gone are the taxes. One of the multitude of measures Apple (and apparently nobody else) used was found illegal. The rest aren't, and Ireland is still a tax haven compared to the rest of Europe.

> It seems hard to believe that Apple was receiving special treatment when practically every MNC has been using this very same loophole.

Right. MNC have, but local companies had no way to do that. That's the crux of the issue. In fact, some people started an inquiry how to replicate that scheme.

Fine, but then shouldn't Ireland pay the European Commission a fine or something? It seems unreasonable to make Apple retroactively pay.

Apple innocently, and unknowingly, buy a stolen and ringed car. A chance check reveals the car to be stolen - Apple lose the car regardless of them believing it legitimate.

Apple innocently, and unknowingly[1], accept an illegal tax benefit. Apple lose the benefit of the illegal activity.

What's the difference? Caveat Emptor for both. Even if you want to consider them the innocent victim they don't get to keep the benefit of a crime.

[1] I'm less convinced it's unknowing here - Apple probably have a surfeit of international taxation experts and lawyers.

From what I'm reading the comparison seems more like after finding out that a person innocently, and unknowingly, borrowed a stolen car that not only are they losing use of the car, they are being forced to buy the car that they won't keep as well.

Losing the benefit, sure. Paying back taxes that don't exist nor asked for? There's a problem in there somewhere.

If you want to know what Apple is accused of actually doing, there are better places to find out than a press release from Tim Cook http://europa.eu/rapid/press-release_IP-16-2923_en.htm

A better analogy would be finding that someone deliberately and knowingly claim mileage expenses at an absurdly high cost per mile in lieu of a larger annual bonus after discussing tax efficient solutions with HR. Would they face a revised tax bill for past years and be expected to stop overclaiming for future years if an authority with more standing than their employer got involved? Of course. Does Apple's team of tax law specialists have more understanding of the potential for such a scheme to be ruled illegal than the average employee? Of course.

    they are being forced to buy the car that they won't keep as well.

So Apple is being forced to buy Ireland? No.

Following your borrowed car analogy, Apple finds a gas card in the glove box on the first day and uses the car every day for 4 years and uses the gas card. When it's discovered that the borrowed car is stolen and the gas card wasn't Ireland's, who has to pay the gas card off?

>> So Apple is being forced to buy Ireland? No.

Come on, really?

> innocently, and unknowingly

lol

How was Apple supposed to know that Ireland's tax legislation was going to be retrospectively upturned by the EU?

Should Tesla be worried that the United States Federal Government might deem Nevada's special tax deal invalid?

This is what lawyers do. Apple has tax lawyers.

Want to know how you can tell this didn't happen to Apple innocently and unknowingly? If they were actually innocent and unknowing they'd certainly say so, and make a coherent legal argument to back up that point of view.

The post we're all commenting on has some bullshit black and white pictures and stories about shit that happened in Cork Ireland in 1980 and Steve Jobs feelings and whatnot.

Q.E.D.

Maybe they should have asked the EU? If a deal looks to be good to be true it might not be true. If you buy a stolen car from some shaddy guy for much less then it is actual worth it is also your fault.

Did you get the okay from Obama and the Supreme Court when you purchased that smartphone from South Korea? I heard maybe they'll decide next year to retrospectively ban all goods from the peninsula.

Yes, what you said is that ridiculous.

Your analogy fails as it's an irrelevant reference, we're talking about taxes here, not every possible law that could ever exist.

If you want to get an opinion from the US Federal Government on how to account for a transaction for tax purposes there is in fact a procedure for that: https://en.wikipedia.org/wiki/Private_letter_ruling

One in the business of importing phones from another country who has questions about competing taxation and tariff rules has many options for getting guidance on the implications of their accounting.

And nothing that happened in this matter was shocking or surprising to Apple. They have elaborate tax avoidance schemes. For example, they didn't like trip and fall and land on a convoluted Double Irish arrangement by accident: https://en.wikipedia.org/wiki/Double_Irish_arrangement

[The following reply doesn't make any sense anymore as the parent did retroactively change his reply.]

