Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
This story just keeps getting better. You know how Apple, along with every other US multinational that doesn't like paying 35% US company tax, has a colossal cash stash which it claims it will one day repatriate to the US (but only when they lower the tax rate!! i.e. never) :

Well, it turns out that...

Apple boss expects to repatriate billions to the US next year | Business | The Guardian

Apple boss Tim Cook expects the iPhone maker to repatriate huge offshore profits to America next year, paying billions of dollars in deferred taxes to the US Treasury.

In an interview with RTE radio, he gave a summary of the company's 2014 tax affairs, saying: "We paid $400m [in tax] to Ireland, we paid $400m to the US. And we provisioned several billion for the US for payment as soon as we repatriated.

"Right now I would forecast that we repatriate next year. So it is not true that we would pay just $400m, or even just $800m, the number is materially larger."

The revelation that Apple plans to repatriate some of its offshore profits and pay its huge US tax bills next year comes as a surprise given Cook's previous refusal to countenance such a move.

If he's sincere, this rather belated pre-emptive move would certainly take the wind out of the sails of US treasury and its incipient tax war of the EU... On the contrary, they should be thanking the EU for provoking a shift in their apparently insoluble struggle with the tax-deferment scam.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Sep 1st, 2016 at 09:45:05 PM EST
They're probably still hoping for a Trump victory which would lead to a big drop in Corporate tax rates. Interestingly they chose to pay 12.5% in Ireland post the elimination of their non-resident tax status in 2015 rather than head for the Cayman Islands or somewhere else with a 0% tax rate. Perhaps there is a recognition that such scams have a limited shelf life at this stage.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 2nd, 2016 at 01:15:10 AM EST
[ Parent ]
Or might be that they think the EU would slap them with a tax on their EU turnover if they did.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 2nd, 2016 at 06:00:43 AM EST
[ Parent ]
Does the EU have any power to tax companies directly? And would the EU not be guilty of selective enforcement if they applied a law to Apple alone?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 2nd, 2016 at 10:55:23 AM EST
[ Parent ]
I am pretty certain that the particular agency of the EU Commission which Margrethe Vestager heads does not have that power. Her agency's power is limited to enforcing specific aspects of tax and trade policies on specific companies and their deals with specific countries.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 2nd, 2016 at 01:21:23 PM EST
[ Parent ]
Money laundering enforcement at the external border is a federal competence.

And the money laundering rules are fun, if you can make them stick.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 2nd, 2016 at 05:46:48 PM EST
[ Parent ]
My impression is that Apples behaviour here is driven by two things:

* The Apple that did these deals originally was not the all conquering company of 2016, but the very vulnerable
 niche computer maker that had just been propped up by its greatest rival to help Microsoft fend off monopoly action. They needed to optimise to survive.

* Current Apple is constrained by fiduciary duty and shareholder lawsuits. I don't think paying taxes bothers them especially - they literally have more money than they know what to do with - but if they start paying more taxes than they have to they'll be sued to hell by shareholders, as a company and as individuals.

So if the tax loopholes are closed, they'll just pay the taxes. I thin the suggestion that they've been doing something other than complying with what they understood as the law offends Cook personally. I don't think paying taxes does.

by Colman (colman at eurotrib.com) on Fri Sep 2nd, 2016 at 07:26:37 AM EST
[ Parent ]
...Uhm. There is no way their lawyers didn't call this arrangement out when they made it. Given the age of the arrangement, maybe Cook never heard those objections, but.. it's kind of blatantly illegal.
by Thomas on Fri Sep 2nd, 2016 at 08:28:49 AM EST
[ Parent ]
against what law, where? (and I'm not referring to moral law!)

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 2nd, 2016 at 10:53:35 AM EST
[ Parent ]
In Ireland. Well, specifically, Vestager is correct - it's obviously state aid, and thus illegal under those directives, but both at the time, and for the entire duration, it was entirely unambiguous that those directives had the force of law in Ireland. You can't pass the bar to practice corporate law in Europe without knowing this, so if they asked their legal council, they'd have been told it'd get overturned if anyone ever cared to go over the books.
Which begs the question why they even tried it on in the first place, and .. well, at this point, it's pure guess work, but equal parts pure arrogance, "hey, a major loan we don't have to put on the books" and "if we get away with it long enough, some of the extra money will be shielded by statutes of limitation".

