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European Commission Made 'Fundamental Errors' in Irish Tax Ruling, Says Apple
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Don't quote me on this, but I think I have heard that the issue the EU has is that Ireland gave Apple its own tax rate and did not extend that same rate to other businesses in Ireland. In effect, Mom and Pop pub owners pay a higher tax rate than Apple in Ireland and there is no system of credits or deductions that allows them to get where Apple is. Therefore, Ireland must tax Apple as they do other businesses in Ireland and get that money back from Apple as back taxes.
The US has such a system, which gets all the talking head barking about how high the corporate taxes are compared to internationally; and they are. However, nobody pays those rates due to deductions and our effective tax rate is quite comparable. So big or small, if you had the right deductions, Bernie's Byte Shack could get the same tax rate as IBM.
The supposed state aid is a tax break. So it comes back to the EU wanting to tax an Apple subsidiary. That subsidiary is organized under Irish law (it is an Irish company) but under Irish law it is a U.S. company (because in substance it is in fact a U.S. company).
I think the problem is that Apple did not even pay the tax rate Irish law establishes.
When you make something legal, how is the company not paying its fair share? If there were a large tax exemption for using bladerunner in your user name would you take it?. Would that make you a bad person? Or would it just be a bad tax law?
This is a problem with international treaties. Switzerland, Ireland, Isle of Jersey, and others are famous for abusing international tax laws and offering these tax havens. Just move your head office and 100 executives to Jersey and dodge billions in taxes. These laws are supposed to promote trade and competition. But they are open to abuse; and therefore are abused.
Without getting into Trump's dis-likability, this is the kind of issue at the core of "America first". Its about addressing unfair international trade laws like this. Its one thing to co-operate, or even be generous. Its another to suffer decades of unfair economics.
It has not been directly hurting the corporations. It hasn't hurt the rich. But the US has been bleeding not just these tax revenues, but jobs and manufacturing infrastructure at an alarming rate for decades. It is not sustainable.
At the same time complete isolationism is not an answer. So I pray for some balance.
That is basically right, I think. Though Ireland didn't create a specific rule for Apple. Apple used an existing rule (a deliberate loophole that has been around for decades, I think) and due to the huge demand and price point of the iPhone, massive amounts of money went through that loophole and was not taxed.
That said, I'm no international tax expert. But I'm not entirely ignorant of tax structuring either having set up companies based on the interplay between U.S. and E.U. tax laws. But I hire tax experts to do this.
Or demanding that Ireland claw back the illegal state aid for what Apple should have been paying in tax over that 10 year period.
We agree that Apple paid corporation tax in Ireland right?
Ireland gave Apple a very sweet deal. The E.U. are saying that broke the State Aid law and under said law, Ireland need to balance their books.
This is a very different story from the dictatorship E.U. singling and squeezing every penny out of the desperately poor Apple.inc.
The full E.U. press release is in my sig.
No, that isn't it. If so, Ireland's tax authorities would be bringing this case. This is the E.U. claiming that Irish tax law was illegitimate and therefor can be retroactively voided, resulting in Apple owing back taxes.
Complicated tax structures of big companies like Apple are universally audited by tax authorities every year. And independent tax experts review and opine on their taxes. These have been thoroughly vetted. The E.U. is claiming the rules were illegal.
You're assuming there was a law. It seems Irish authorities just gave Apple a deal that was not allowed.
Whereas I agree with your sentiments, that is an over simplification. There are plenty of rich people in jail for not paying taxes. The problem is, what counts as taxable income? Some of rich people of the US do not get most of their income as wages, but as return on investments. They are taxed differently and losses can be used to offset gains while they live on corporate furnished housing and so on. This can give them a very small tax exposure and the Mitt Romney's of the world will pay less than Joe Blow even though MR has a vastly greater net worth. A lot of the 'rich' people are not so rich and have their money so tied up in non-liquid assets that they can call themselves billionaires, but effectively only 'cash-out' as millionaires. And it is all very legal and even ethical. Which sucks.
Tl;Dr - Don't hate the players, hate the game.
Yes, we agree that Apple has an Irish subsidiary which pays taxes in Ireland.
We agree that Irish tax law gives Apple a very sweet deal. I think this is basically because the income that subsidiary gets counts as largely being generated in the U.S. because that is where Apple's products are designed and programmed and managerial decisions are all made in the U.S. It is a quirk of Irish tax law, but one intentionally put in place by Ireland to lure tech companies into opening companies and organizations in Ireland. I don't think this was a deal specifically for Apple. However, Apple's revenue on iPhones meant that it could take larger advantage of this deal (i.e., just more money was going through a loophole that was available to other companies).
That is the story here as I understand it.
This decision does not call into question Ireland's general tax system or its corporate tax rate.
Furthermore, Apple's tax structure in Europe as such, and whether profits could have been recorded in the countries where the sales effectively took place, are not issues covered by EU state aid rules. If profits were recorded in other countries this could, however, affect the amount of recovery by Ireland (see more details below).