It depends who do you mean with everyone? In this case the only party which should have been asked would have been the EU, which doesn't sound mad at all in my opinion.

> Should Tesla be worried that the United States Federal Government might deem Nevada's special tax deal invalid?

Hell yes, they better have a plan should that happen.

In the first case you mentioned, you can absolutely sue the person who sold you a stolen car for your money back. In this case doesn't it follow that Apple could sue Ireland?

In my humble EU citizen's opinion, they certainly should be allowed to.

Once they pay their 14B in taxes.

You can't benefit from someone else doing something illegal and keep your benefits. One of the principles of Western law.

Here are a few more principles of Western Law for you. Statute of Limitations. Ex Post Facto.

If this tax activity was illegal, why wasn't it stopped 25 years ago, when it started?

"Ex Post Facto"

It was illegal all the way, only Apple wants to make it legal.

"why wasn't it stopped 25 years ago, when it started?"

If murdering is illegal, why wasn't it stopped 5000 years ago? Don't know. People do illegal things all the time, most people doing illegal things do not get prosecuted for various reasons, fashion, society, not enough prosecutors.

The argument "I was not prosecuted some years, so it was not illegal" doesn't work with any court.

"Statutes of limitations"

I don't know the time frames and for what time frame Apple needs to pay fines. Could you share the time frames where you think Apple got illegally fined?

I'm no expert in tax law but would assume, here in Germany, there is no "Statutes of limitations" for taxes. Countries lose all their humor when it's about taxes.

> The argument "I was not prosecuted some years, so it was not illegal" doesn't work with any court.

That's exactly how it works. Look up statute of limitations.

Most civil violations have stringent limits.

> I'm no expert in tax law but would assume, here in Germany, there is no "Statutes of limitations" for taxes. Countries lose all their humor when it's about taxes.

I didn't know German law applied in Ireland. Perhaps that's the entire point of the EU, I don't know.

Anyway, Ireland explicitly says that nothing is owed. Maybe you should read a bit more about this issue before commenting?

So it seems to me that the Irish government should be punished, not Apple. Apple did nothing illegal.

Apple was part of a illegal deal. Does it ring any bells?

"Member states cannot give tax benefits to selected companies - this is __illegal__ under EU state aid rules,"

Yeah - but this arrangement has been going on for more than 20 years, no?

A little late in the game to be declaring it 'illegal'?

I'm not against the ruling, but it's clear that the EU is messed up.

Make no mistake - the only reason Apple was under investigation is because they were making so much money.

This thing should have been brought up the moment it was implemented.

Also - the EU is structured to incent governments to screw other governments by creating crazy tax schemes.

You know who spearheaded this? Jean-Claude Junker - the same guy who spent 10 years developing tax avoidance schemes for Luxembourg!

They gave tax benefits they weren't actually (legally) able to give. So those benefits are entirely void and never existed to begin with.

IMO they should be able to sue the agency (or agency's employees) that supposedly granted them the tax benefits for damages because they misrepresented the actual tax situation, but they still owe the unpaid taxes and have to pay them back.

Not knowing the law doesn't protect you from breaking it. In this case, they're not even being punished -- the $$ owed aren't a fine, just the taxes (and interest) they should have paid to begin with.

This is similar to buying stolen goods: sure, you may not actually have known they were stolen, so you might not be directly punished, but you still don't legally own the goods (even though you paid for them) so they will be confiscated and returned to their rightful owners. You can sue the seller for damages, but the state is under no obligation to reimburse you for handing over "your property" (because it isn't).

It is not as though Apple knocked on the door and were welcomed in with tea and cake. This deal (these deals?) were the result of much planning and lobbying by Apple.

And you're right, it's not a punishment, just asking them to pay what was owed. If you owe the taxman £20000, it's a big problem for you. If you owe the taxman £13,000,000,000, then it's definitely a problem for the taxman :)

As a concrete example: German celebrity and football manager Hoeneß was found to have withheld about € 30 million in taxes. He was charged with tax evasion and punished with a prison sentence of 5 years and six months but no additional fine.

