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epolanski

That's not what really Apple did in Europe to pay little taxes.

The scheme was essentially like this:

- Apple Ireland bought iphones for 200$ or so (talking about pre X numbers, now they're likely slightly higher)

- Apple Ireland sold iPhones to Apple Italy for 599€s

- Apple Italy sold iPhones for 599€s + vat (thus avoiding to pay any corporate taxes in Italy while making billions)

- Apple Ireland had a special agreement with Irish tax so they paid like sub 1% corporate taxes on the 400€s of profit

This way not only Apple wasn't paying any tax in the countries they were doing business with, but also paying extremely low taxes in Ireland.

On top of that, which isn't illegal per se, it happened allegedly on top of preferential treatments (but I'm not much informed on the details here).

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> avoiding to pay any corporate taxes in Italy

This us a fairly common strategy not limited to tech.

For instance, Starbucks in the UK:

> Starbucks Coffee Company (UK) made a £149m “gross profit” in the year to October 2023, up from £129m the year before. But after “administrative expenses” of £127m, its pre-tax profits were reduced to £16.9m, on which it paid £7.2m tax...

In 2012, it was revealed that Starbucks had paid just £8.6m in taxes on £3bn in UK sales since 1998,

https://www.theguardian.com/business/2024/apr/05/starbucks-p...

you're ignoring the 20% VAT on those 3bn sales, which provided 600m tax revenue. Why is it so important that they paid 7m in corporate tax instead of any other amount? Their business apparently has high cost of sales (like stores, personnel etc.), where by the way also taxes occur, e.g. for wages...

So I suggest to think twice if you want to paint the picture that Starbucks does not contribute it's fair share to taxes in the UK.

My understanding is that the VAT exists independently of Starbucks paying UK income tax or using various strategies to avoid doing so.

The object here is to avoid recognizing income in nations with a higher tax rate as much as possible.

VAT is paid by the consumer, not the business. The business merely collects it in behalf of the tax office. Starbucks contributes 0 taxes by collecting VAT. Look up the definition of consumption taxes as opposed to corporate income taxes.

If you want to give other examples of ways companies contribute you can mention property taxes on owned properties, or jobs created which usually also have some part of pension etc contributed by the business, vehicles paying excise tax and fuel taxes, but I don't think VAT is a correct one to use.

Corporate tax is also paid by the consumer. They raise prices by exactly the amount of their corporate tax.

Or not. If their competition doesn't raise prices, maybe they won't either.

Their competition also needs to pay these taxes. There's no free money - adding to corporate taxes just makes things more expensive for the consumer.

If the tax raises all of their costs and it's a competitive market then they'll all have to raise prices, because competitive market = competitive pricing and it has to come from somewhere.

The most common case where it doesn't raise prices is when they don't have any competition and are already charging the monopoly price, so the money has to come from the company because if there was any more to extract from the customer, the monopolist would have done it to begin with. But we don't really like those markets or want to promote their continued existence.

What this doesn't depend on much is the form of the tax. If it's a competitive market then VAT and corporate income tax are both getting passed on to the customer. If it's a monopolist then either one will typically come out of the monopoly rent, because charging the customers more would bankrupt them or cause them to extend the life of used goods instead of buying new ones etc.

However, corporate income tax is generally easier for multinational corporations to avoid than VAT, so they have a pecuniary interest in making people think that VAT is worse than income tax.

There's a third option: they're competitors are small business that don't have the means to do the clever tax optimization/evasions, so they were already paying full tax. So now Starbucks if it were to pay full taxes, would have to either raise their prices (but then competitors could stay at the same price, because they've already been paying those tax rates), or they can lower their margin.

It's true that these taxes make things more expensive for local businesses, but also for all businesses, as they have to employ very expensive tax lawyers to figure out the best places to put their businesses. What a waste of mental effort that could've gone into more productive careers. But that's corporation tax for you.

> VAT is paid by the consumer, not the business

This doesn't matter.

It's like saying "the employee doesn't pay employee tax; the business does". The cost is still there for the business, who could otherwise be paying you it. Or using it to employ more people. Tax is tax.

In this case, the business could charge the same amount but keep what is currently the VAT portion. It's still tax revenue generated by a business doing work, paid by a consumer who does taxed work elsewhere to get the money, and all the government does is collect the money. Doesn't really matter which tax it is.

It obviously matters.

Because VAT is only applied on consumers.

If business A buys from business B which buys from business C...Only the end customer pays VAT on the final transaction, none of the entities before do.

does the UK have an income tax?

Any sane country would rather have the economic boost from the jobs and then take their cut as income tax from that. than tax the company directly, Not to say they will not tax the company, but corporate law is often intentionally designed to let a company pay little tax if it is dumping the money it makes into the economy. why kill the goose that lays the golden eggs?

> Any sane country would rather have the economic boost from the jobs and then take their cut as income tax from that. than tax the company directly

What jobs does Starbucks create, exactly? There were no coffee shops in UK before them? They outcompete local shops because they don’t have to pay taxes, and still sell a croissant for $5.

Alternatively, highly skilled population and innovative people are the goose that lays the golden eggs

That sounds like something Hollywood does when they want to cut out profit sharing with the cast.

One of their affiliate companies makes an absolute killing on services rendered and the studio itself takes a bath on the movie.

> Apple Italy sold iPhones for 599€s + vat (thus avoiding to pay any corporate taxes in Italy while making billions)

Isn't that the whole point of the European Economic Area? That you can freely sell your goods to other countries within the EEA without having to pay corporate taxes to each individual country?

