Apple’s rotten appeal
politico.eu
politico.eu
Every comment that says "this'd be fine if Ireland let every company do it"? Guess what, Ireland lets any company do it. No signup required. It's just how corporate income tax law works in Ireland.
I agree that tax havens are bad for civilization, and it seems to me that the EU's ruling is in a generally pro-civilization direction (whether or not it is, in fact, legal, under current EU law).
Also, when people say "why is the EU allowed to rule on this", the answer to such questions is always "because the member state (in this case Ireland) first agreed to a treaty, and then ratified that treaty by creating an Irish law saying that Ireland had to obey the rulings". That's how treaties work. I'm not saying that's a good thing (I have serious concerns about the interaction between international treaty processes and what's left of democracy, but repairing it isn't helped by misunderstanding the mechanism). Again, the EU high court has jurisdiction because Irish law says it does, backed up by the probability that if Ireland flouts it hard enough, long enough, other member states are likely to jointly retaliate.
I assume offering deals like that runs afoul of international trade agreements.
Europe claims that Ireland's tax law is EU-illegal, and thus Ireland must retroactively enforce an EU-legal tax law, and thus the back taxes.
I certainly agree with you about Ireland and Apple's motivations.
"it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules"
and
"On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules. This decision does not call into question Ireland's general tax system or its corporate tax rate."
I think if you read the actual claim they make, and then you go read the description of the Double Irish accounting trick on wikipedia, you'll notice that to the untrained eye (such as mine), there's nothing special about the deal that Apple is getting; we are publicly aware of dozens of transnationals that get that deal, and there are probably hundreds or thousands.
The EU's claim, I think, is not that the deal is special in its entirety, but that Ireland's ruling on the exact fiddly details of how profits are allocated to different Apple subsidiaries is, uh, irregular. It's a pretty technical accounting point.
e.g. the following assertion, from Vestager, some months ago: "This is not about transfer pricing, it is about allocation of profits so it is different to the decisions on Starbucks and Fiat".
http://arstechnica.co.uk/tech-policy/2016/08/apple-must-pay-...
Ireland applied 13.5% tax on a certain percentage of the profits, those declared in Ireland at the time, but did not apply it to all the profits. Although the book-keeping was done in an Irish company the sales where not all in Ireland. At the time Ireland sought clarification from the EU on how the tax should be applied, and were told they could only tax the profits generated in Ireland. Now, after discovering there is a sum of money in off-shore accounts that had not had the tax deducted, they have told Ireland to retrospectively apply the 13% tax on all profits unless another EU country could claim the profits were generated there.
So the original ruling was to use Ireland as a tax collector that the rest of Europe could then ask for the taxes they were due.
It seems that the Irish gov are seeking to overturn the original ruling as, according to the original information sought at the time, they were not doing anything illegal. In hindsight the accounting irregularity, refereed to as the double Irish, meant that Apple could accumulate these profits. The main issue is that these monies have not been declared in any EU country, so now because of the EU's ruling Trump has decided it belongs to America because American companies should only declare profits in America :D
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A5...
It seems the main argument seems to be that the tax ruling from Ireland to Apple was not based on objective criteria but more of a negotiation like "we'll give you 1000 of jobs if you give us a discount". It seems reasonable to me to treat every ruling on that basis as "special treatment", even if they are commonly given.
To quote: -------------------- The Commission notes, in the first place, that the taxable basis in the 1991 ruling was negotiated rather than substantiated by reference to comparable transactions. Moreover, according to the excerpt reproduced at recital (37), the authorities did not seem to have had the intention of establishing a profit allocation based on transfer pricing. Instead, according to that excerpt, Irish Revenue accepted the calculation of profit attributable to the branch of AOE on the basis of actual costs without this choice being reasoned in any way. The fact that the methods used to determine profit allocation to ASI and AOE result from a negotiation rather than a pricing methodology, reinforces the idea that the outcome of the agreed method is not arm’s length and that a prudent independent market operator would not have accepted the remuneration allocated to the branches of ASI and AOE in the same situation, which serve as a basis for calculating the tax liability. -------------------
They then go on to mention many irregularities with the ruling which seem to be reverse-engineered to get a desired tax basis, instead of based on the economic reality.
Yes, the claim is that it is "irregular" in the sense that Apple got it and other companies may not get it. That's the special deal.
Whether or not the EC is right is for the court to decide. But the fact that the ruling is on the question of a special deal means that it cannot at the same time be a ruling on the compliance of Irish law with EU law.
Apple doesn't actually employ the double Irish as traditionally defined - the second half of the double Irish arrangement involves transferring profits to a company outside of Ireland (typically in a Caribbean tax haven). Apple doesn't do this. Their overseas profits remain in their Irish subsidiary, where they have a very low tax rate (which is what is being challenged by the EU).
I think, ironically, that if Apple had fully implemented the double Irish arrangement (like many other multinational companies), the EU commission would not be able to go after Apple using this "favorable treatment" line of inquiry.
There is also the concern of how 13B Euros of Apple will-be/have-been seized/escrowed for the duration of the case which may takes years. In case EC loses, will EC/EU pay to Apple for temporary loss of their property ?
The Commission, in simple terms, makes sure that a single market doesn't mean that one country helps companies avoid tax in other countries while still allowing completely free trade.
Ireland agreed to obey EU rules when joining.