He did eventually pay back the entire amount (plus interest) but he was released from prison after having spent only roughly half his sentence (which actually didn't confine him to prison for his entire "stay" anyway).

> The EC is now saying that even though it was legal

You are wrong. From EC statement: Ireland gave ILLEGAL tax benefits to Apple worth up to €13 billion [1]

[1] http://europa.eu/rapid/press-release_IP-16-2923_en.htm

Then Ireland should be paying the bill... It's like punishing a student for having a hall pass a teacher admitted writing.

There was a discussion yesterday about this on HN. It's pretty much a corporations responsibility to try to avoid as much tax legally as it can. In this case, Ireland gave them LEGAL tax break (at least that was what the Irish believed at the time) and now Apple is getting blamed..?

It just doesn't make sense, put the blame where the blame is due.

> Then Ireland should be paying the bill.

There's certainly some merit to that argument.

> It's pretty much a corporations responsibility to try to avoid as much tax legally as it can.

That's a popular falsehood. It is a corporation's responsibility to fulfill the wishes of its shareholders. That doesn't even necessarily mean maximizing profits, and it certainly doesn't mean avoiding taxes to a degree that incurs both legal and reputational risk. If the shareholders want the company to act as a mature and respectable person would, then the corporation's duty is to do so.

Its not even close to a falsehood...

Unless Apple's a benefit corporation, it's only responsiblity to share holders is long and short term profit. I distinguish between the two to make the point that it shouldn't break laws or go out if business because that hurts long term profits, it also should avoid taxes it can, and pay all taxes it can't avoid to maximize short term profits, and minimize longer term tax penalties.

You're simply wrong, in a way that only a person who has never cracked open a book on corporate law or history could be. Profit is not, and never has been, the only duty of a corporation. Corporations routinely forego opportunities to maximize profit, even in ways they believe they could get away with, for the sake of safety or social/environmental responsibility or even crazier reasons (e.g. faux religious freedom). Activist shareholders of the Trump/Shkreli variety might try to sue for that, but their record of success is spotty at best because the people who are actually in the courtroom have a more mature understanding.

Ugh, it's kind of ironic you bring this up, because I'm actually pretty familiar with corporate law... I'm particularly well versed in taxes, as well as wealth management.

Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919)

> A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes.

Although, there are examples where a court did recognize that helping employees will maximize profit, or not putting up bright lights next to a neighborhood is "moral". All of the decisions had to relate back to helping the shareholders. Most courts in the U.S. view shareholder profit as the #1 responsibility of the board of directors, others argue public safety might be #1, profits #2.

All of them agree that the primary purpose is to make/maximize profits, without which you can do nothing.

The primary purpose is to make/maximize profits because that's what the shareholders want, not as an essential part of being a corporation. Instead of trying to explain concepts like "duty of care" and "duty of loyalty" and "business judgment" further myself, I'll just leave that to someone better qualified.

https://medium.com/bull-market/there-is-no-effective-fiducia...

Perhaps it's more like punishing a student for cheating in an exam with a cheat sheet that some teacher wrote.

No it's like the teacher told them the answers, then said "HAHA, caught you cheating"

Then lets sanction all murders by state in Syria, because they are only murdering traitors and terrorists so it's LEGAL also because they say so. There is something like international law in case of Syria and there is something like EU law for member countries. While being a member of EU you have access to whole EU market. So no, what they did was ILLEGAL. Apple exactly knew what they were doing and knew it was against EU law, they only thought they will get away with it.

IIRC, they will pay the bill in the form that they will collect Apple's money to help pay part of the national debt.

Ireland will probably not see a penny from it.

Got a source from Bloomberg[1]:

    The government maintains that even if it were to take the
    cash, European rules mean it would have to use the money
    to pay down some of its 180 billion euros of national debt 
    rather than fund spending.

[1] http://www.bloomberg.com/news/articles/2016-08-30/why-irelan...

In the UK they did exactly this: http://www.lawandtax-news.com/asp/UK_Court_Allows_HMRC_To_Im...

