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European Commision to accuse Ireland of giving illegal state aid to Apple, fines could be €Billions

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It looks like this week’s Apple “xxx-gate” is a big one with the Financial Times reporting that the European Commision is about to come down hard on Apple for its long held tax avoidance strategies in Ireland.

Typically the EU has used its state aid powers to address broader competition issues. But in the past year Brussels has attempted to target the tax affairs of companies such as Apple, Starbucks and Amazon. It is a novel application of the law with far-reaching implications, not just for the companies, or EU countries, but for EU-US relations in general.

This week the European Commission will publish the first findings in the Apple case. The details – including evidence from bygone tax negotiations – are likely to be explosive.

The US is no happier with Apple’s use of specially created Irish tax loopholes which allow it to avoid paying taxes it would otherwise be due. Apple CEO Tim Cook and other execs faced Senate Subcommittee questioning in May in which focused on Apple’s tax avoidance schemes.

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Did Apple apply pressure to Irish authorities in 1991 and again in 2007 when negotiating tax deals and if so were these illegal competitive measures that gave Apple advantages over competitors? Luca Maestri, Apple’s finance chief, of course denies any wrongdoing…

“If countries change the tax laws, we will abide by the new laws and we will pay taxes according to those laws,” Maestri is quoted as saying.

In August, Apple started campaigning hard on its benefits to Europe saying it had created 629,000 jobs on the continent, many from the App Store.

Apple’s rebuttal falls into two major categories:

  1. The commission’s attempt to retrospectively apply international guidelines on taxing branches of multinationals is misleading and wrong. The OECD rules only came into force in 2010, and have yet to be adopted by Ireland.
  2. Apple argues the rates agreed with Irish authorities are appropriate. It hopes to show its tax bills were a measure of the profits attributable to its Irish subsidiaries and within a similar profit range to comparable companies.

Maestri said that Apple plans to stay in Ireland no matter what the outcome of the investigation yields.

Perhaps a little irony here: If Ireland is found to have made special deals with Apple, it stands to make a great windfall of money from the fines and new taxes levied on Apple.

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Comments

  1. Chadwick Davis - 9 years ago

    This is total BS. if anything these should be prospective closing of supposed loopholes going forward and if they use Apple as a posterchild they should be chasing after all taxpayers using these strategies, including Google.

    • It’s not just going to be Apple being required to back pay what they clearly manipulated in their favor. Google and hundreds of other corporations, globally, have been using Ireland to do this and avoid paying a huge chunk of money to the EU and the US, not to mention Australia and others.

      These corporate entitlements and freerides are over. They’ll still make massive profits. It’s hedge funds and other speculative scum that will be losing a lot more, and rightly so.

      • ssanook - 9 years ago

        Gee Marc, can you elaborate “clearly manipulated” for us? Apple pays back nothing unless they have violated a law, can you tell us what law they violated?

        I agree, all corporations should pay their “fair share”. But I also will state that so were not guessing, there needs to be laws and enforcement for “fair share”.

      • Mike Knopp (@mknopp) - 9 years ago

        I am glad that you are calling Apple out for this. I think that you also need to call out all of the other millions of Americans, nay the billions of people worldwide, who clearly manipulate the taxes in their favor. Those greedy people who tax every single exemption and deduction to which they are legally entitled, but obviously morally shouldn’t take as it is obviously all a ploy on their part to avoid paying their fair share. Those questionable things like dependent deductions, educational loan deductions, home loan interest deductions, etc.

        The point is that so far nobody has proven that Apple has done anything illegal. Did they take actions to reduce the amount of tax that they legally have to pay. Yes. Just like every person that I know.

        If people aren’t happy with the amount of tax that Apple is paying then they need to push for tax reform, but don’t be a hypocrite and renounce Apple for doing what I am sure you do. Which, is take every legal action that you can take to reduce the amount of taxes that you pay.

  2. RaptorOO7 (@RaptorOO7) - 9 years ago

    Oh wait they created 629,000 new jobs through the “App Store” and how many of those so called jobs actually make any money, do those jobs pay taxes or are they just skimming along like Apple. They will be called out and I hope the fines are BIG enough to cause them pain and get them to pay their fair share in the US.

    • Go look at the numbers. Apple pays its fair share in the US. Some politicians in the US want Apple to pay MORE than its far share so they can continue lining their pockets and those of their cronies, defense contractors, weapons dealers, etc.

      Before opening your trap about how much money private enterprise should or should not be paying in taxes, why don’t you demand that your government stop pissing the majority of all its income away on offensive efforts, weapons and the military machine in general?

      • As an Apple alumni, they leverage ever questionable structure and beyond to avoid paying taxes, just like every other large corporation that has created foreign status and performed the double dipping these vague statutues don’t condemn.