Ireland was not following the laws
Because if Ireland "loses", then Apple owes 14B Euro. So, Apple is an interested party.
Yes, like all the other rulings regarding the Article 107, the infractor is the state giving illegal aids.
And the companies are "dragged" because they were given an illegal advantage over others companies and that advantage should be voided
Nothing about this has anything directly to do with Apple. The real question is which of Ireland laws 'win'.
I did not say Ireland needs to follow EU laws if it leaves the EU, but that isn't relevant.
Retric > Ireland also has a law on the books saying it must comply with the EU.
akvadrako > Ireland has to follow EU laws because the EU says so
Retric > No, Ireland ... has to follow EU laws because Ireland law says so
My (modest) understanding of treaty law is that Retric is right, that the laws that require Ireland to obey EU rulings are Irish laws. In particular, presumably some members of various executive branches negotiated some treaties, and then asked their respective legislative branches to "ratify" those treaties, i.e. pass laws binding the signatories to obey the treaties, by their own respective legal systems.
My non-lawyer understanding is that EU legal theory recognizes the sovereignty of nations, and the EU's authority is derived from the sovereign authority of nations.
Do you actually disagree with any of this? If you do disagree, how do you understand international law to work? i.e. why would Ireland ever care what EU law says, other than via the legal chain I just outlined?
The EU has a fixed set of "competencies", i.e. areas of law it controls. Taxation is very very explicitly not one of them. Member states did not ever sign up to letting the EU Commission control their local tax rates.
The EU is now trying to work around the treaty-defined limits on its own power by redefining low tax rates as "aid". Beyond the Orwellian doublethink required to define taxation as aid, this is a problem because if it's allowed to define tax rates France and Germany don't like as "state aid" then the EU has effectively increased its own powers far beyond what the treaties were written to allow, without any kind of democratic process or even consent of the national leaders.
"Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market."
Taxation is explicitly mentioned in the text as a form of subsidy, hence the EU does not overreach when it tries to enforce the regulations that the member states have agreed upon. It is of course debatable when a taxation is too low, but an effective tax rate of 0.005 percent provides enough evidence of a hidden subsidy to justify the punishment (IMHO).
Perhaps this counts:
3. The following may be considered to be compatible with the internal market: aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment ... aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;
Or perhaps it doesn't, given that this is stated as "may be incompatible" not "shall be incompatible".
Though I did get a laugh out of the explicit exception for Germany that can only be removed if the Commission allows.
Like I said - as written this text could be seen as forbidding even very basic things like VAT, as it doesn't apply to all types of goods or applies at different rates and thus "favours certain undertakings".
[1] http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
[2] http://www.businessinsider.de/how-apple-managed-to-get-its-t...
"It's illegal for a government in the EU to strike a so-called "sweetheart deal" with a company. The European Commission classes those deals as illegal state aid, and it has decided that Ireland's deal with Apple is exactly that."
So it seems it's not typical "double Irish" or does the EU simply go after the biggest offender?
It was looked into, for years, by a team of lawyers on behalf of the ECC (as you could read in the other recent article).
The article in this HN thread also links to an analysis by US lawyer Richard A. Epstein. Here it is once more [1]. Interestingly, Epstein is a critic of the EC: "My initial judgment—always subject to revision on the strength of additional information—is that the EC was correct in its decision. In making this assessment, I admit that I harbor a deep suspicion of the EC in its multiple roles. In general, there is much to the charge that the EC’s policies are prejudiced against American companies that do business in the EU. But it is one thing to start with a strong presumption, and another to put the pieces together in a prudent fashion." and "At its root, the Apple decision rests on premises far removed from Warren’s progressivism. It makes a classical liberal argument in favor of free trade across national boundaries. Though the EC often acts as a statist institution, it has made a sound economic decision by taking on an American icon that deserves to have its wings clipped." (Note, the article is interesting far beyond what I quote, and I highly recommend reading it, but I have to quote selectively to make my point.)
If Apple believes it is unlawful they should argue that, but as the article says they're playing the pity card and resort to other fallacies. If your opponent uses appeal to pity and ad hominem attacks that says enough since that is the two lowest of Graham's hierarchy of disagreement (the disagreement pyramid) [2]
[1] http://www.hoover.org/research/europe-gets-apple-right
[2] http://www.conceptdraw.com/examples/paul-graham-disagreement...
For starters, it's not like Ireland have a particularly onerous corporate tax rate, so engaging in illegal transfer pricing carries less reward. But, and again I might have the wrong end of the stick here, why in god's name would you undermine the rule of law like that? If there's one thing that governments seem to universally understand, it's that you don't want to do anything to undermine the legitimacy of legal tax collection. It has historically tended to result in either public sector bankruptcy, or revolution...
As for the sovereignty issues, I suspect Ireland (and Luxembourg even more so) are fortunate to be on the inside of the system here. Because the typical response to tax-haven like policies (which suck capital out of other countries and erode their tax bases), tends to be a lot less friendly than being hauled before a EU court.
At any rate, it's just continuing evidence that the EU is an untenable proposition in its current state. Free trade and free movement makes sense on its own. But it's insane to thing you can have a monetary union with any corresponding process of horizontal-fiscal equalisation. Either the monetary union will be dissolved, or EU member countries will have to give up a whole bunch more sovereignty over their national fiscal policy.
http://www.pwc.com/gx/en/international-transfer-pricing/asse...
