Tax

<a href="http://www.businessinsider.com/r-irish-tax-changes-may-cost-us-groups-billions-2014-10">Apple’s European HQ in Cork, Ireland</a>

Following its announcement of record Q2 earnings, Apple published its quarterly 10-Q report, providing more in-depth details about finances. Notably, the company warns of the possibility of “material” back taxes due to the company’s well-documented favorable tax arrangements with Ireland.

On June 11, 2014, the European Commission issued an opening decision initiating a formal investigation against Ireland for alleged state aid to the Company. The opening decision concerns the allocation of profits for taxation purposes of the Irish branches of two subsidiaries of the Company. The Company believes the European Commission’s assertions are without merit. If the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid. While such amount could be material, as of March 28, 2015 the Company is unable to estimate the impact.

Apple will need to pay the fines if the European Commission, which is akin to the U.S.’s SEC, rules that Ireland granted Apple special privileges for reduced taxes. As the European Commission has not made any formal rulings on the fine, Apple says it could not estimate the impact. However, the Financial Times pegs the potential payments at $2.5 billion based on Apple’s current rate of profits.

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Apple has sent an email to developers informing them of upcoming changes to app pricing in Canada, the European Union, Norway, Iceland, and Russia. These changes, which take effect later this week, are not the same as the recent change to country-specific VAT rates, and impact a wider range of markets.

The pricing updates are being implemented to accommodate changing tax and currency exchange rates. Prices will go up for customers in all of the affected countries except Iceland, which will see a decrease. Russia’s prices will “change,” according to the email, but there aren’t any additional details on what that may mean.

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Covent Garden, London – one of the largest Apple Stores in the world

New corporate tax measures aimed at preventing multinational companies making profits in the UK and then shifting them overseas where they incur lower taxes could potentially impact a number of tech companies, including Apple, Google and Amazon.

The British government announced a new 25% tax on profits generated in the UK and then “artificially shifted” overseas, reports the BBC … 
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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 …

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If Congress delivers on a proposed tax holiday, Apple could soon join a slew of American companies with large dollar amounts of offshore money eager to repatriate their earnings without being subject to the current corporate tax rate. News of the tax holiday being discussed comes via a report from Reuters:

Top Senate Democrats and Republicans on Tuesday said they were considering offering American companies a one-time tax break if they repatriate profits stashed abroad.

The senators anticipate the proposal would generate a windfall in revenue that would be used to fund federal transportation projects.

U.S. Senate Minority Leader Mitch McConnell told reporters in the Capitol that Republicans had discussed a corporate tax repatriation “holiday” idea and “it enjoys a good deal of support in our conference.”

In the past, Apple has made no secret that it does not favor the current corporate income tax rate. With current policy, Apple’s repatriated funds would be subject to the 35% corporate income tax meaning it could really only keep 65% of its earnings…
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Members of the UK government are seeking to close a tax loophole that currently allows online music, app, and book downloads to avoid the country’s 20% “value added tax” in favor of much lower international tax rates, reports The Guardian. If the push is successful, iTunes customers in the UK will instead be taxed at the appropriate rate for their own country.

However, the new law won’t go into effect until January 1, 2015, so there’s still time for things to change. Supporters of the change say that it will lead to more fair competition among foreign and domestic companies, since UK-based companies are currently at a major disadvantage due to the higher tax rate.

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Image of CFO Oppenheimer and CEO Cook

Following the announcement that Apple CFO Peter Oppenheimer will be retiring in September, the Australian Financial Review has uncovered evidence of a scheme that it says has allowed Apple to move around $9 billion in untaxed Aussie profit to Ireland. The program has allowed Apple to get away with paying only $200 million in taxes on $8.9 billion in profit over the past ten years or so.

Here’s how the whole thing works: Apple has created an Ireland-based company known as Apple Sales International which contributes money toward the research and development budget in Cupertino. This allows the company to legally claim an economic stake in these products and gives ASI partial ownership of the intellectual properties that comprise Apple’s products.