        They wanted a one time 5% Repatriotion grant that would have screwed the US out of hundreds of billions of back tax revenue.They used their off-shore status to not pay fair taxes and now want a repatriation that is < sales tax on trillions stored off-shore. Screw them all.

      • The Military Machine you refer to is the one thing the government is required to do by the constitution…

    • kobymac - 9 years ago

      It’s not just in the USA – every country where apple operates misses out on millions, if not billions in tax due to these strategies. It’s not just apple either…but apple is the main offender and should be target number 1.

      • piablo - 9 years ago

        “Missing out” implies that Apple’s earning are somehow entitled to someone else… Perhaps I am missing out on a portion of your paycheck. I should look into that.

  3. James W (@semaj_nalehw) - 9 years ago

    Okay but here’s the thing: every single EU country does backroom deals on taxes. Literally every one. This is getting focused on because i. Apple is big news politically in both the US and Europe at the moment and ii. Because the bigger countries in Europe have been trying to bully the smaller countries for years into normalising corporate tax rates because they know it’s an area they can’t compete in. The commission, being a completely political body full Germans and French, is using this as an excuse bring corporate taxes into the news again so Merkel and Hollande can have another stab at hurting Ireland and The Netherlands to prop up their own flatlining economies.

    If you wanna talk about “back room deals” look at Germany and France themselves. Ireland has a corporate tax rate of 12.5%. Its effective tax rate (the amount that companies end up paying when you take an average) is 11.9%. Then look at the UK, France and Germany. Huge countries with official corporate tax rates in 30-40% range. ALL of their effective rates are actually in the low tens. That can only happen with back room deals and the reason why the commission and all of these big economies want a normalised EU rate is so they can raise their effective rates without losing business to Ireland and The Netherlands.

    The way I see it is that Apple (as an example) has a huge operation in Ireland. Nearly 4000 people on their campus in a country of 4.6 million. Ireland isn’t a country with home grown mulinational industry. It was too small and too on the periphery for too long for that to take off. In the 1980s it found its niche as a low tax knowledge economy. It doesn’t care about multinational earnings, it cares about how many jobs those multinationals bring. I bet that despite the commission’s finger pointing you’ll eventually see that the so called back room deals were more “of course we’re not going to try and tax you on all of your earnings from the EMEA” (an amount that could probably come close to paying half of Ireland’s budget annually) than “here give us 4000 jobs and we’ll screw over the EU.”

    I also don’t think the Commission know the fight they’re in for. The Irish treat their corporate tax rate the same way Americans treat the armed forces or christianity. It’s a nationalist thing. Left and right support the low rate so companies have another reason to set up shop there. I could honestly see Ireland voting to leave the EU before they gave up their rate. At the very least it would fundamentally change how the Irish perceive the EU. The EU needs Ireland. It and the Netherlands are the most pro-EU countries in the block. If the Germans jeopardise that perception they’re really jeopardising the entire future of the EU.

  4. Dean Cade - 9 years ago

    These types of companies like Apple have to pay their tax and stop hiding. Just think if they were not looking for tax loop holes they may be employing Americans in their home country as well pay tax just like us small people have to do.

    • iosecure - 9 years ago

      I hope you realize Apple is the top corporate tax payer in America, so please.

    • WaveMedia (@WaveMedia) - 9 years ago

      America is not the world. Just because they’re an American company doesn’t mean every cent should be taxed in the US and certainly not when that cent isn’t made in the US.

    • ssanook - 9 years ago

      Just the facts and nothing but the facts:

      Apple Paid $6 Billion in Federal Income Tax in 2012, 1/40 of All U.S. Corporate Income Tax Collected

      In 2013 and 2014 those numbers increase dramatically, so before you state that Apple doesn’t pay their fair share, go to their public financial statements and read the facts.

      • ssanook - 9 years ago

        In addition, every US company that supplies Apple materials, and equipment pays tax
        The company building the Apple spaceship pays tax
        All the people wiring for Apple in the USA, Apple US citizens working overseas and employees of Apple suppliers pay tax.

        I think the amount of taxes paid directly from Apple, its employees and suppliers must be 10’s of Billions….so lets see thats about an hour of spend from the US gov these days.

      • You are aware there is whole world out there which isn’t part of America don’t you? Read the article – it isn’t about Apple paying tax in America – it’s about Apple not paying their share of tax in the EU. I’m sure EU members don’t give a ratsass if Apple paid $6billion to the American Government but EU governments do. You have to remember, other countries pay an absolute premium for Apple tech. A basic iPhone 5s in the US costs $549. With the EU exchange rate, that should mean in Ireland it should be €433. It’s not – it’s €599.

