Rather Than Coming Up With Brand New Taxes For Tech Companies, The EU Just Issues A Massive Fine On Apple
from the double-irish-with-a-dutch-sandwich dept
For quite some time now, we’ve seen EU regulators talk fairly openly about their desires to harm American internet companies, mostly in a misguided attempt to boost local European companies (and to collect more money). It’s why we keep hearing about weird, carefully targeted regulations designed to pump up how much money companies like Google, Apple and others pay.
At the same time, parts of Europe (Ireland, in particular) have been doing basically everything they can think of to woo American tech companies. Ireland has successfully offered ridiculously friendly policies, leading many large internet companies to set up offices in Dublin, and then use that as the place where they “recognize” all their revenue. There are a variety of tax dodges employed here, which go by fun names like Dutch Sandwich and Double Irish.
US Companies have been doing this for many years, and while it (frankly) looks pretty sleazy, they do seem to mostly play by the rules. We can argue over whether or not the tax breaks they get are worth it, but the whole thing just feels sketchy in that it’s clearly playing some jurisdictional games to get lower tax rates. Of course, there’s also been another looming issue on all of this, which is that these giant internet companies have been pushing heavily to be able to get the cash that they’ve been accumulating in Ireland back into the US, without then having to pay all those taxes on it. So they’ve been pushing for some sort of “amnesty” period or “holiday” where they can bring the cash back in.
Frankly, the whole thing is a little ridiculous. With so much money on the line, you can see why these companies play games, but that still doesn’t make it right. The internet giants often seem to put this issue at the top of their lobbying priority list, and that’s unfortunate. The thing that I like about Silicon Valley is that much of the industry comes from actually creating new and useful things and building stuff up. Playing tax dodging games is the opposite of that. It’s playing political games and it feels super counterproductive.
Now, add on top of that the fact that the EU has realized that rather than just create new laws that will tax internet giants, it can just go ahead and hit Apple with a massive tax increase all by itself.
Apple Inc. was ordered to pay as much as 13 billion euros ($14.5 billion) plus interest after the European Commission said Ireland illegally slashed the iPhone maker?s tax bill, in a record crackdown on fiscal loopholes that also risks inflaming tensions with the U.S.
The world?s richest company benefited from selective tax treatment that gave it an unfair advantage over other businesses, the European Union regulator said Tuesday. It?s the largest tax penalty in a three-year campaign against corporate tax avoidance. Apple and Ireland both vowed to fight the decision in the EU courts.
No one comes out of this looking very good. The tech companies playing tax haven games look bad — even if you think the tax rate is too high and they should be trying to get it lowered. The EU government looks typically jealous and petty towards American companies. And of course, people are already talking about a possible trade war over this issue.
Frankly, I’d much rather tech companies be focused on innovation in their products, rather than in their tax strategies.
Filed Under: eu, ireland, tax, tax avoidance, tech companies
Companies: apple
Comments on “Rather Than Coming Up With Brand New Taxes For Tech Companies, The EU Just Issues A Massive Fine On Apple”
This would be surprisingly simple to fix: just fix the definition of profit.
Taxable profit in [country] is the sum total of all money earned by sales of goods and services in [country] minus all money spent on goods, services, and wages in [country]. Period.
This definition fixes the “move revenue overseas” tax dodge: if you’re spending that money in another country, it doesn’t affect the money you’re spending in this country. It also the additional benefits of disincentivizing offshoring of jobs, and disincentivizing buying foreign goods rather than domestic ones.
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Awesome. I’ll set up a company in the UK but device from Ireland and sell them at cost. No profit.
Ireland making a killing. I get there tax rates.
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This doesn’t make sense. Apple spends a lot of money in some countries (like the U.S. and China), and yet you expect them to pay all the revenue they make in countries where they don’t spend very much (like Europe)? And that’s on top of VAT. I hope Europe likes paying as much as Brazil for their iPhones.
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Please google the term transfer pricing. I believe that bit of information will let you know:
a) How this mechanism lets a company produce goods in one country, sell in other countries and have everything even out.
b) Abuse the tax system to shift profits to the countries where they pay the least taxes.
The problem is that it is required for a company to operate globally. Unfortunately, for honest people and companies, it is also extremely simple to abuse this system.
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The tax system, anywhere, was never designed for a global world. Nor was it designed for a world where ideas alone could make money.
I suspect the real answer is something like not allowing the deferment of tax /at all/; or at they very least only allowing locally related taxes to cancel out.
