Two days after the Financial Times reported that the European Commission was about to come down hard on Apple’s alleged deal with the Irish government to reduce its tax liabilities, Apple has made a statement to Business Insider claiming that it has received “no selective treatment.”
Apple is proud of its long history in Ireland and the 4,000 people we employ in Cork. They serve our customers through manufacturing, tech support and other important functions. Our success in Europe and around the world is the result of hard work and innovation by our employees, not any special arrangements with the government. Apple has received no selective treatment from Irish officials over the years. We’re subject to the same tax laws as the countless other companies who do business in Ireland.
Since the iPhone launched in 2007, our tax payments in Ireland and around the world have increased tenfold. To continue that growth and the benefits it brings to the communities where we work and live, we believe comprehensive corporate tax reform is badly needed …
Although the statement sounds definitive, it may be that it is carefully worded, simply meaning that any other very large corporation offering jobs and tax revenue to Ireland in return for favorable tax treatment would have been able to negotiate the same deals.
Business Insider says that Apple first reached an agreement with Steve Jobs in the late 1980s.
The tax agreement was struck between Dublin and Apple founder Steve Jobs in the late 1980s. It was implemented sometime around 1991. The EC is looking at a 10-year period between 2004 and 2014.
The European Commission today announced that it had reached the “preliminary view” that these deals amounted to state aid, reports the WSJ. However, Adam Smith Institute Fellow Tim Worstall, writing in Forbes, argues that even if this view is substantiated in the final report, it is the Irish government, rather than Apple, which would be in the firing-line.
There is no possibility of a fine upon Apple whatsoever. For in cases of illegal state aid there never is a fine levied upon the company or recipient of such aid. The government that allowed or paid out the aid must recover it, that’s true, but there’s no fines over and above that even if there’s a finding of said illegal aid.
In other words, the Irish government would have to ask Apple to repay the tax it would have owed without the deal (likely to amount to around $8B), but Apple would, in law, have done nothing wrong.
The reason Apple has such a significant corporate presence in Ireland is to allow it to take advantage of what is known as transfer pricing. What Apple Ireland does, says Worstall, is to buy a licence from Apple in Cupertino, allowing it to manufacture and sell iPhones in the UK. Apple Ireland buys all the components, pays the manufacturing costs and ships the phones to the UK to be sold both through Apple Stores and third-party resellers, aka the carriers.
Because Apple Ireland charges close to retail prices for the phones it sells to UK outlets, most of the profits are made in Ireland, and those profits are taxed at the rates allegedly agreed with the Irish government: around two percent. While the morality of this may be debatable, it is, says Worstall, perfectly legal.
This is not illegal and is not state aid. Nor does the Commission say that it is.
Apple’s position appears to be that while its tax avoidance strategies are legal, it will continue to use them, and if governments feel such arrangements are wrong, it is their responsibility to outlaw them. The Irish government seems content that a small percentage of a lot of money is worth having, and is keeping its head down. The question will be whether the EU can overturn the arrangements. It’s going to be an interesting battle to watch.