Apple has finally launched its legal challenge to an EU ruling that it must pay an additional €13B ($14B) in tax after a special tax deal offered by the Irish government was found to be illegal. The Irish government had already submitted its own appeal against the ruling, stating today that ‘Ireland did not give favourably tax treatment to Apple- the full amount was paid in this case and no state aid was provided.’

On the face it, the EU case is a strong one. The deal with the Irish government – detailed in a Bloomberg analysis – meant that the vast majority of Apple’s taxes were assigned to a ‘head office’ that wasn’t tax resident anywhere in the world, and which therefore paid no taxes at all. This is how, according to the EU case, Apple effectively paid as little as 0.005% tax on billions of dollars of European sales …

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Ireland allowed Apple to create stateless entities that effectively let it decide how much – or how little – tax it pays. The investigators say the company channeled profits from dozens of countries through two Ireland-based units. In a system at least tacitly endorsed by Irish authorities, earnings were split, with the vast majority attributed to a “head office” with no employees and no specific home base — and therefore liable to no tax on any profits from sales outside Ireland. The U.S., meanwhile, didn’t tax the units because they’re incorporated in Ireland.

It was this arrangement that led to Apple being labeled a tax avoider on both sides of the Atlantic – even if there was a marked split in attitude between the US and Europe.

It was the strength of that case that led me to correctly predict that the EU ruling would go against Apple. Apple’s counterargument, in contrast, seemed to be a weak one.

Apple’s case has been that it is deferring taxes, not avoiding them. Its argument goes that the US tax system means that, were Apple ever to repatriate those earnings to the USA, it would be taxed on them.

While this is true, it has so far seemed rather a theoretical argument. Apple has never shown the slightest intention of repatriating the billions held overseas – or in stateless locations existing only on paper – because it would take a 35% tax hit if it did so. But a proposal by president-elect Trump could change this.

Prior to his election, Trump said in a speech that he would implement a 10% repatriation tax intended specifically to encourage American companies like Apple to bring their overseas cash holdings back into the country.

This wealth that’s parked overseas, nobody knows how much it is, some say it’s $2.5T, I have people that think it’s five trillion dollars. We’ll bring it back, and it’ll be taxed only at the rate of 10% instead of 35%. And who would bring it back at 35%? Obviously nobody, because nobody’s doing it […] By taxing it at 10% rather than 35%, all this money will come rolling back into our country.

If Trump delivers on this promise, and the Republican US congress goes along, it seems likely that Apple would take advantage of it, bringing back at least a large chunk of the cash – paying 10% tax to the US government as it does so. At this point, Apple would be able to respond to the EU by saying ‘See? We didn’t avoid any tax – we simply deferred it for a while and then paid it in the USA, where the money belongs.’

If that happens before a European court ruling on Apple’s appeal – something likely to be years away yet – that may well provide the evidence needed for the company to prevail. The big question now is whether or not a president-elect who appears to have quietly dropped so many campaign promises will actually deliver on this one. I’m not placing any bets either way on that one …

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