Re: Re: Re:
Apple decides to sell a phone in some country, it sets up a shop, employs staff, buys stock (phones) off Apple Ireland.
costs Apple Ireland $50 to put that phone in its warehouse.
costs Apple Store in country X $600 for that phone, Apple store Under Instruction (US HQ) sells phone for $620, pays wages and shows $1.00 profit so pays to country X 35 cents in tax.
What happens to the $550, country X has just had the money sucked out, Apple Ireland bank account gets filled. This Money wont get to the US ( it would mean a profit for the US HQ so tax on that profit is due).
Apple Is piling Up money It’s not helping the economy of country X, its not helping the economy of the US And it doesn’t help the economy of Ireland, the Apple Ireland bank account is not in an irish Bank.
Apple Inc. was ordered to pay as much as 13 billion euros ($14.5 billion) plus interest after the European Commission said Ireland illegally slashed the iPhone maker’s tax bill, in a record crackdown on fiscal loopholes that also risks inflaming tensions with the U.S.
With an argument like that I certainly hope the EU has the absolute highest tax rates on the planet, otherwise it seems it would be trivially easy for another country to make the same argument against them.
‘Company X set up a branch in the EU to illegally slash their taxes that they otherwise would have paid in Country Y.’
Not playing by the rules
I don’t think that Apple is playing by the rules at all.
In most countries, if you set up your affairs in a way that makes no business sense, but reduces your taxes, you are risking that scheme being voided and having to pay the taxes as though the scheme never existed. That’s part of what is going on here.
In this case, the EU is not saying that Apple must pay the EU. The EU is saying that Apple must pay Ireland. What appears to have happened is that Ireland has violated its treaty with the EU in order to provide a special deal with Apple (and other large tech companies). Ireland is attempting to benefit from membership of the EU while not following the requirements of membership. Apple has lots of lawyers and knew this.
These treaties are not new: they pre-date the formation of Apple Computer.
Apple attempted to reduce its legitimate tax obligations to other EU countries by getting a special deal from Ireland. Now it is facing the consequences of that. That’s a race to the bottom by Ireland and results in suffering for all involved.
IMHO, the ONLY question is whether Apple should have to pay back-taxes. Going forward, Apple and Ireland need to stop any such special deals.
Google records all sales to UK companies through its Irish subsidiary, despite employing lots of people in the UK with “sales” in their job titles. It’s bogus and the small amount of tax that Google and the UK’s tax authorities settled this issue for is an insult to the citizens of the UK.
Re: Not playing by the rules
Ratified treaties have the same force as national laws. But those nations retain their national sovereignty, even in the EU. That;s the POINT of how the EU is set up in the first place.
Nations are perfectly free to change their minds and pass new laws. If that causes them to violate a treaty, that is between the nation that violated it and the other signatories.
Individuals and corporations who obeyed the laws of the nation they are in are not responsible for that any more than a janitor working for a corporation can have his savings account seized because the CEO broke a contract with another corporation.
Re: Not playing by the rules
Agreed – this isn’t “Anti-USA”, this is anti globalised tax avoidance.
Ireland knew it was taking a risk in offering EU breaching tax breaks. Apple knew it was a risk too. The EU has just issued a demand for back taxes that should have been in paid had Ireland not chosen to give massive tax breaks. Apple can probably choose not to pay it – as long as they choose to not have a presence in the EU.
Re: Not playing by the rules
Ireland did not violate the EU (currently the Lisbon Treaty) Treaty. EU has no jurisdiction over taxes. This is under the jurisdiction of the member states. Ireland did what many countries (and many US states, btw) do – gave a corporation a tax benefit to entice it to move to that country and provide jobs. The US does it all the time. What the EU claims is that this violates the competition law regarding state aids to enterprises which give local enterprises advantages over those in other EU member states. To my knowledge, this is the first time EU has claimed that tax preferences are state aids, as would be the case, e.g. if Ireland had simply paid Apple to locate jobs there.
Re: Re: Not playing by the rules
Your lack of understanding of what happened is pretty amazing.
Ireland has a corporate tax rate, it’s allowed to set that at whatever it wants. For a tax break to be legal, it must have qualifying factors built into the law itself so ANYONE who meets those qualifications can benefit from it. Please refer to Comcast getting the subsidy meant for google fiber. But any provider could qualify if they met the criteria for that law too.
What Ireland did here is they went to Apple and said “we will give you a SPECIAL tax rate if you set up your head offices here.” Nobody else could qualify for this benefit, it was purely a sweetheart deal from ireland, and thus does not conform to irish tax laws or EU treaties. This is why it is illegal state aid, it’s a specific deal for a specific company that follows entirely different rules from the rest of the tax system.