If you evade tax, you know full well what you are doing, even if it's technically legal you should expect to be retrospectively taxed, especially if you are exploiting the system to such an extreme.

LOL. There's no "even if it's technically legal". It's legal or it's not. The police aren't going to let you go from something because you were only "technically breaking the law."

It's possible to for something to be technically legal according to the letter of the law, but still be breaking the spirit of the law and consequently considered illegal by some.

https://en.wikipedia.org/wiki/Letter_and_spirit_of_the_law

I see you're a fan of Ethereum!

Oh wait, actually even the people who wrote a system for unchangeable, code-backed legal documents don't believe in the letter of the law.

The entire argument against "retroactive" corrections sounds a lot like "you can't punish us because we've been doing this for a really long time and getting away with it until now".

the entire argument is that you can not apply laws retroactively.

It's not retroactive! The law was not passed today! It was there from the beginning. It's just that Apple didn't care until today when they were told to pay. So suddenly they don't want to pay what they own because the 'didn't know' so they call this "retroactive" even if it's very much not retroactive at all.

So you're saying, if I rob you today and you don't get around to reporting the crime until next year, I should walk free?

There are actually limits to how far back the dodged taxes can be collected. That's why it's only $13bn. That's what has been due since 2003. This entire thing actually goes back since the 1990s.

Also, we're not even talking about criminal charges or fines here. Apple isn't being sued or facing any punishment. The EC has merely ruled that Apple didn't pay all the taxes it legally owed Ireland and Ireland didn't have the authority to allow them not to pay the taxes in the first place.

This is akin to a janitor charged with collecting rent for the landlord telling you for years that it's okay for you to pay pennies to live in your mansion until the landlord finds out about it and now demands you pay the $$$ you owe him because the janitor was never legally in a position to make that kind of deal and you're actually a highly paid expert in rental contracts and were fully aware of the deal having no legal basis to begin with.

This decision can't have been a surprise to Apple. Seeing this kind of thing coming is what they pay very expensive legal experts for. They knew EU law overruled the Irish laws that supposedly allowed this deal in the first place. They're only crying foul because they were caught.

My reading of the ruling is that the EU are saying that it's always been illegal under EU law, but that the Irish government had pretended that it wasn't.

What it looks like they are trying to do is apply a legally compliant level of taxes retroactively, not laws.

But you can, because the tax breaks we unlawful this whole time! That is the entire point. If I break into a warehouse and steal a TV every day for years can I just argue "ok I'll stop but you can't punish me because you can't apply the law retroactively"?

That's a broken argument since what they are stating is that a higher law was broken. It's also not always the case that laws do not apply retroactively:

https://en.wikipedia.org/wiki/Ex_post_facto_law

We should apply this to murder as well.

(Yeah, I know you're saying it was legal under Irish law, but the whole point is that some Irish laws take precedence over others. In this case, their treaty obligations to the EU, codified in their laws, take precedence. If this wasn't the case there wouldn't even be a court case, much less a judgement.)

> the entire argument is that you can not apply laws retroactively.

That only applies to new laws.

which is not the case here.

They didn't evade taxes, they avoided them.

There's a big difference. The latter is legal, the former is not.

Apple did not do anything wrong from what I can see: they were given a good deal, they took it. It turns out that deal was illegal so they have to pay some money to rectify the error.

Doesn't seem very fair but governments are pretty unforgiving when it comes to taxes overall.

How very sad, another erosion of fundamental common law principles in the UK. In the last couple of decades, the UK has abolished the right to remain silent, the right to a public trial by jury, the protection against double jeopardy, the writ of habeas corpus, and the lack of ex post facto laws. Freedom of speech has become very qualified as well, with bans on various forms of "hate speech", and the freedom of assembly has also been seriously curtailed.

"In the UK"??? Check your geography.

but the point here is that this scheme was entirely legal

Yes and no - the EC's argument makes a bit more sense imo: Yes, it was legal in the sense that Apple broke no irish tax laws. But the tax laws themselves have violated some higher-level EU laws that Ireland had pledged to obey - at least that's how the EC sees it.