Also, from: http://europa.eu/rapid/press-release_IP-16-2923_en.htm
...the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a "head office".
The Commission's assessment showed that these "head offices" existed only on paper and could not have generated such profits. 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. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014...
Yep, that sounds like either transfer pricing or just direct income mis-attribution to me.
"To comply with European rules, Ireland finally ended its zero-tax policy in 1990. After that, Apple and Ireland agreed that the profit attributed to a key Ireland-based unit, the division discussed in Tom Connor’s letter, be capped using a complex formula that in 1990 would have resulted in a taxable profit of $30 million to $40 million."
https://www.bloomberg.com/news/articles/2016-12-16/the-insid...
That the court can declare the law invalid as applied to Apple while retaining it for every other company in Ireland is clearly a violation of the ideal of fair treatment, if not the rule of law in the first place.
http://www.finance.gov.ie/sites/default/files/161219%20Summa...
Ireland's appeal gets into the meat of it. I've been reading about this case as well as others against Luxembourg and Netherlands and I suspect it's very likely these decisions by the EC will not survive appeal. The use of state aid laws in this way is novel and the precedent it would set if they somehow prevailed would be a massive shift in sovereignty from member states to the EU.
Low tax member states like Ireland have been under political assault for decades and this is the latest attempt to redress something the EU has no power over. If the EU wanted a unified tax regime across all members it should have been designed that way from the outset, but then the EU project may not have ever taken off if it required ceding so much sovereignty.
Politically it seems like these cases can backfire massively. I suspect that when the EC began these investigations they didn't expect Brexit could happen. The implicit gamble they're making is popular support for combatting tax avoiders will be greater than rising Euroscepticism.
EDIT: Just to be clear because it seems my comment is being misunderstood by several people, my second paragraph is my comment specifically about this case. The third paragraph is my explanation of the political context in which these cases have been brought. It's obvious these cases aren't about tax rates (it is indirectly, which was my point) because the EU pretty clearly has no authority over that.
/s
As an EU member country, this is EU jurisdiction. The root issue was that they made a deal with Ireland that is invalid under EU law. That was fixed.
With apologies to Office Space: They didn't punish Apple, they just fixed a glitch.
The case has nothing to do with Ireland having low tax rates.
And Double Irish has been closed
The EU is pretty damn efficient, by the way. Mostly because it's one of the few governments that doesn't derive its impact from the power to tax & spend.
But the money wouldn't even go to the EU. It goes to it's rightful owner: Ireland.
And, like in all the other case about ilegal state aids, the EU can go back 10 years since the start of the investigation
Say I'm a balling billionaire, wanting to invest, and politicians in an EU country are willing to attract me by giving me a very generous tax break. There is no reason to say no. However, in this particular case, if ruled that this is state aid, a country gets rewarded with additional tax revenue for doing a bad job / acting like an amateur. They need to find a different punishment mechanism, because in its current state this just incentives countries to introduce half assed laws and systems.
Second, while such a ruling does indeed fix the situation, there are usually plenty of alternative ways of structuring a transaction to achieve a similar tax rate. Why would I ever bother making a deal with a country that has "screwed" investors over in the past?
Claiming ignorance just makes you look stupid.
People who get too clever with that sort of thing are why there are Federal prisons with golf courses.
Given the climate around Brexit and the fact that Ireland is fighting back on this ruling with Apple, it is astounding to me that you think this is "fine".
For sales to consumers they would now pay the customer's country , I believe that just changed about a year ago. Amazon and Luxembourg may or may not have been responsible for that change :)
OTOH books had reduced VAT in most countries.
I'd like to add that Apple doesn't pay VAT, the consumer does. It's just Apple's responsibility to collect the VAT from the consumer and forward it to the tax authority.
And the answer is that the EU regulations state that VAT taxes are to be paid in the country in which the transaction takes place. If the transaction is online (and potentially therefore spanning multiple countries), the customer's location is used as the place of transaction.
Instead of Apple if governments were more honest they would have told locals that companies are not looking to set up base here because they are seeking tax benefits and as upright people we will not do that.
The ruling explicitly says that there is no problem with Irish tax system if it is open to ALL the companies.
This is allegedly ilegal state aid because it is a sweetheart deal yo ONE company
You're wrong, this is not about harmonizing tax rates. Ireland already has one of the lowest corporate tax rates which is 12.5%. However, through the Ireland deal/loophole, Apple was paying an effective rate of 0.0005%. Rectifying that is the point[1]. The EU specifically put these anti-state aid laws on the books decades ago, it's not new. Ireland will still have the ability to set their tax rates for all coporations
I think you mean "by letting companies dodge other country's taxes"!
Not many people here seem to appreciate that that's what Apple is doing. It's basically a scam.
(1) Avoid paying taxes in the UK, Germany, France etc by claiming you're taxed in Ireland.
(2) Once in Ireland, channel the money into a fake company (0 staff, 0 offices) that is stateless and isn't taxed anywhere.
> This presents zero problems for Ireland and pisses off other countries.
Exactly. It's a fraud on EU taxpayers outside Ireland. Apple gets all the benefits of state spending in EU countries -- education, health, police, roads etc -- and avoids paying its fair share of the costs.
No, I was thinking companies dodge the taxes other companies pay. Saying they dodge other countries taxes is not really correct as these companies are following the other countries tax laws. France etc. could have different laws which prevented companies from benefiting from Ireland's tax laws.