        Now imagine your a resident of the Republic of Ireland or the EU in general. Your already paying more for an iPhone 5S than your friends in the US. That’s wouldn’t be too bad if the tax off those sales went to the respective governments to be passed indirectly to the public in tax breaks, service improvements etc. But it’s not. Apple trousers most of the money they make on sales so there is MINIMAL benefit to the public or the respective EU governments. Is it any wonder the EU is trying to clamp down.

        And before any of you get upset, Apple have been singled out because this is an Apple Website. Despite sales of £3.4bn worth of sales in the UK, Google only paid £12m worth of tax to the UK treasury. Amazon & Starbucks are under investigation too. And rightly so.

    • Mike Knopp (@mknopp) - 9 years ago

      Yeah, it isn’t like the small people ever do anything to decrease the amount of taxes that they have to pay. I am guess that Mr. Cade is an upstanding citizens and doesn’t engage any any tax loopholes like taking tax deductions for interest on home loans, deductions for dependent children, deductions for child care, etc.

      These sorts of shady and immoral small people who hide how much tax they owe and engage in such “questionable” tax practices should be ashamed. They are no better than Apple and as such, only good upstanding citizens who don’t take unfair advantage of the tax loopholes to avoid paying their fair share of taxes should be able to criticize Apple for their obviously unprecedented behavior.

      So, let those people who haven’t engaged in the exact same behavior as Apple start the criticism now.

      • piablo - 9 years ago

        So what is a “fair” share? Do you pay your “fair” share?

  5. ssanook - 9 years ago

    As an investor I want Apple to use all means within the laws to avoid paying taxes and in addition I want them to defend their rights to do so aggressively. Don’t like it…change the law.

    Its commonplace to use locations for advantages for all types of business purposes, why do you think just about every large corporation in America is incorporated in Delaware……..

    • Inaba-kun (@Inaba_kun) - 9 years ago

      Charming Profits before people. You must be proud of yourself.

      • piablo - 9 years ago

        LOL! Yes, he should be. Nobody has a right to someone else’s earnings, regardless of how much they earned. And that goes for a collective business or an individual. Their level of success is irrelevant to someone’s level of entitlement, which is ZERO.

    • Niels (@vbq31797) - 9 years ago

      Tax avoidance is always legal. But illegal state support never is, so if the EC can prove this illegal support, Apple (and Fiat) has to pay the money back. I guess Ireland could use the extra income.

    • piablo - 9 years ago

      It’s insane. These people look at a large stash of money and then invent reasons why they should be allowed to get their hands on it.

      • Niels (@vbq31797) - 9 years ago

        That’s what governments do, taking parts of your, my and companies’ income.. If companies invent a way to reduce their part, they either take it in a different way from the companies or take it from us. I’d rather have them figuring out how to take it from companies than increase taxes on us.

  6. Inaba-kun (@Inaba_kun) - 9 years ago

    This is fantastic news. Big companies such as Apple and Amazon have used barely legal tax avoidance strategies for years. It should be so very simple – if you do business in a country, you should pay just the same taxes as a company based in that country.

    The billions that Apple and others should have paid could have saved thousands and thousands of lives in medical and elderly care. Instead that money lies unused in bank vaults. Cook likes to portray Apple as a moral country (despite doing business in some highly dubious locations), but he seems quite happy to go to extreme lengths to avoid paying tax.

    • Tim Jr. - 9 years ago

      This will have ZERO impact on Amazon.. Amazon is mainly in the USA. They are completely shielded from any tax grabs from EU

    • piablo - 9 years ago

      “Barely legal”… Isn’t that legal? Are you advocating going after businesses for legal practices?
      Your reasoning is pretty interesting too. If Apple is only going to save their money, then it should be taken from them. Who are you, Karl Marx? It’s probably a safe bet you have possessions that you don’t use… a shirt here, a tool there. Perhaps those should be seized from you to help someone else. Or are you excluded from your own philosophies?

  7. Dave Healey - 9 years ago

    Virtually every big tech company (and non tech company for that matter) is situated in Ireland for their European business. Over 15 years ago I used to deal with companies like Microsoft and Dell etc from their Ireland office. This is because Ireland marketed a huge push to attract these type of businesses to operate from their shores with incentives. I do hate the way the press uses the biggest company (Apple in this case) for sensational reasons when in fact there will be many companies that benefited from any such arrangements. Also surely it’s Ireland that brokered these deals to attract businesses to their shores, so it’s Ireland that’s at fault here, not the companies!?

    • Inaba-kun (@Inaba_kun) - 9 years ago

      Actually the company which is targeted most frequently by the media here (UK) for tax evasion is Amazon.

      • We weren’t on about the UK – we where on about Ireland. It’s a different country.

    • stuffradio (@stuffradio) - 9 years ago

      I guess you have missed all the fines levied against Microsoft over the years by the EU. Apple is not being used for sensational reasons more than Microsoft is/was.