As a note, you can create incentives for companies to set up headquarters in your country, but again, it must be available for anyone. The moment you offer the deal for only ONE company, it’s illegal state aid. The only countries that could get away with just paying a company to set up HQ there, would be the corrupt ones, and ironically, what Ireland did is considered corrupt. So if you want to compare a corrupt country to a corrupt country and say it’s not corrupt, you need to reevaluate your understanding of the law.
Re: Not playing by the rules
“These treaties are not new: they pre-date the formation of Apple Computer.”
Are you speaking of EU treaties?
While it’s being played as an “anti-US” issue in some of the media the real issue is the Eire entered into a tax agreement with Apple which meant Apple paid a tax rate of 0.0005% in some years, while at the same time everyone else was being taxed at a higher rate. Had Eire given the same tax rate to all companies then they wouldn’t have fallen foul of the state-aid provisions. But then they wouldn’t have had any tax base.
And yes, I would prefer it if multi-nationals of whatever origin operated on the basis of paying taxes of the country they’re operating in, but while they get to shuffle funds around with “licensing” payments and such, setting those “paper” payments against local taxes I can’t say I have any sympathy. I suggest those who feel like finding out more watch “The Town That Took On The Taxman” that was broadcast earlier this year. It will give you an unpleasant shock to learn how multi-nationals achieve their market dominance.
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Eire is a sovereign nation, with the freedom to enact the laws it chooses to. Apple is as subject to national laws as any corporation.
Fining Apple for something a sovereign nation did is madness. It would be no different than fining the janitors in a corporation for something the CEO did.
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Apple haven’t been fined, they’re being required to pay the taxes they should have at the normal rate of corporate tax in Ireland.
And Ireland are free to set whatever corporation tax rate they like. Brussels has no influence over corporate tax. What Ireland shouldn’t have done is offer extreme tax breaks to specific large companies – meaning that Apple didn’t have to pay the majority of the due corporation tax. Essentially, it was a massive tax write off. The EU ruled that as Ireland acting anti-competitively. The same thing happened in Luxemborg with Fiat.
And, considering how many words on this site have been written about trade agreements and fair competition, the ruling shouldn’t come as a surprise to anyone.
ITT was infamous for that sort of thing back in the 1920s. A lot of people were unhappy with their support of all sides during WWII…
What Do Taxes Pay For?
A lot of the costs of doing business are not borne by the companies doing the business–these are called “externalities”. But the cost of them has to be borne by someone–which is where the Government comes in. Imagine a sign over each desk at the EC and the EU Parliament: “The Externalities Stop Here”.
Which costs should be levied directly on the businesses that incur them, and which should be spread over everyone, as part of the general tax burden? That is a matter for the politicians to decide…
You have the story somewhat wrong.
Apple isn’t being fined. Apple isn’t being told they have to pay taxes.
Ireland is being told that the absurdly law tax rate that it offered a select few large companies is illegal state aid.
It might sound a little odd to people in the U.S. But the reason the E.U. has “jurisdiction” is because multinational companies can pick where they recognize EU revenue. Apple cut a special deal with Ireland where they pay almost no tax in exchange for all profit being recognized in Ireland.
There is an extra wrinkle that isn’t being talked about yet. This isn’t just an issue with revenue earned in the EU. A bunch of tech companies have transferred all of their IP to newly created Irish shell companies. They put this on the books as have very little value at the time of transfer. They then license the software back at a rate that closely matches their revenue. Magically all of the taxable profit then ends up in Ireland, with all other subsidiaries in other tax jurisdiction barely breaking even. They wouldn’t be doing this without company-specific tax deals.
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This is correct.
The other side of it is that taxes are a strictly national issue and EU has absolutely no right to dictate that policy in Ireland. That Luxembourg, Austria, Italy, Cypress, Ireland and several others have used that discression to underbid other countries on taxes is a kind of legal fraud and absolutely appaling, but legally irrelevant.
The only reason EU can act on this is through a specific companys deals since that is competition law. It would be illegal for EU to demand of Ireland to bring its laws into a more reasonable state, which is the whole point…
Irelands minority government has refused the money from Apple and is appealing the case. If they had demanded the money, they would somewhat accept that their deals are dodgy, which would require a change of laws and several other cases. Now, they are merely letting their relations with EU deteriot.
others have said wha I was going to say. Apple was paying a special tax rate. If the tax rate applied to everyone, eu could do nothing, but because it was a special deal for Apple, it violated the eu regulations for illegal state aid. The eu comes out fine, Ireland and apple come ou looking sleazy.