Basically, "by claiming you're taxed in Ireland" only works because France, and Germany etc have laws saying it works.
I guess nations like malta could rely on exporting state owned ventures like taboo, but what about Hungary? They happen to have the highest value added tax in Europe, and Tax revenue in Hungary stand at 39.3% of GDP. One way or the other, taxes are being paid.
Profits sit in bank accounts or are distributed to shareholders. It might make sense to grant companies a tax-free allowance equivalent to six months of operational costs, but corporation tax is designed to deter hoarding and thereby force money into circulation
Ireland has a clear alternative, which is to grant such tax law for every company within their border. It would kill their budget, and bring down their own government, but they could do as is their right under sovereignty. Low tax is not illegal within fair market rules, so long everyone is competing on equal ground.
From TFA, among other relevant paragraphs:
> It is important to note that the words “any aid” covers not only one-off deals between Ireland and Apple, but also any general provision of the Irish Tax Code that would encourage favorable treatment.
The EU article simply covers any deal which would create such favorable treatment, and the key word is "distort competition".
"any aid granted by a member state or through state resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall … be incompatible with the internal market.”"
Apple pays Ireland 12.5% of all taxable-in-Ireland income. That's because that's Ireland's corporate income tax rate. Conveniently, because of the structure of Irish tax law, very very little income is taxable in Ireland. And that's more than is taxable in any other EU country. And, in fact, there's no country where very much of their income is taxable. Pretty awesome for them, I guess.
When the bullshitters say "paying 0.005% effective tax rate", they mean "when you take all their revenue everywhere [in the EU], they pay 0.005% on that". That's not how tax works for any corporation ever.
(1) Avoid paying taxes in the UK, Germany, France etc by claiming you're taxed in Ireland.
(2) Once in Ireland, channel the money into a fake company (0 staff, 0 offices) that is stateless and isn't taxed anywhere.
This is "creative accounting" at its finest.....
Note, for example, that the UK and Germany and France all have laws that make it okay to avoid paying taxes by claiming (truthfully) that you're taxed in Ireland, according to the laws of tax residency of those respective countries.
But yes, it's an undesirable-to-collective-civilization loophole, and it'd be nice for it to be closed. I'd love for Apple to be compelled to pay more taxes. Yes yes yes! I'm surprised that the EU is making so much headway in this round, but if they fail in this round, I resoundingly hope they pass some new laws, such that they can win in the future.
The "head office" company isn't stateless, btw, and btw it technically has an office (usually a P.O. Box) and some people do work for it. There are maybe a dozen companies involved, including the actual-work-doing companies in the UK and Germany and France, and every one of those companies have an HQ in a state. I think that the "head office" is even located legally in Ireland.
Yes. The problem is that Apple isn't paying taxes in Ireland on the money it tells the UK and Germany and France is being taxed in Ireland.
There's no good way to gloss over this. It's either criminal or it's unethical.
You surely don't mean that Apple accidentally created a stateless company with no staff and no buildings to swindle taxpayers out of billions? I'm pretty sure a lot of planning went into it.
If it's arguably legal, there's nothing ethical about going out of your way to devise and exploit these "loopholes".
Frankly, it's just what you'd expect from a brutal multi-national corporation that mercilessly exploits underpaid Chinese workers, despite having over $200 billion in cash....
Edit: I also want to push back on your comment about them exploiting Chinese workers. Apple doesn't exploit the workers, the factory owners do. Apple does everything it can to minimize the exploitation of the workers including random factory audits and employee surveys. No other electronics company in the US does this and, frankly, Apple doesn't have to. They pay someone to make components for them and if the company they pay say that they can make those components, then that's really the end of the story. Apple realizes that Chinese culture and law don't support human rights and well-being so they go above and beyond to try and correct the situation. If they were as monolithic and uncaring as you claim, they wouldn't even do that.
Here's an example of how Apple actually works. (1) Enough Foxconn workers commit suicide to put pressure on Apple. (2) Foxconn increases pay and improves working conditions. (3) Apple moves some iPhone production from Foxconn to Pegatron, which is cheaper, because Pegatron workers earn less and are treated worse.
Apple moved some production from a company that made real efforts to stop child labor (school-children bussed in for "work experience" on production lines) to one where it still goes on.
Given that Apple has a $200 billion cash mountain and the workers get peanuts, this is a shitty way to behave.
If you want to take the line that Apple can be as unethical as it likes in exploiting Chinese workers and tax loopholes -- because profits -- then I guess you have bigger problems.
And I never said they can be as unethical as they like either, so I won't be replying further as you can't make your point without being deceptive and straw-manning.
> They moved production from Foxconn exactly because of these faults.
Love to see your evidence for that, if there is any.
> ignored evidence that Apple has done more than either company to raise the standards at these factories
Depends how you measure it. Apple makes the most money and, because it needs to maintain a false image, it has the most to lose. However, it's been aware of child labor since 2008, if not earlier. It must also be aware that companies engineer around its guidelines, so they are more of a PR stunt than anything else.
A hugely rich company like Apple could certainly make a difference if it were serious. Pity it isn't.
Again, it's not a magic wand that they can wave and magically remove all child labor. The only thing they can do is contract their suppliers under fair working conditions and audit them to make sure that the contract is keeping their word. Apple doesn't own those factories, they don't hire the employees, and they don't run the lines. They simple order product from these companies under certain conditions (including workers protections) and are promised that those conditions will be met. I don't know what else you expect them to do and I'm curious if you're this vehement about all the other manufacturers that use the same factories and don't make contractual guidelines, don't audit the factories, and don't actively investigate them.