.. Getting the approval of the Irish for it doesn't change any of that, tough it probably does effectively shield them from punitive damages.

by Thomas on Fri Sep 2nd, 2016 at 01:40:39 PM EST
[ Parent ]
Well first of all Irish law is quite different from European law, and secondly you haven't cited the law which was broken.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 2nd, 2016 at 03:57:29 PM EST
[ Parent ]
From the irish constitution:

"No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State which are necessitated by the obligations of membership of the European Union or of the Communities, or prevents laws enacted, acts done or measures adopted by the European Union or by the Communities or by institutions thereof, or by bodies competent under the Treaties establishing the Communities, from having the force of law in the State."

Article 107 of lisbon.

(ex Article 87 TEC)

  1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

  2. The following shall be compatible with the internal market:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.

3. The following may be considered to be compatible with the internal market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;

(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.

Lisbon post dates the deal apple made, but the relevant rules did not change substantially with the changeover of treaties.

by Thomas on Fri Sep 2nd, 2016 at 05:42:39 PM EST
[ Parent ]
And no, none of the exceptions apply.
by Thomas on Fri Sep 2nd, 2016 at 05:44:34 PM EST
[ Parent ]
So what, precisely, was the aid the Irish Government gave to Apple, not available to its competitors, and which enabled it to distort the market?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 2nd, 2016 at 05:55:13 PM EST
[ Parent ]
an effective tax rate 12 % lower than anyone else, which is equivalent to a monetary subsidy of the same size. Both legally and practically.
The fact that the Irish government did this is, incidentally, completely insane. 6000 jobs (and that number is wildly inflated) is not worth 12.5 billion.
by Thomas on Fri Sep 2nd, 2016 at 06:00:58 PM EST
[ Parent ]
Apple set up a non-tax resident company in Ireland as its HQ for international sales.  At the time anyone could do it, and many did. It wasn't an arrangement in any way unique to Apple.

I don't agree with it, and am glad Noonan abolished that provision last year.  But that does not give Vestager the power to make that abolition retro-active for 20 odd years. She has no powers in relation to corporate taxation whatsoever.  

The €13 Billion tax bill relates to profits made on international sales, not its Irish operations.  Since becoming tax resident in Ireland last year, Apple is now paying Irish corporation tax on those profits.

There is a valid case for arguing that those profits should be taxed in the markets where the sales took place, but that is not the basis for her finding.  In fact she is arguing that Ireland should collect that tax, and if necessary, come to an arrangement with those countries where the sales took place.

None of this has any basis in any of the Treaties or is in any way within her sphere of competence.  It may make her and the Commission look good in Europe -  kicking around a weak government in a smaller member state. It is also the fastest way of promoting an Ire-exit movement in Ireland I can think of and embodies all the stereotypes of "unelected Brussels Bureaucrats" dictating policy to sovereign states so beloved of the Brexiteers.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 2nd, 2016 at 06:23:27 PM EST
[ Parent ]
Well, Apple appears to be awfully confused about who it owes taxes to.
Since last year, profits on its European operations, based in Ireland, is now taxed in Ireland at the official 12% rate (have I got that right?). This is a clear recognition that they are creating profits in Europe which should be taxed in Europe.

The billions in profits which they have accrued on their European operations in previous years, hitherto untaxed, apparently is considered to generate a US tax liability (presumably because that money is owed to the US parent company, in the form of royalties or whatever).

So there seems to be an ambiguity about where these profits should be taxed.

The fact that Ireland previously let them get away with paying no tax on their European profits, and that the EU let Ireland get away with that, was a tacit subsidy accorded to Ireland when it was struggling to emerge from an Upper Neolithic economic status. But Ireland has one of the highest per capita incomes in the EU, and there is no longer any reason to continue the subsidy. Is there a danger that Apple will shift their operations out of Ireland? Where to? They need a base in the EU... Bulgaria perhaps? I think not.

None of this speaks to the legal position of course, and the Commission seems likely to lose; I don't think it matters much to them. I suspect them of doing this in order to mobilize public opinion in favour of severe constraints on transnational tax avoidance, and perhaps even standardising company tax rates.

In which case, I wish them all success, and indeed they have already achieved a great deal in that direction.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Sun Sep 4th, 2016 at 08:01:35 PM EST
[ Parent ]
Vestager won't loose, among other things, because Apple will almost certainly fold like a wet napkin once their lawyers get a good grip on the case. The problem is that if their tax setup in Ireland is legit, their use of the European transfer pricing mechanism is not. Because they would be transferring their profits out of the union into an office domiciled nowhere, which is most definitely illegal, at which point they get hit with back taxes not in Ireland at a low 12.5 %.. but in Germany. France. And everywhere else they sold their products, at those, far higher rates.

Hattip to:
I very strongly recommend reading it. Well written, very persuasive.

by Thomas on Sun Sep 4th, 2016 at 09:39:51 PM EST
[ Parent ]


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