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Apple comes out looking fine. It is hardly Apple’s responsibility to make sure Ireland’s laws are valid. It would be like if a company in the U.S. got a massive fine because a state law that it was following all along was eventually found to be unconstitutional. Blaming the company for following the law is pretty ridiculous.
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Nobody looks at Apple paying .0005% tax and thinks that’s fine.
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More of blaming a company that found a loophole that would enrich them and a few select politicians at everyone else’s expense.
They will not get any sympathy from anyone not profiting from this.
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It’s not a loophole at all, it’s a tax incentive set up intentionally by Ireland’s government to try to entice apple to be there.
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That’s not how tax incentives work. Incentives are designed for industries, not individuals. As the incentive here applied uniquely to Apple, it became illegal state aid.
Not a loophole at least, just illegal. Now if Ireland wasn’t part of the eu, they could do it, but apple probably wouldn’t take them up on it because the only reason it works is because of the eu agreements that allows recognition of revenue in any member state.
Does anyone seriously have a problem with this? Apple and other companies have screwed the USG and other governments out of millions, if not billions of dollars. As much as I like HRC’s policy of an exit tax, I doubt she would ever implement it, nonetheless promptly.
Too bad. I guess apple didn’t consider repatriation risk. Again, too bad for them.
Don’t you love that EU business? Is IrEExit coming next?
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Ireland is one of the countries having benefitted the most from EU through the nineties and start-zeroes. They are still somewhat beholden to EU after the financial crisis where Ireland got a huge loan. If they leave EU, they need to form a near bond to their neighbors in NI, SCO, WAL and ENG to even survive. England has a large enough market to scrape by on their own. Ireland doesn’t.
EU and Apple
As far as I am concerned, Apple is an American company. I would like them to bring back the money from overseas. Our government makes that a losing proposition. These are businesses that have loads of employees. I would prefer them to be American employees, but Iralin gave them a better tax deal. Now, they want to change that. Isn’t that what the US did? If you want full employment, give companies like Apple, Facebook, Google incentives to stay here. There are more! Let’s show the world America is different from everyone else!
Re: EU and Apple
By giving more and better tax breaks? How do you think Ireland would react? Welcome to the race towards the buttom…
Re: EU and Apple
Yes, I’m totally sure that if the US changed it’s laws to lower the business tax rate – already incredibly low – NO OTHER COUNTRY would ever think of lowering THEIR tax rate to compete. This definitely wouldn’t be a race to the bottom, that would end with America worse off than it is.
EU and Apple
How many of the companies you name are really American?
Google, for instance, is apparently largely a Bermuda based company. That’s where the license payments for the EU / EMEA region go to. It’s not an especially profitable business for the EMEA subsidiary, as the license payments are almost exactly the total revenue minus cost of sales.
It matters very little when it comes to what company did what and with which government.
The simple word is:
Corruption
and no matter what what your political viewpoint is, this is stealing from the “ordinary man” who does pay his taxes.
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Really? How about the almost 50% that pay ZERO in federal taxes currently! Tell me, how is that fair?
Apple is playing by the rules. They didn’t create the loopholes, but just like you and me, they’re not going to over pay taxes just to make others feel good about them. That’s just dumb.
What I want to know is, Why is Apple and other company’s being TAXED on the money they want to bring back into the U.S.? They made that money selling a product in another country. There should be ZERO tax on that money. Bring the money into the U.S. Apple then spends it on whatever, you TAX the money at that point. It’s as dumb as if France charged Apple Taxes of everything sold in the U.S.
Who cares if these company’s sold something out of the country, and made a profit, they got taxed in that country and shouldn’t be taxed once again just to bring the money into the U.S. Taxing away the profit. That’s why the money is not coming back. That’s the main reason Apple and Google and everyone else have to play these silly games.
Tax Venue Selection
This appears to be the tax equivalent of patent venue selection, where Ireland is the equivalent of East Texas.
Apple is allocating profits to a head office that does not exist, has no employees and no business activity.
So just as other “Non-Practicing Entities” select East Texas for favourable patent conditions, Apple has selected Ireland for favourable tax conditions.
Re: Tax Venue Selection
Actually Apple has a whole lot of people there!!! They build computers there I believe and they’ve been planing to build a huge Data center there. There’s a whole lot of Apple employee’s working there for Apple.
Puggledash
When we hear about how a street vendor is paying more tax in a country than apple is paying we have to realise that there is a problem. It is not about overtaxing American companies or even taxing them higher than other companies in a country , it is about taxing them the same as everyone else.