This is simply about Ireland breaking State Aid laws. That's it, that's all.
The full story is in my Sig.. It makes for interesting reading.
Umm, I hope you don't think that some Irish version of an IRS auditor just looked the other way for year over year to the tune of passing on billions of dollars worth of tax revenue. I don't think that is what happened. There is an Irish tax law at the base of all of this.
The money is not in the US, and if Apple pays less taxes overseas, the IRS would get more eventually.
Okay. I will give it a read. I've probably exhausted my limited understanding of Irish/E.U. tax laws and am out of my depth.
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I didn't say it was. This based on a tax ruling (two of them). And tax ruling are interpretations of existing laws. So this comes back to Irish tax law.
Best I can tell, the issue is Ireland's interpretation of its laws.
Given the complexity of many jurisdictions' tax laws, interpretations of them often have to be issued. I don't recall what they call them in Ireland (it will be easy enough to look up), but in the U.S. we call them private letter rulings. An individual or a company wants to figure out the tax effects of particular actions the effects of which aren't explicitly spelled out in existing tax law. They might, e.g., want to do something a particular way and want to know how that will affect their tax liability. They may have their own interpretation of how it would work under existing tax law, but want to confirm that interpretation before they take certain actions. So they ask the taxing authority how this or that would work - they ask for clarification when it comes to nuances of tax law.
Here in the U.S., the I.R.S. then issues what's referred to as a private letter ruling explaining the tax implications of given scenarios. Those private letter rulings then serve as bases for others to understand how the tax laws would work in their own circumstances - they establish precedents for interpreting existing tax laws. That's how we, as a nation and as entities operating within that nation, come to understand what our tax laws mean in particular circumstances. No law can describe every possible situation that might arise, so we have subsequent (and meaningfully official) interpretations of those laws.
The interpretations of Ireland's tax laws which Apple is taking advantage of aren't reserved for Apple. Those interpretations would apply to others in the same situation (or doing the same things) as Apple. However, many other entities wouldn't be in a position to take advantage of those interpretations - they wouldn't be in the same situation (or able to do the same things) as Apple. The EU apparently regards that as illegal state aid because other taxed entities in Ireland couldn't take advantage of Ireland's laws (and Ireland's interpretation of its own laws) in the way or to the extent that Apple (and some others) can. But that's always going to be the case with anything but the simplest tax policies. If I don't, e.g., have a need for employees in my business then I can't take advantage of tax credits meant to encourage the hiring of veterans or disabled persons. Others can take advantage of such tax policies.
EDIT: I should have said that, here in the U.S., a private letter ruling can become a precedent that would be followed in other cases. It doesn't necessarily become one.
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Thanks. Very helpful.
Here is the crux. And it is close to my previous understanding.
More specifically, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").
Apple probably made the argument to get the initial Irish rulings (which goes back to 1991) that the economic reality is that Apple's profit is derived from U.S.-based activities. There are no designers, programmers, or inventors of IP in Ireland. So the iPhone profit (which is what we are talking about) gets allocated to a shell subsidiary which is fully under control of the U.S. managers. There is no profit being generated in Ireland, so there is no profit to be taxed.
An alternative way to so do this, which would result in U.S. taxes, but no Irish/E.U. taxes is (A) first Apple's Irish subsidiary buy's iPhone for $700 from Apple U.S., then (B) Apple's Irish subsidiary sells iPhone to E.U. customer for $705. (Adjust numbers as you feel there would be import tax and all sort of other stuff, but I think you get the point.) That would be the functional same thing because Apple's E.U. activities are really no more than low margin retail operations.
So I don't think the Irish tax ruling are illogical. And I strongly suspect that other companies could have used them as precedent. It is just that Apple used this loophole to funnel huge amounts of cash through without paying any taxes.
Well when NATO members pay their fair dues I guess I will become more sympathetic. Until that day Apple can rape them hard as far as I am concerned.
That's it exactly. When it's convenient for Apple, they say the profits are attributable to the USA. When it comes time to pay their taxes in the USA, they claim the profits were made OUTSIDE the USA like in say...Ireland. They "want" to bring those profits home, but god dammit, the IRS wants taxes paid on that income! They're waiting for Trump or someone to get rid of that tax so they can bring the profits home for free (or close to it). In short, they want their apple and to eat it too.
Hell, I'm surprised they haven't put their "headquarters" in the Bahamas like Commodore did (even more savings and less tax for them and more for you and me).
Yes, this seems to be the case. And getting a ruling like this is not unusual when you are going to set up a multi-billion dollar organization (or even just a multi-million dollar organization).
If the E.U.'s argument is based on the fact that Irish tax law treats foreign companies different from local companies, they don't stand a chance. Every country's tax laws does that. It has to be that the E.U. believes that other non-Irish companies couldn't get the same ruling even if they used a similar structure. That would possibly be illegal.
No I have a higher IQ than most people I don't need outside information to make decisions.