  8. Tim Jr. - 9 years ago

    Forbes has a much more informed article on this.. it’s not even to a point of legal proceedings.. they are just announcing that they are looking into the possibility. LOL

    http://www.forbes.com/sites/timworstall/2014/09/29/the-european-commission-is-not-about-to-fine-apple-nor-even-to-accuse-the-company-of-anything/?partner=yahootix

    • Tim Jr. - 9 years ago

      I smell another click-n-bait from FT and WSJ…

  9. John Evos - 9 years ago

    There is no possibility of a fine upon Apple whatsoever,” Worstall reports. “Again no: there’s simply no finding of fact coming up. This next report is simply a laying out of what the Commission is looking into. And in the case of Apple it’s not even about Irish tax rates, the Double Irish with a Dutch Sandwich (or is it Double Dutch with an Irish?), that mysterious company with no tax domicile or any of those things that get bandied about. It is purely and simply about transfer pricing.”

    “The major point is that The European Commission is not about to release a report of their findings in this case about Apple’s tax structure or state aid. It’s going to release the report that outlines what it is investigating and why. And even if it does, at some indeterminate point in the future, find illegal state aid there will be no fine imposed upon Apple,” Worstall writes. “As to quite why this story has been so garbled this morning, well, I can only speculate… If I were at the FT or WSJ today I’d be going back to my sources and asking just how their stock position in Apple was looking this morning. Are they short? Got a few short dated put options perhaps? Note, I’m talking about the sources, not the journalists. But that is very wild speculation on my part.”

    Read more in the full article here.

  10. piablo - 9 years ago

    I love the term ‘loophole’… It’s a ‘loophole’ when someone doesn’t like, it’s ‘the law’ when it’s okay.
    These so called loopholes are simply how the law is written. It’s either legal, or illegal. If it’s legal then there should not be any kind of debate or discussion of impropriety. As the leader of a business, it is their obligation to manage the business efficiently and effectively. Handing over as much money possible to the government is not the best business plan…

    And before any turds start carping about ‘fair share’ and other BS, what exactly is a fair share? What percentage of one’s earnings should anyone be obligated to hand over to the government? What percentage should you be obligated to?

  11. Gort (@DrugstorCowboy) - 9 years ago

    I find it fascinating that the European Commission has any authority over the sovereignty of an individual country. It’s one reason why I am vehemently opposed to any “world tax” or other legislation by a body such as the UN. When it is decided that a foreign entity has sovereignty over US laws, for example, it basically makes our domestic laws, and even our Constitution invalid.

    While opinions may differ on the specific issue discussed above, I am more concerned about the larger constitutional and sovereignty issues at hand. It’s a slippery slope.

    My hunch is that both the European Commission and the US federal government are upset with all this because it’s money they aren’t capturing. It’s purely political. Both the EU and the US are deeply in debt, and the thought of a successful company working WITHIN the stated laws to use tax shelters to their advantage makes their blood boil. Yet, I am reminded of the rights that individuals and businesses in the US have to seek the lowest tax obligations within the letter of the law, per this seminal legal opinion:

    “Anyone may arrange his affairs so that his taxes shall be as low as
    possible; he is not bound to choose that pattern which best pays the
    treasury. There is not even a patriotic duty to increase one’s taxes.
    Over and over again the Courts have said that there is nothing sinister
    in so arranging affairs as to keep taxes as low as possible. Everyone
    does it, rich and poor alike and all do right, for nobody owes any
    public duty to pay more than the law demands.”
    – Learned Hand, Judge, U. S. Court of Appeals

  12. Let’s remember one law of economics. Corporations do NOT pay tax. Only the consumer pays tax. When a company is forced to pay taxes, 100% of the cost of those taxes, PLUS the cost of actually determining those taxes and then paying them, is passed on to us, the consumer. All the EU will do in fining Apple is cause all EU prices to be increased over time to pay for those taxes, resulting in less sales, and less tax paid in the long run. Sadly, most governments don’t know a whole lot about economic theory. Actually it’s probably better that they don’t, because then they’d be REALLY dangerous.

    • mkmg76 - 9 years ago

      I’m replying from Ireland and can tell you that EVERYONE I speak with here is sick to the back teeth with the EU. It is exactly as one reply stated, Ireland had no real economy to speak of so we created a lower corporate tax system to attract large companies and therefore jobs. The only reason these tax issues are being brought up is to create a unilateral tax system across the EU so companies would have no reason NOT to use France, Germany, UK, etc etc. This is a tiny country with a population far lower than most US cities, we depend on companies like Apple, Google, eBay, PayPal etc etc. I really feel that I’m speaking for the whole country here when I say “FK off Europe, we’re sick of your two faced, back door, double standards”. Stop sticking your nose in where it doesn’t belong. If there were a vote tomorrow, I feel that we, the ordinary people of this country, would honestly tell the EU where they could shove their union.

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