The EU has to do something very quickly and if it starts with massive tax payments by apple in Ireland then so be it,There is no way that any American company selling goods in any country should expect to pay less than the normal tax.
Maybe there should be a simple solution, every company selling in the EU must pay the same taxes in every country they sell in no discounts no moving profits to another country to benefit from there tax level, if you want to sell in the EU then you pay your fair portion of taxes on the huge profits you make, other wise we are sitting with a situation where EU business is not playing on a level field and will struggle to generate the profits that encourage them to become world leaders like American business is doing.
As an example…The UK is known as a very advanced and capable IT industry, where new ideas and new initiatives are released almost every day from very advanced thinking, yet the UK has no massive business like America has due to underfunding or having to pay there fair share of taxes. If America had to pay these same taxes then it would be a fair system, right now anyone in the UK will struggle to build out a network worldwide as they have to pay taxes unlike American businesses who use there own system to avoid taxes at all costs.
As stated above a street vendor is paying more taxes than apple in his country and that is just not acceptable in any way you look at it.
Re: Puggledash
The patented “tax haven”-solutions are far older and more widespread than EU. But EU has a law of companies operating in EU have to pay taxes in EU, which sounds fair.
However taxes are a strictly national issue. Thus, you can underbid other countries on taxation without EU having a way to target the country doing it! Legal fraud ahoy!
Taxes are on surplus only, so if you have a 0 or negative earning you pay no taxes regardless. So the only advantage gained from american companies is on their surplus. Frankly, several US companies with low profit-expectations do not even bother with this type of immoral legal abuse. The more the merrier, the praxis can thus be said to hit law-abiding companies, which is market-distortion. That is what this case has so far been ruled as.
Re: Puggledash
“no moving profits to another country to benefit from there tax level,” Is problematic for EU’s single market.
One of the ideas behind the single market is that anyone within the EU can sell to everyone within the EU. You shouldn’t be required to setup shop in each EU member country.
Instead, you report your profits to your country’s tax authorities, including which member country you sold the goods in. It then becomes an exercise for the tax authorities of the individual member countries tax authorities to shuffle tax revenue around between them.
Europe has always seen itself as a work in progress, created in the aftermath of WWII. The starting point was peace amongst nation states that had been warring for hundreds/thousands of years. Afterwards came the rules and the laws and the institutions. All of us here (in Europe) cringe at the sheer number of these. So yeah, mistakes have been made. But never, I believe, with evil intentions.
The US took 75 years to abolish slavery. 150 years later it doesn’t look like that worked out as planned either.
So please let us deal with our mistakes in the best way we can. Apple pays 0.005% of its European profits in taxes? We can’t wait 10 years to figure out a loophole-free way of doing multinational taxes, especially when you Americans are oh-so clever about vampire-squiding your way through the world’s financial system. Margrethe Vestager has great integrity. Like your Bernie Sanders. People like that are few and far between. So give us all a break and look for the Evil where it’s found.
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Wait, there’s Slavery in the U.S.? WOW, I didn’t know that. Can you point to it? If you want to continually blame your lot in life to slavery from 150 years ago, that’s on you. There’s REAL slavery now in other country’s happening.
Apple didn’t create these loopholes. How is it when the fines are being passed out, their HUGE for American company’s and a joke for EU company’s?
Simple solution
The simple solution would be for Ireland to just retroactivly lower the tax rate for all companies based there to the same rate.
No more unfair advantage and EU wont be able to do anything about.
Re: Simple solution
And go bankrupt.
I think the issue here is that Apple got the Irish government to make it a special deal in violation of its normal tax law. I agree with the EU in this case. Ireland did this for a labor benefit, but has laws in effect of its own, plus the EU Treaty and the Treaty of Rome. One of the biggest issues we face constantly, and that gets reported on in this blog a lot, is when corporations (or anyone, for that matter) get special treatment from government. Yet we see where Apple got that special treatment. Apple could have paid normal tax rates in whatever country they chose. Or they could have paid taxes in the US, where they’re based.
Low Taxes
Here in the US there are times when a state will give a company tax breaks on a factory or warehouse in return for the jobs that they provide for persons in that state. It’s not on the same scale, but the same nonetheless.
Re: Low Taxes
This is not the case here. Apple got another deal for factory in Ireland, what is not part of ruling. At issue here is fictitious HQ and effectively defrauding other countries on taxes by claiming those revenues as made not in say Germany but in Ireland.