Perhaps a more fitting (but still horrible) analogy were if you make an employment contract far below mandatory minimum wage. Neither you nor your employer is violating the contract and both of you might be perfectly happy with the conditions - but your contract might stil cause disadvantages to third parties (other workers) and might violate state laws.

Right, and in that case the worker would not be punished for the illegal activities of the employer.

In this analogy the worker is Ireland and the employer Apple. The analogy would be that the worker must now receive, and the employer now pay, the difference between the contract and the minimum wage. Just like Apple must now pay and Ireland now receive the extra tax.

I require extra explanation. Are you saying that Apple wrote Ireland's tax laws that have been deemed improper?

Ireland gave Apple tax breaks that were not theirs to give. Just as a worker can't give a break to an employer and work for less than minimum wage (even if they want to, and even if they wrote the contract!). The ruling was effectively saying "Apple does actually owe those taxes to Ireland, even if they were willing to forgo them, since it is against EU rules for Ireland to give tax breaks of that nature." It actually is reasonably equivalent to a court declaring a company needs to give backpay to a worker to make their wages equivalent to minimum wage, even if the worker doesn't want the money.

Ok, assuming the original poster agrees, I see the point now. Thanks.

I had the roles the other way around, but that was still exactly the point I was trying to make. So yes.

According to press release, the scheme could be legal according to some Irish laws, but it violated EU law, which also applies to Ireland as a member of treaty. If government of Ireland didn't take EU law in account when applied tax rulings, that doesn't mean it was acting legally. So it more looks like the tax office lost your tax declaration and you decided you have your own personal tax rate of 0. No surprise, when the declaration will be found you'll be charged.

> The EC is now saying that even though it was legal, they owe the tax anyways.

As far as I understand, the EU is saying that it never was legal under EU law.

Shouldn't they sue / negotiate with Ireland in that case? Given that they allowed Apple to evade taxes.

If Ireland now refuses to collect taxes from Apple, yes.

> the point here is that this scheme was entirely legal

That is maybe your legal analysis of european union state aid legislation, but in the end it's the commission and the court of justice who have to assess it.

The EU's argument is that it was always illegal under EU law. In their view the analogy would be you local council say the you don't have to pay income tax, and then a court finding they didn't have the right to make that agreement.

I don't really have a view which is correct, but I think it's important to note that the EU doesn't accept it is acting retrospectively.

No, you got it wrong. There is/was no loophole and it wasn't legal.

> not how things should work in a system based on the rule of law and fairness.

The problem here is that the rule of law and the rule of fairness had diverged, and there was a higher-level law forbidding that. This kind of conflict happens all the time. In the US, the most common manifestation is laws being struck down as unconstitutional. Governments are bound by laws too. When they break those laws by treating people unfairly, correction is needed.

It was illegal under EU law but Apple and the Irish government didn't seem to care much. Now, that imaginative case doesn't make me cry because we talk about corporations with preferential deals that stifle competition. It's definitely not fair for mere mortals to pay 20% and Apple 0.0005%. How could a such system be fair?

Do you think corporations are people?

When I say mere mortals I mean companies of mere mortals(i.e. like your start-up and mine). Do you find it fair for your company to pay more tax than Apple? How can you compete with them on price?

Why is it unfair? You're automatically jumping to the assumption that individual people should pay the same tax rate as a corporation. Why? Just because most countries do it now? It wasn't done through most of history though. What about the notion that corporations should pay no tax at all, and the only taxes should be on individuals.

> Why is it unfair? You're automatically jumping to the assumption that individual people should pay the same tax rate as a corporation.

I didn't say that corporations should be the same tax as individuals. I've said that's unfair for Apple to pay less tax than any other EU corporation/company. How can you compete with Apple if they pay no tax and your start-up pays 20% ? How could Apple have succeeded if they were to pay 20% tax and all the others (i.e. IBM) was to pay no tax?

> What about the notion that corporations should pay no tax at all, and the only taxes should be on individuals.

That would be basically slavery of foreign people(not nice).