Apple wasn't the first to audit production lines, but it does have some special problems. For a start, its "big bang" event-based marketing model puts exceptional stress on pre-launch production, and on Foxconn when it needs to find 200,000 or so extra staff.
There are other aspects, too. (1) Apple markets itself as a "good" company, which invites criticism when it behaves like any other brutal capitalism corporation, or worse; (2) Apple's $200 billion cash pile means it has no excuse for the frequently appalling treatment of Chinese workers; (3) Tim Cook has said that Apple is responsible for everyone in its supply chain.
So the lame excuse that "everyone does it" doesn't apply.
The bottom line is that Apple knows perfectly well that its guidelines are not being followed, and that it can afford to treat its workers better. But if it's not being hammered in the press for it, it really doesn't care.
apple should pay taxes where they do business, but they dont, they tunnel everything thru ireland.
and ireland says, ok apple you have to pay only the tax on the income u generated here in ireland, everything that came from outside is free.
no, the phrase referred to _possible_ one-off deals between Ireland and Apple. Just mentioning them does not cause them to appear.
See:
> the words “any aid” covers not only one-off deals between Ireland and Apple, but also any general provision...
Because that allows them to offer Luxembourg-style almost-zero tax rates to a few international giants without sacrificing their domestic tax base.
Individual subsidies have been illegal under most circumstances for quite a while now, and giving them a 95% tax rebate is obviously almost identical in effect and morality (law to be determined).
It's also a pretty classic case: Apple is going to have European headquarters somewhere, and any tax rebate they get is a loss of X in European tax revenue and a plus of the same magnitude for Apple's shareholders. It'd be stupid for the European countries not to cooperate (with the understanding of transfers to those countries whose competitiveness suffers)
This case is not about lower or higher taxes. This is not the EU telling member states what tax rates they should have.
This is purely about whether or not Apple got special treatment that is not available to other companies.
The EU cannot allow the biggest corporations to go shop around for sweetheart deals that smaller companies have no chance of getting.
[EDIT] Your EDIT contradicts your second paragraph. This case is about special treatment for a specific company. Whichever way it is decided by the courts, it does not affect the sovereign rights of member states to make tax laws as they see fit. They just have to apply those tax laws in a non-discriminatory fashion.
How is it not that? The EU is not supposed to have any power over tax at all. Yet here it is, telling Ireland to charge Apple "back taxes" against its will.
The EU cannot allow the biggest corporations to go shop around for sweetheart deals that smaller companies have no chance of getting.
Of course it can. And in fact it must, because tax is not an EU competency.
This has nothing to do with the tax system
> Of course it can. And in fact it must, because tax is not an EU competency.
Of course it cannot, because it has nothing to do with the tax system
Tax _law_ is not EU competency, but this case is not about Irish tax law.
This case is about a specific ruling by the Irish tax authorities concerning Apple and only Apple.
If a country were to give special favors to some companies and not others then that would violate EU rules that are supposed to create a level playing field for all.
If you completely exclude tax rulings from consideration when it comes to competition regulation, then competition law would not be worth the paper it's written on.
Every country could then use special tax deals instead of subsidies to help specific companies. That's exactly what state aid rules are supposed to prevent.
[Edit] Please note that I have no opinion on whether or not Apple did actually get special treatment.
So I see nothing wrong with saying, "Apple paying 0.005% obviously constitutes 'state aid', and we'll work out the complicated instances if we need to".
It's not negotiable on a case by case bases depending on what a specific company offers in return.
But of course there can always be disputes and differences in opinion, so ultimately a court will decide whose interpretation of the law is correct, just as it would be done on the national level.
Now don't tell me this is different because the Ministry's decisions might not be "objective". Such is the case for all political decisions, including varying tax rates across different industries.
Laws are by definition different from ruling by decree on a case by case basis. If a government had the right to pass laws such as the one you suggest without limits, it would effectively expempt itself from complying with any law at all. All other laws would simply cease to exist.
It could for instance decide to give tax breaks to relatives of ministers or to anyone who bribes the prime minister or apply different tax rates depending on color of skin or slap punitive taxes on opposition media to destroy them.
If a majority in a country were to give its government such powers, say in a constitutional referendum, it would mean that democracy has been abolished.
Democracy is impossible without the rule of law, without minority rights, without human rights, without balance of power.
Then assuming you agree to keep those jobs in my town for the next 10 years and considering the average salary of the employee you hire is a bit more than most in the area. There income tax combined with the increase in aggregate sales on goods and services it might be a good deal for the area. At least this is the typical rational for tax incentives. The issue with tax incentives is IMO is they create the perception of corruption (and in many cases maybe real corruption) - favoring one business over another etc...
Is there some kind of tax rule I missed where tax discounts are linked to other economic indicators? If I reduce unemployment, or reduce pollution, or plan a tree on a roundabout, or whatever, do I get some discount on my corporate tax?
and this isn't just about 1 or 2 man bands or little startups, whatever. This should apply to any company of any size. Apple, MS, Google, etc. are massive and get massive tax discounts, and I understand why, but if they get a discount on the basis of some special thing they do, this should be on the basis of a public formula that is applicable to all companies.