Apple’s actions are wrong and Ireland is simply letting them get away with it, in contravention of EU tax laws.
https://www.fastcompany.com/3063340/a-tax-expert-rips-tim-cooks-eu-letter-apart-point-by-point
If the Irish government disagrees with EU tax policy and wants to give Apple a sweetheart deal, then Ireland should leave the EU.
To the op: "Do you even believe believe what you are saying"
This is utterly and total nonsense. Nothing more, nothing less.
This has nothing to do with the double dutch model or anything like it. This is about the Irish tax authority knowingly turning a blind eye to tax evasion.
Apple in Ireland has two companies, one which receives all revenue from goods and services sold in Ireland – which does pay taxes. All other revenue from Europe, The Middle East and India is routed through another company. That company didn’t pay one dime/cent in taxes.
In and by itself routing some of the profits into a separate company is not illegal. The problem arises when the learn that the second company has no offices, no employees, etc.
That is the problem. Apple used one transfer pricing scheme for the strictly Irish revenue and another transfer pricing scheme for all other profits.
In short, the Irish tax authorities accepted that cost of goods Apple sold in Ireland was more expensive than the cost of goods sold in the rest of the world, despite the ROW company didn’t have any running costs.
This is turning a blind eye on tax evasion, and thus gives one company, in this case Apple, a competitive advantage other companies do not have.
Ireland was violating the state aid clause of the Rome Treaty (1958), a treaty which was part of the bundle Ireland accepted when it joined in 1973.
Europe is not against American tech companies, on the contrary. We are against companies, local, global and anything in between trying to violate our laws.
Somehow I have the feeling that a lot of American companies believe they don’t have to follow the law, and when we point out to them that, yes! the law applies to you as well, some people get their panties in a twist.
Computer people are as ignorant of tax law as … accountants are ignorant of kernal programming. And so their suggestions about changing tax law are just as constructive as accountants’ ideas about improving interprocess communication.
The details are complex, but the salient facts are:
(1) The U.S. has a significantly higher corporate tax rate than European companies (even on the “tax holidays” such as Apple is hoping for.)
(2) The U.S. taxes worldwide income (unlike European countries), but gives a credit for income tax paid in the other country.
Therefore: any “normal” tax increase in a European country doesn’t directly affect the company at all. It merely transfers money from the U.S. tax coffers to another country’s tax coffers. From the company’s point of view, the dollar amount on the checks don’t change. All that changes is the name of the payee.
So it’s very fair to say this is, in a sense, “an Anti-U.S.” policy. It is a perfectly legal (if unpalatable) raid on the U.S. treasury–for most politicians, the most anti- action there can be.
But there’s another wrinkle.
(3) As has been noted, the U.S. (unlike the ‘other’ country) taxes profits on foreign subsidiaries only when the money is paid out to the (U.S.) parent corporation.
So, in effect, by keeping the money parked in Ireland, Apple is delaying payment of taxes. They have obtained a (perfectly legal) interest-free loan from the U.S. treasury, for the difference between ‘other country tax’ and ‘U.S. tax’.
The money is probably carried on the Apple-foreign subsidiary books as “cash” (increasing its stock price), and therefore on the Apple-U.S. books as “stock in subsidiaries” or something like that.
(Sidenote: here the accounting goes way over my head, and the difference between ‘ethical accounting’ and ‘generally accepted accounting practices’ may be relevant. There are ways of accounting for ‘taxes due on income not yet accrued on federal tax forms.’ But subsidiary relationships cloud the issue and, as in the Enron scandal, can be used to mislead investors about the actual financial state of the company. I have no idea how Apple is stating things.)
But if that money were to be brought home, a third or so of it would immediately go to the U.S. treasury. So it sits.
Apple isn’t cheating anyone out of tax. Every penny of tax they haven’t paid to Ireland (and more) is still due (to the U.S.) It’s just that they have DELAYED paying the tax (which is very much to their advantage because of the interest-free loan effect).
I don’t directly understand how the alleged “sweetheart tax deal” with Ireland works. What’s been said in these forums is obviously wildly inconsistent. Do they really have “thousands of workers” in Ireland, or is it really “nothing but an accommodation address?” This shouldn’t be too hard for a decent corporate researcher to tell, but so far nobody seems to have bothered.
But there are situations between separate states in the United States, where a company doing business in “just the wrong places” can pay state tax on anywhere from 50% to 150% of its business. See, if a company is doing different things in different places, it’s logically impossible to tell exactly “where” any particular dollar of the profit came from. And sensible people don’t even try. (It’s not as if the tax code were not complex enough yet!)