Sure, but I think it's the sort of "self-dealing" that's the problem.

Suppose it were possible for a wholesaler in Ireland to purchase a product in bulk at around 1/3 of MSRP. Market equilibrium would drive the price of that product down, right? If any other company could do that, price competition would prevail and eventually the delta between the import cost (in Ireland) and the export price (to an Italian phone shop) would shrink. Likewise, the retailers that wholesaler sells to would want to have some margin as well. This would put pressure on the wholesaler - likely competing with other wholesalers - to have a small margin as their "value added" is insubstantial.

But, crucially, this is not a case of three independent entities: a manufacturer, a wholesaler, and a retail business. This is one entity, with three subsidiaries and setting prices between them to minimize tax burden, and setting prices in ways that are simply nonsensical, like selling products from one subsidiary to another at or below cost, and then to another at full retail price. If they were three separate companies, the manufacturer and the retailer would go under. In this scheme, the wholesaler is somehow adding all of the value to the product, despite doing nothing more than acting as a shipping hub.

If proving this weren’t the issue the whole thing could have been wrapped up in a day. Good summary though.

Yes, there's nothing wrong with that.

The issue arises from Apple allegedly getting a preferential treatment in Irish taxes on top of that, thus paying extremely low taxes overall for their entire European business.

The other weird part is that I beleive the situation had been resolved before any investigation.

And where was this against the law?

A good argument for GST. With a 10% GST the Italians would have at least seen 10% of the 599.

I apologize if this is a stupid question but aren't GST and VAT (basically) the same thing? It is just an "advanced" sales tax, no? It still does not fix the problem of income tax...

The big problem from what I remember from earlier is some companies like grocery stores operate on razor thin margins -- like they buy tomatoes for USD 0.90 per kilogram and sell for USD 1.00 or whatever so if we charge income tax on the whole USD 1.00, the rate would have to be RIDICULOUSLY low or the grocery store simply won't survive.

Problem I want to see fixed with some kind of sales tax upgrade (VAT/GST/whatever) is if a company / conglomerate "sells" goods and services to itself, it should have to pay this tax on the pre-discount rate. For example, if Google web search has an advertisement for Google Chrome, Google should have to pay this tax on the market value of the ad placed, not on the actual money amount that changed hands (which is likely zero dollars). Same thing with Apple Music on iPhone. There are MAJOR ads placed when you first set up an iPhone and later continuing ads that show up saying "hey, how about now? do you want to pay for Apple Music EXTREME THUNDER edition now?" These are ads that have a lot of value and Apple should have to pay (upgraded) sales tax for displaying these ads.

Value added tax is a tax on the difference between the purchase price of the inputs and the sale price of the outputs; that is, it's a tax on the value that company specifically adds.

The way it works in practice is VAT is added to the the sale price, but the VAT actually sent by the business to the government is reduced by any VAT that was paid for inputs. This way, you don't end up with increasing amounts of tax just because a supply chain has lots of middlemen.

This setup creates an incentive to report VAT at each level of the supply chain, reducing fraud. Because the tax doesn't compound with multiple steps, it's fairer.

Sorry, I don't know anything about VAT, but in Australia, consumers pay 10% on all products except food, financial services, and a few other things.

When Apple sells an phone to a consumer in Australia, 10% of the sale price is collected by the retailer, and paid directly to the government, rather giving the full sale price to Apple, then allowing Apple to work out later what was profit and what was not.

There are mixed feelings about it, but I've always liked it. If you consume a lot of stuff, you pay a lot of tax. Sounds fair to me.

    > If you consume a lot of stuff, you pay a lot of tax. Sounds fair to me.

Most economists view VAT/GST as a regressive tax. I don't know why so many highly advanced, liberal democracies are so dependent upon VAT/GST for tax revenues.

> I don't know why so many highly advanced, liberal democracies are so dependent upon VAT/GST for tax revenues.

See above discussion, when wealthy people are responsible for declaring their own income, it tends to be low.

GST is "regressive". You have to charge everybody the same 10%. You can't ask wealthy people to pay 40% like you can with income tax.

I actually have no idea what percentage of tax revenue is GST vs Personal Income Tax vs Company Tax. I'm interested now, I'll go do some research.

This is what I found https://www.abs.gov.au/articles/insights-government-finance-...

Aren't they already getting 22% of it?

No, VAT is a tax on consumers, which is why I left it out of the calculation.

To recap: Apple Ireland made 400€s of profit by getting iPhones at 200€s and selling them at 600€s to Apple Italy.

The 400€s profit went virtually untaxed due to Apple having privileged corporate tax.

Thus, in conclusion, Apple paid little to no taxes on EU sales for ages.

What the EU contested wasn't that the whole thing was illegal, after all it's Irish business how much do they want to tax corporate profits (albeit as you can imagine the whole schema was to push for more trading, not corporate loopholes), but that Apple (and some other companies) got a special treatment compared to other businesses in Ireland.

Isn't sales tax (and/or GST also a tax) on consumers? GST is just in theory much simpler and cheaper to administer.

> The 400€s profit went virtually untaxed due to Apple having privileged corporate tax. > Thus, in conclusion, Apple paid little to no taxes on EU sales for ages.

Sure but how would GST help?

The standard VAT rate in Italy in 22%, so Google tells me. The real problem: Apple runs stores in Italy (and hence a business in Italy), but doesn't pay any corporate income tax in Italy. So, Italy is missing out on tax revenues.

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