If you're Lithuania or whatever, you have a 0% chance of getting a company like Apple to build its European headquarters in your country if they decide on factors like accessibility, talent pool etc. So you can offer them whatever you want, and if that means they rent a mailbox in your capital and pay you 500$ of taxes per year, you're 500$ minus a mailbox ahead.
Of course London just lost 10 Billion $ in yearly tax revenue... And that's where cooperation really starts making sense: you don't make tax deals, London pays one or two of those billions to you and everyone comes out ahead (except Apple).
Technically it's a cartel, but the effects are limited because countries still have a vital interest to allow cooperations to flourish.
(Also: I know Ireland actually had a lot more to offer than a mailbox, and it's actually quite a success story)
It's equivalent to if I said I'd do the personal equivalent of corporate inversion [1] and then got a sweetheart deal from the IRS just because they'd "make more than if I left".
[1] http://www.investopedia.com/terms/c/corporateinversion.asp
Step 1: be president
Step 2: don't pay income taxes for 20 years
Step 3: it's all cool, man.
C'mon Politico writers. Do you really not know the difference between and 0.005 percent and 0.005? You are off by a factor of 100! Apple is allegedly taxed at half a percent! Not 0.005 percent!
I guess there's a reason journalists are known for their writing and not basic math skills.
Moreover, Bloomberg reports this alleged tax rate is entirely made up (funny given Politico is all about fact checking) and there's no primary source affirmation of it: https://www.bloomberg.com/news/articles/2016-09-01/pinning-d...
http://verizonmath.blogspot.ca/2006/12/verizon-doesnt-know-d...
Tax Heavens --> Compitition
states --> corporations
corporations --> customers
The biggest problem is your equivalence of corporations to customers. Corporations aren't the customers of states, and states aren't corporations. States don't exist to make a profit, they exist to serve the needs of the citizens.
Corporations don't pay taxes because they are purchasing services with them, they pay taxes because we all have to pay taxes to do the things we want to do (provide education for our kids, have a police force to deal with crime, build and maintain bridges and roads, etc.)
Anyway, I digress. It's a bad analogy.
> they pay taxes because we all have to pay taxes to do the things we want to do
What others do with their money is not my business.
> (provide education for our kids, have a police force to deal with crime, build and maintain bridges and roads, etc.)
I would argue that it does not cost that much and the services/goods being discuessed are _extremely_ overpriced. And the price does not just include money but personal freedoms.
But ofcourse how would we know that its overpriced. Hence why I suggest compitition between states is good thing and should be encouraged or It might be you who become the next target for majority's whim and then nowhere to go.
I am not judging people who want to live under socialism/capitalism/any-ism. I am just saying more choices/compitition is better for everyone.
Also read Private Cities [1].
[1] https://fee.org/articles/private-cities-a-path-to-liberty/
> If you want my money you have to tell me what I am getting otherwise its just extortion.
You do get told what your tax money will be used for. Constantly. If you choose not to pay attention and choose not to vote, that's on you.
Though I support Libertarianism, my post was not about it. I am saying, 10 small socialist nations > 1 big socialist nation. 10 small Apple > 1 big Apple. My point is big state or corporation is risky and can abuse their powers. We have anti-competition organisations for corporations. We should have for states too. If people of a region wants to secede out of a socialist/capitialist/etc regime we should all support.
> Leaving everything to the "free market" just frees those who already have wealth and power
No not just weathly but _everyone_.
> to do whatever they want and shackles the rest of us
Like, maybe, all Libertarians, I support non violence. I dont see how that would happen.
> who's only power at the moment is our vote
Vote is not power. The elected may have powers. But not voters. A widespread misunderstanding.
Vote in exchange for personal freedom only favours elected & friends. People are now realizing this.
> (and even that has been eroded over the last 40 years.)
Yes the world is correcting itself. Vote is not a power. Its productiveness or how useful/neccessery you are to others. To gain productivity you need freedom, thats what I advocate for.
> You do get told what your tax money will be used for.
Thats not really same as Apple wooing me for iPhone.
> Constantly. If you choose not to pay attention and choose not to vote, that's on you.
I am from India and I voted for Modi. I have never felt more cheated than now. Look at what a circus India is now. If thats not a case for Libertarianism/Microstates I dont know what is.
After speaking with her, and getting her opinion, it seems most comments about this situation are rooted in too many arbitrary feelings without an understanding of how the tax law actually works.
The crux of this issue is that US has a global tax code while EU has a localized tax code. What EU is proposing is really interesting because, if they win, Apple would be taxed twice, once on the money that their holding company has in Ireland and again once that money is brought over to the US.
EU doesn't seem to care what other tax codes there are as their tax code is upheld by each conuntry in the EU and then there are EU panels that test for anti-competitive practices, etc.
This raises issues in soveirnty of Nations if EU can supersede their tax code. It also raises a bunch of ethical issues within the EU when a company (investment institution) is based in one country while investing in another.
To minimize the words written, from what I gather is this:
Apple's situation is difficult because their argument is that they did not create (IP) in Ireland so they do not owe full corp tax on holding their money there. However, they pay all sales, (current) corp, etc. tax for all of their products where the item is sold or employees are working. Hence, this tax isn't a sales but a different classification of corp tax. They are being asked to pay taxes as if they are an Irish company that creates or manufactures their product in Ireland. Not as a holding company that pays their standard tax rate. There a lot of semantics in that statement and it's difficult to reiterate the explanation without a full blown essay.