Slavery? That's quite a jump of thought from tax policy. Maybe you should reconsider your statement

The burden of the taxes they don't pay winds up on others, who have to make up the difference. What is when you are forced to work for a powerful company that pays you nothing? Extortion, fraud?

> That is not how things should work in a system based on the rule of law and fairness.

Not all law needs to be 100% formalist. It's perfectly possible to have a blanket law that says "If some tax evasion scheme is generally considered to be unfair/unreasonable, it can be annulled no matter what the letter of the law says".

> That is not how things should work in a system based on the rule of law and fairness.

Something doesn't jive here. If it is that clear cut, didn't EC read its own laws before asking Apple to pay? If there is a paragraph they skipped someone should point to that, Apple should perhaps.

It would seem to me EC is implying what has happened in the past was not entirely legal somehow. Then it is not obvious what should happen next.

Notice Apple mentions how they "asked govt. of Ireland" for guidance. That means they might have documentation of a govt. official advising it to act that way. That is very important because it is building the case of Ireland here doing something illegal against the EC laws. So Apple is washing their hands here of this case.

> but the point here is that this scheme was entirely legal

No it was clearly not. How did you come up with that?

It was not legal. Ireland did not have the right to give a preferential tax treatment to Apple.

Imagine for a moment that you enter into an extremely complicated tax arrangement aimed to reduce your tax burden, quite aware of the risk that at a later date the authorities will judge you to owe that tax regardless and you will end up with a massive bill.

Tax judgements often don't occur immediately. Just ask any one of the 50,000 IT contractors in the UK that are facing this exact situation right now with respect to EBT arrangements. Some owe tax dating back over more than a decade.

They knew the risk, they took it, they lost. No-one is naive here, certainly not Apple.

"That is not how things should work in a system based on the rule of law and fairness". If you find a loophole in the fiscal system and exploit, you are following the rules, but at the same time, you are clearly robbing the society as a whole. In France, this is a fraud. see https://xkcd.com/1494/

Shouldn't they be taking this up with Ireland? Like, Apple pays Ireland, Ireland pays the EC. Ireland failed to collect the correct amount of money owed to the EC. It's Ireland who's at fault, and "oops, GFY EC we're brexiting." (assuming that the EU and the EC are related)

Seems like interesting timing. They've decided to go after back taxes right before the UK leaves the party.

> Ireland failed to collect the correct amount of money owed to the EC

Just for your info this isn't what happened, it's Ireland's tax money. The EC doesn't collect taxes. Instead the EC ruled that Ireland was providing illegal state aid (under EU rules) to Apple through its tax arrangements. So this loophole was nullified and Apple have to pay the back taxes to Ireland. The EU gets nothing (the EC is the executive body of the EU).

This investigation into dodgy corporate tax deals has nothing to do with Brexit (note that this is about Ireland, not the UK), and it's been going on for most of a decade now.

Thanks for the info!

> Shouldn't they be taking this up with Ireland? Like, Apple pays Ireland, Ireland pays the EC.

No. This isn't over money owed to the EC, it's over state aid perceived as manipulating the Single Market in a company's favour, which is [to an extent] undone by requiring that company to repay the money

> Seems like interesting timing. They've decided to go after back taxes right before the UK leaves the party.

It's the culmination of a three year investigation and legal process, and they've been going after companies with other special tax arrangements with local governments for years. I don't think Brexit had anything to do with it.

> Of course they did (the loophole is now closed), but the point here is that this scheme was entirely legal

No, it was not legal, this is what the ruling says

I think exploiting a public system, by systematically looking for loopholes should be illegal and the involved parties should be held responsible.

Did they ask the EC if it was legal in the first place? If they wanted a guarantee they should not rely solely on the approval from the government in Ireland.

"A company’s profits should be taxed in the country where the value is created."

"In Apple’s case, nearly all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States."

And yet the value creation seems to be happening mostly in tax havens... and NOT in the US. Nice try, Timmy.

Be a sport and put your money where your mouth is, and repatriate all that foreign stash cash to the US, and I am happy to side with you. Yet somehow, I believe this won't be on the menu anytime soon...