Instead, different states have different (but always “simple” rules that companies can (or must) use to apportion their income between states. The most common is called a “three factor rule” because it just averages the company’s percentages of payroll, real estate, and gross income. But there are other rules.
And making things more complex doesn’t come close to making things FAIRER. (Example from multistate individual forms: one state sometimes has a tax on high-income nonresidents that’s 10 to 100 times higher than the total income in that state. Yes, that’s a tax rate of more than 1000%! All because of an odd treatment of depreciation.)
There’s no way of getting rid of grossly unfair situations like this, so long as each state has the right to set its own tax laws according to what its citizens (or their lobbyists) will tolerate.
Caveat: I am not a tax law experts, despite the amount of time I’ve spent explaining tax law to people who should have felt a professional responsibility to be experts.
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Apple does have thousands of workers in that country. In fact they plan to build a huge Datacenter there. I believe it’s the only place they’re building Apple Computers outside of China.
Re: Re:
Oh boy, how many people have you advised on the law :/
First of all, its not legal, because the deal Apple got is not in Irelands tax code. They got a sweetheart special deal from the government that does NOT follow their own tax laws that everyone else follows.
So 3 is incorrect. Apple can do WHATEVER it wants with that money in Ireland, it’s already paid it’s foreign tax of 1-.5% and it can now be used for anything they want, as long as they dont ever send the profits back to the US. As the money has never gone to the US, it can never be considered an interest free loan as the US treasury never had any claim over the money until it was repatriated.
Your confusion between ethical accounting and GAAP accounting is nonsensical. GAAP accounting is ethical acconting, the problem is many companies do not properly follow GAAP and rely on legal loopholes to get around it. And you are talking about items like future and deferred amounts that you clearly don’t get so I won’t go into further detail.
Apple is absolutely cheating Ireland and the EU out of tax. Thats why the EU said they have to pay the money back to IRELAND, because by the EU treaties, they can’t make special sweetheart deals like the one they did for apple in order to ensure fair competition based on national policy. If they want to become a random singular nation outside the EU and fully dictate their own policies they can leave the EU, and lose all the benefits gained from being PART of the EU, such as being able to recognize all their profits in a single jurisdiction in the FIRST place.
Enron scandal is a different issue entirely related to false reporting and disclosures of important issues, and theres many discussions surrounding SOx and it’s value. There was no false reporting here, only shady dealing.
You clearly don’t understand the sweetheart deal. Ireland has a corporate tax rate of 12.5%. Thats the law. Ireland said ti Apple “come to us and you only have to pay 1% tax.” This was special for Apple and only Apple and did not conform to their own laws, as they have nothing in place that allows that kind of subsidiary or tax breaks for companies. If Ireland wanted to do that, other companies could potentially qualify, and thats why Ireland didn’t d it. Thus, the sweetheart deal, it’s only for Apple. There may be OTHER sweetheart deals, and theyre all just as illegal and constitute illegal state aid for a business.
The number of workers they have there is irrelevent. They can set up head offices wherever they want, the issue is their choice to set it up, and the fact they have nobody working in their offices just makes it look shadier, as they are clearly only set up in Ireland just for this sweetheart deal, further highlighting the illegality of it, as they otherwise would have set their headquarters elsewhere with more activity.
You cannot pay tax higher than your income. Thats a gross misunderstanding of how tax percentages work, and a misunderstanding of how jurisdictional taxes or foreign taxes apply.
Companies can absolutely tell where everything is occuring. These big multinationals have very big, very complicated systems that record all this data, and where the sales are occuring is literally a requirement under SOx. As an auditor, I had the fun of poring over thousands of sales sheets in order to verify volumes and sales locations in order to ensure that the amounts being reported and the tax being paid on it was correct. Heck, people on kickstarter are required to report their income based on the right regional area in order to properly play VAT, GST and income tax, nevermind a big company. That is, if you’re any good at what you do.
Again, multistate individual forms resulting in 1000% tax. I don’t really think you understand how the tax system works. For personal taxes, you generally don’t even have to pay tax in multiple are depending on how the treaties are arranged.
You are clearly not a tax law expert, despite your very long post trying to convey a lack of understanding as knowledge.
pay your taxes
I don’t know much about the European’s reasons for doing this but Apple is clearly trying to avoid taxes it owes in the countries where they make their profit. It wrong and Apple knew it but they decided that they didn’t care. The money was too great and their lawyers will keep them out jail. Time for the western world to close this kind of garbage down.
It'sbad enough...
…that Apple was hiding all that money, but it’s worse that all those billions they’re going to pay Ireland couldn’t be going to US education or infrastructure or at least free Macs for schools.