For the rest of EU, their tax code is a clusterfuck (for lack of a better term). Companies have to pay taxes in the country they do business + country that's their "Home". So an investment firm will have separate tax rates/brackets as the money moves acoss borders. This gets really complicated when countries are doing business outside of the EU but have their base there. There is also an issue with which currency the taxes have to be paid in (seems trivial except the exchange rate isn't stable).
By all accounts, this looks like a pissing contest between EU and US firms and their stance can have global ramifications that are not foreseeable. One interesting perspective my wife raised is that because taxes are paid in "home county" currency, manipulation of the market becomes a viable option for multi-national EU/US/Workd orgs to lower/raise their taxes paid. This seems far fetched but a tiny change becomes big money on something like 14B (I doubt Apple will resort to such tactics because of money involved).
TL;DR Apple pays taxes they are suppose to pay per Irish tax code. The money held there would be taxed if they move to US or if they invest/purchase items in Ireland/EU. Currently proposal is using a loophole within a loophole to attempt to double tax Apple (or any other company they choose to go after).
small addition: the Irish tax code was found to be illegal.
By Whom? If the Irish found their tax code to be illegal, that makes no sense.
If the EU found Irish tax code to be illegal then the word "illegal" becomes ambiguous as it involved Sovereignty of a National tax code vs EU guidelines.
EU doesn't have a standardized tax code so finding something illegal would imply there are rules and unifications, which there aren't.
Here [0] is a 10 page summary of every tax code that is in the EU. By 10 page summary I mean 10 pages of actual tax code that then leads to the actual code that is per country.
EU's system isn't unified...
[0]: https://www.scribd.com/doc/234210334/Oracle-EBS-R12-European...
translation: I choose to accept the court that agrees with me and bluntly question the higher ones that don't
> EU doesn't have a standardized tax code so finding something illegal would imply there are rules and unifications, which there aren't.
I just leave this here for your amusement: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELE...
> I just leave this here for your amusement: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELE....
Point #1 is my favorite: "1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market."
What they're basically saying is that if I don't agree, it's wrong. Tax code is complex precisely because of statements from Article 107.
#3.e "(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission."
In your assumption, you are correct: I am questioning a higher court that over rules a lower sovereign court based on an elastic clause without limits.
Do you claim EU should shut up and accept one of its members is stealing everyones tax income? Does that sound logical to you?
What an interesting turn of phrase. :)
So why not have a joint EU tax code to simplify life? That's the issue what all corporations face at the moment. Read the white paper that was linked in a previous comment, it's not too dense and makes the correct points. G20 have been working on a unified world accounting system but EU has t accepted it. Instead, they'll use arbitrary rules that only govern EU and apply to multi-national corporations.
In my opinion the discussion is focused on Apple (clearly because of the articles the comments are on) with strong opinions rooted in some kind of thievery that they're participating in. However, the root analysis is that the tax system is just FUBAR and the 14B levy won't fix it. Once that ruling was filed, the money goes into escrow so Apple is already out. They're fighting for a regulatory change that all companies (regardless if they're in the EU/US or elsewhere) will benefit from.
Setting emotions aside, the issue is a change in tax system is required. Otherwise, all they're doing is putting lipstick on a pig.
Subsidiarity.
http://www.europarl.europa.eu/ftu/pdf/en/FTU_1.2.2.pdf
It's really bizarre: if the EU creates the rules directly, it is "overreach" that interferes with "sovereignty" (despite the fact that these powers were ceded willingly, never mind...), if, on the other hand, the EU leaves things to member states and just imposes principles for those rules, it's "too complicated".
This is not true, the taxes paid in the EU are deducted from the 35% TAX that has to pay in the US if they repatriate the money.
Which taxes paid in the EU are deducted? The VAT? Corp?
Here[0] is a friendly, 2000+ page summary from region to region on the EU taxes and how US corp tax credits are applied.
[0]: https://www.pwc.com/gx/en/tax/corporate-tax/worldwide-tax-su...
They're two separate taxes, paid by two different entities. Nobody is "paying taxes twice". VAT is paid by the end consumer. It is generally collected by the retailer and forwarded directly on to the government, because otherwise enforcement would be too difficult.
The manufacturer has a variety of taxes that may be due, depending on jurisdiction, on its profits, revenues, payroll, or other aspects of the business. In conventional retail setups, where you have a manufacturer supplying goods to a distributor or wholesaler, wholesaler to retailer, retailer to customer, there are corporate taxes due on each company in the chain. But none of them pay VAT on the intermediate goods; that's on the final consumer.
VAT is basically a tax on consumption; corporate taxes are taxes on (usually) income, and can be seen as the price one pays to a country for the use of its legal system and for the privilege of creating liability-shielding legal entities there.
Even though US does provide some tax credits to companies that pay corp tax in EU, the amount is based on individual agreements between the two countries.
http://europa.eu/youreurope/citizens/work/taxes/double-taxat...
This is not true. This describes how sales taxes work in the US - sales taxes are due on retail but not wholesale transactions.
VAT is due on each transaction in the chain - manufacturer to wholesaler, wholesaler to retailer, retailer to consumer. However, the wholesaler can deduct the VAT that it paid to the manufacturer from the VAT that it passes to the government and the retailer can do the same for the VAT that it paid to the wholesaler. In this way, there is no multiple taxation of the retail sale. GST and PST (despite the latter's name) in Canada work the same way.
https://en.wikipedia.org/wiki/Canada–United_States_softwood_...