> the vast majority of our profits are taxed in the United States.

That's not even true! As you say, they keep their profits offshore to avoid US taxes: http://uk.businessinsider.com/apple-taxes-offshore-ireland-e...

> That's not even true!

That's a graph of cash reserves, not revenues. It's highly likely that Apple spends most of the revenue it accrues in the Unites States. You know, on expensive shit like Apple Campus 2.

The slope of the graph is effectively a lower bound on profit-not-returned-to-shareholders. Spending it would make it no longer count as profit. $200bn buys you a lot of HQ buildings. It would probably buy you all the HQ buildings in SF.

The EU have even said the bill could be reduced if further US taxes are paid.

They won't do it until Hillary gets in and reduces the rate of repatriations which Apple has been lobbying for for a long time...

I've read this theme several times. What has she done to lead you to make this conclusion? Or is this no more than your own bias and fear?

Yeah, I read it. Which is how I know about it. It's not at all an unreasonable suggestion.

http://www.cnbc.com/2016/08/14/tim-cook-addresses-apples-us-...

"Cook added that it was up to Congress and the president to enact tax reform, which he is "optimistic" will take place sometime next year."

I am actually both scared and biased, you got me!

It's entirely reasonable to assume that with this much money at stake Apple will pull all the stops for a tax holiday.

What I was wondering was if any politician had spoken publicly on this issue. It seems, unsurprisingly, they haven't.

Temporary 'tax holidays' have happened before. Sorry, no links atm.

Which tax haven(s) are you referring to there?

I'm guessing the one where Apple had an effective tax rate of 0.005%

That would be Ireland where Apple paid taxes at an effective rate of 0.005%, just to be explicit.

So trying to classify Ireland a tax haven isn't correct. It might be popular amongst certain political classes and media in the US to do so but it doesn't stack up. Ireland has a flat corporation tax rate of 12.5%. Many other EU countries have rates which can, and often do, end up even lower. Look at France for example where the tax rate drops down to an effective 8% for many of the CAC40 companies (according to the OECD).

The 0.005% rate is NOT the corporate tax rate Ireland charged Apple, its the rate Apple managed wrangle on all their European wide profits by arranging their corporate structures to take advantage of various loopholes in several countries, not just in Ireland. This was perfectly legal under Irish, EU and importantly, US law at the time. Now the EU wants to effectively rewrite history and even the US agrees with Irelands position on this.

What are the numerator and denominator of that figure?

Tim would pay tax in the US only if it gets a sweetheart deal of 0.0005%

The letter reads as a "But, but... I don't wanna pay taaax..." cry.

I think it reads more like, "tax us, and you'll see what we can do to you."

yeah right, when they pay the same taxes as I pay on my wage I'll eat a shoe.

No need. In 2014 they paid 0.005% in Ireland.

I concur 100%. BTW, Apple doesn't pay the tax they owe in this country either due to moving IP to Ireland and other tax favorable countries. Of course, they'll just move to Panama.

You are wrong. Actually right, but why should you pay back? There must be agreement going forward. How about your family pays new taxes for the last 100 years, taxes that are invented TODAY?

Thank you for down-voting me without explanation. How retarding.

Did you read the article? They are forced to pay retroactively. It's like if the government raised income tax rates and tried to collect the difference for the last 12 years from your taxes. Would you like that?

IT Contractors in the UK right now are facing demands to pay retroactively for tax stretching back over a decade in some cases that they purposefully avoided at the time using a scheme called EBT (or, being paid in loans by a trust because loans aren't taxed).

They had advice at the time that these schemes were legit (though every adviser would deliver that with a wink), any adult human must have known there was a large risk HMRC would disagree eventually (just as Apple knew they were running a risk), and now they face demands to pay the tax they failed to pay in the first place.

Are they the victims? Certainly they will tell you so. Sympathy I have for them? Nil.

Except "ex post facto" contradicts "no exceptions": abide by the laws in play at the time, and it seems Apple actually did.

> it seems Apple actually did.

According to Tim Cook/Apple's PR team.

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