EU, Apple and taxes
First of all, EU has no power to tax. Only member states can tax. Secondly, however, the US pushed the EU into this. Countries (and US states) have been bribing companies with tax incentives to settle within their territories for the purpose of providing employment for a long time and no one had a problem with it. The US is scouring the world for funds to cover its never-ending war expenses. It thought it could get the EU to do its dirty work, but the whole thing backfired and Ireland is left holding the (empty) bag. How embarrassing.
Re: EU, Apple and taxes
Except the EU isn’t claiming any of the taxes, it’s telling Ireland to collect them.
Tax, man
It’s not a fine, it’s back taxes. Ireland had no right to give Apple their special tax deal.
Re: Tax, man
Ireland has every right! It’s their country.
Techdirt misses again!
Mike, with all respect, this is not a FINE. This is Ireland being ordered to take back the insane tax advantages they have given Apple. Their effective tax rate has been much lower than the standard corporate tax rates in Ireland, with some years their tax rate being less than half of one percent.
It’s the EU telling Ireland they can’t cut special deals on taxes to steal business from other EU countries.
Sorry, but you missed on this one!
Re: Techdirt misses again!
Now, add on top of that the fact that the EU has realized that rather than just create new laws that will tax internet giants, it can just go ahead and hit Apple with a massive tax increase all by itself.
http://www.bloomberg.com/news/articles/2016-08-30/apple-ordered-to-pay-up-to-14-5-billion-in-eu-tax-crackdown
Read. The. Flippin’. Article.
Re: Re: Techdirt misses again!
He said “with all respect” to Masnick, after all. Which, when you pause for a moment and think about it, is none.
Whatever’s here to troll, and he’s angry that even a toddler in diapers can catch him doing it.
Re: Re: Techdirt misses again!
I did.
But after reaching “Every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.” I question the mental state of Apple’s CEO.
Has he missed the law expecting him to pay taxes? Or has he missed the – apparently unlawful – deal his company struck with Irish authorities? Or did he think it will never cause any trouble?
I assume he’s not that dumb (but looking at latest Apple innovations I’m less certain), that he’s just playing and at the same time trying to bully Apple out of a tight spot. I do hope he fails.
Re: Re: Techdirt misses again!
“Apple Inc. was ordered to pay as much as 13 billion euros ($14.5 billion) plus interest after the European Commission said Ireland illegally slashed the iPhone maker’s tax bill, in a record crackdown on fiscal loopholes that also risks inflaming tensions with the U.S.”
The first paragraph spells it out completely… Ireland illegal cut their taxes, and the EU is forcing them to pay Ireland the taxes owed PLUS interest.
It’s not a fine – it’s forcing them to comply with Irish law and not permitting what is effectively selective tax dumping.
Re: Re: Re: Techdirt misses again!
Apple complied with Irish Law. They still don’t want Apple’s money and are fighting this!!!
Re: Re: Re:2 Techdirt misses again!
No, they did not. They negotiated a deal with Ireland well beyond the law, giving them an effective tax rate much lower than Irish law. That is the issue. The EU has ordered them to pay Ireland at the appropriate tax rate as per Irish law.
Re: Re: Re:2 Techdirt misses again!
No they didn’t. Ireland broke their own laws by giving them a super low tax rate. Normal corporate tax rate is about 15%. Apple? About one half of one percent. Ireland doesn’t want their money because they don’t want Apple to leave Ireland.
It’s pretty simple: If Apple had to pay normal corporate taxes in Ireland, it wouldn’t be worth playing games to get income out of the other EU countries and into Ireland. So suddenly, Apple’s income in Ireland would drop by about 90%. The tax income would be reduced further than the current sweet heart deal.
Apple is avoiding taxes in other countries to take the income in Ireland and pay almost no tax. That’s against the EU charter, and thus they are being forced to pay the tax.
If this stands, you can expect Apple’s Irish companies to pretty much disappear.
“The EU government looks typically jealous and petty towards American companies”
There are a few inaccuracies in above statement:
1) US is not America, not even the North one. There is also Canada and Mexico there. Companies based there seem to have fewer problems paying taxes.
2) EU does not have a government.
3) But even assuming it does, this “government” was so “jealous and petty” against US companies, that they awarded them – Apple, Starbucks – special tax breaks, all the other EU companies (save FIAT) cannot have. Now the authorities finally woke up, and removed the special treatment. Boo hoo… Maybe US companies will start competing on a level playground for a change?
Re: Re:
If they want to change the Tax laws, close the loop holes, great, go do it. Getting back taxes after the fact I have a problem with.