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Image of CFO Oppenheimer and CEO Cook

According to a report from Reuters, Apple is apparently under investigation in Italy related to unpaid taxes on more than $1.34 billion. The report quotes a “a judicial source with direct knowledge of the matter” and noted that the investigation is currently underway with authorities in Milan.

Milan prosecutors say Apple failed to declare to Italian tax authorities 206 million euros in 2010 and 853 million euros in 2011, one of the sources said, confirming a report by Italian magazine L’Espresso.

“The Apple investigation is under way,” the judicial source said on Wednesday, without giving details.

Reuters notes that Italian authorities in June handed down prison sentences and hundreds of million in fines for unpaid taxes to fashion designers Domenico Dolce and Stefano Gabbana.

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A four-month long investigation into Apple’s tax affairs by the Securities and Exchange Commission has cleared the company of any wrong-doing in regard to the way the company accounted for taxes in respect of its overseas operations.

A Senate Permanent Subcommittee on Investigations hearing into Apple’s tax affairs had previously accused the company of seeking “the Holy Grail of tax avoidance” over cash held overseas. The hearing proved anti-climatic, with no wrong-doing established, and the investigation handed off to the SEC. The SEC has now closed the case.

Tim Cook made an unequivocal statement during the Senate hearing that Apple used no tax gimmicks … 
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Apple’s Covent Garden store in London

Apple’s three main British subsidiaries – Apple (UK), Apple Europe and Apple Retail UK – paid no corporation tax in 2012 despite reporting profits of £68m ($103m), reports the Financial Times.

Apple did not pay UK corporation tax last year, according to its latest filings, which are likely to underline the controversy over the US tech giant’s tax planning […] Tax deductions from share awards to employees helped wipe out the corporate tax liabilities of the UK subsidiaries in the year to September 2012. In the previous year, the tax reported by the UK subsidiaries was £11.4m … 
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Alleged UK comedian Mark Thomas used his power and fame for advocacy earlier this week at the Regent Street Apple Store  as he led a staged flash mob protesting Apple’s tax practices.
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In the midst of the U.S. government’s interest in Apple and other large multinationals that “avoid” paying taxes in the U.S. or repatriating funds stored abroad, RudeBaguette.com notes that the French society of authors, composers, and music publishers (SACEM) has announced that Apple owes around 5 million euros in unpaid taxes.

The funds apparently come from unpaid royalties on iPad sales for 2011 that France and other EU countries, such as Germany, collect for devices capable of transferring and displaying copyrighted material:

To give a bit of a background, the copie privée is a tax in several countries including France & Germany that is applied to all digital devices that can transfer, read, or otherwise make use of copyrighted material. The tax goes to the SACEM, which then takes the lump sum of all the taxes collected and deals them out to authors, creators, producers, actors, etc. accordingly… the problem here isn’t so much the tax, but that Apple actually charged the consumers this tax, and didn’t pay it out to the SACEM.

The news comes as reports claim France is beginning to crack down on tax schemes of large companies with plans to force  Apple, Google, and others to disclose details of foreign business activities and tax practices:
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Image: Wall Street Journal

Yesterday’s Senate subcommittee hearing, in which Apple CEO Tim Cook was asked to explain alleged tax avoidance measures, turned into something of a damp squib, each side effectively stating their respective positions rather than engaging in any head-to-head debate …
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Update: Live coverage of the Senate hearing on Apple’s offshore tax practices is above.

As things heat up in the row on alleged tax avoidance by Apple, Ireland has denied a claim made by the Senate Permanent Subcommittee on Investigations that it had agreed a special deal with the company to allow it to pay corporation tax of just 2% on its Irish earnings.

The denial was made to Yahoo! Finance reporter Conor Humphries:

According to the congressional report, Ireland had also agreed a special 2 percent rate for Apple’s Irish taxable profits instead of the normal 12.5 percent, but a spokesman for Ireland’s finance department, when asked how and why this had come about, said: “Ireland’s tax system is statute based, so there is no possibility of individual special tax rate deals for companies.”

This appears to flatly contradict a statement by the Senate subcommittee that accused Apple of …
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