People are sick of these corporate tax schemes; we need someone's head on a stick (at whatever cost). Brexit and Donald Trump have shown us that people care less and less about doing the right thing "by the book" anymore; people just want to do the right thing for the majority - Even if that is politically incorrect and will mess up the world order.
I think that just like Brexit and Trump, this is just a continuation of the same rebellious movement against globalization and the elite establishment.
If I take advantage of a tax loophole and the government closes that loophole, can they throw me in jail? Obviously people aren't companies but it sets dangerous precedent.
I don't get this, to be honest.
Doesn't every financial aid distort the competition, by design? What am I missing.
edit:
OK there is the whole article. It makes slightly more sense, but I would argue it's still hard to guess which aid falls where.
http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELE...
----------------------
Article 107
(ex Article 87 TEC)
1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
2. The following shall be compatible with the internal market:
(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;
(b) aid to make good the damage caused by natural disasters or exceptional occurrences;
(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.
3. The following may be considered to be compatible with the internal market:
(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;
(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;
(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;
(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.
---------------
If the financial aid is given to every company in the country there is no distortion.
I mean, if the Commission wants to drive US tech companies out of the EU on the specious grounds that it might help the moribund EU startup scene, go ahead. But let's just say I have no doubt the UK government is quietly watching.
I doubt it would be enormously difficult for Apple to relocate from Dublin to London.
But you can't tell the US that profits are generated in Ireland while agreeing with Ireland that profits are generated in the US, just so you end up paying taxes nowhere.
Why would it be fine with this? Taxes are paid where the revenue is generated. If money were to be repatriated without tax to HQ's resident country, then all companies would be registered in tax havens and pay no tax. Apple is trying to play off the EU against the US - they ought to pay the due taxes in both jurisdictions.
Why not? Apple doesn't produce any tax income for them, Apple has zero R&D in EU, and Apple not selling to EU consumers would only benefit the local companies like BQ, Sony and Alcatel.
But you should understand that Apple was given a competitive edge against other companies that did pay their EU taxes. If Apple decided to leave the EU market tomorrow, it would in short term result in economical gain for the EU members since people would by buy the same amount of phones/tablets/laptops but now from companies that (hopefully) pay their corporate taxes.
I thought the EU commission just wanted them to properly pay taxes.
> I doubt it would be enormously difficult for Apple to relocate from Dublin to London.
Once the UK is outside the EU, Apple needs a representation in the UK. No doubt. The UK also has a lot of associated tax havens. Probably useful, too.
Possibly Apple also needs to be represented in the EU, if it wants to keep addressing a then 450 million people market.
Then there are all the Brexit related questions about export of services, and I have no idea at all how that might or might not change things.
I suspect noone has a clear idea about that at this stage. Negotiations yet to start &c and the negotiation stance that HM Government appears to take is itself a highly political question within some quarters in the UK.
Moving to London is a non starter as it takes that office out of the EU.
Also the EU startup scene is most certainly not moribund. I guess you are misinformed.
And at last. The Commission doesn't want to drive out a US company. The European Union just has the expectation that companies doing business in Europe should pay taxes in Europe.
Nobody is rushing to incorporate as a startup in the UK right now, quite the opposite - there's lots of talk of moving to Berlin/Paris/Stockholm. There are numerous reasons for this but I'll mention two strong disincentives:
1.) Impending `Brexit` and loss of access to the EU single market
2.) The 'Britain is Closed for business' nature of the new snoopers charter which compels online companies based in the UK to get government approval for any new technology that uses encryption, and also compels them to build backdoors for the government spooks if asked.
Also, what would Apple gain from withdrawing? They weren't paying taxes in Ireland, but they're also not paying taxes in the US. If they pulled out of Ireland they'd still have to pay taxes somewhere, which is exactly the situation they're facing now (just in the US instead of Ireland).
Obviously it is not. Tax sheltering does not require much physical presence at all. It probably requires no more than changing a few contract between subsidiaries to initiate the cash movement to their fiscal haven of choice.
The real problem for Apple is for the money that is already there.
More generally this generation of tax avoidance is probably coming to an end: both the EU and the US are looking at it those days, and Ireland is one regulation away to have to find another way to print money.
Not quite sure what's the big deal. Tax avoidance scheme are rarely stable long term. Extracting tax money is a global competitive market between state and large companies/rich individual. You should sleep peacefully knowing that in all the possible resolution of this affair, Apple will always have to effectively pay less tax than possible to your little startup stuck in a single country tax system.
However about London, once outside the EU they will have the opportunity to position themselves as a tax haven with clever new tax avoidance scheme for large companies.
Now you probably automatically dismissed the idea because that's a crazy idea. Setting up yourself as a tax haven does not scale to the size of the UK economy, and the UK would need to do it at a time of intense scrutiny by the global community and the EU will certainly see that as a aggressive negotiation tactic which is not going to help the Brexit negotiation. But well, there were better arguments for not leaving the EU in the first place, and yet the UK seems to merely go for the hardest Brexit possible. So who knows ? McDonald (fiscal) move to London is worrying. Nissan and others are a bit too happy after their secret chat with the PM.
Apple has very few research and development or production jobs in the EU. It's mostly sales. For those sales they should pay taxes. The EU has nothing to loose here.