How Apple easily circumvented EU Competition Commissioner Margarethe Vestager’s tax grab

In August 2016, European Union Competition Commissioner Margrethe Vestager “told Ireland to claw back 13 billion euros in back taxes owed by Apple “,” Leonid Bershidsky writes for Bloomberg. “She argued that the company’s arrangement with Irish tax authorities was a form of illegal state aid. The ruling claimed that Apple had paid an effective tax rate of 1 percent on its European earnings in 2003 and 0.005 percent in 2014 thanks to a deal that assigned most of the profit to Apple Sales International’s “head office,” a subsidiary that is technically based in Ireland but was considered a nonresident for tax purposes. At the time, Apple paid no tax on the European earnings in the U.S., either. The company avoided the levies by spending most of its profits to pay for the use of its own intellectual property. ”

“The report picks up where Vestager’s investigation left off in 2015,” Bershidsky writes. “That year, responding to U.S. and EU efforts to curb its tax avoidance, Apple created a new European tax structure that it has never disclosed publicly but that can be inferred from data that became available in the November 2017 release of the so-called Paradise Papers, a data leak detailing the use of offshore entities for tax purposes by rich individuals and some global companies, including Apple.”

“Here’s how the report describes the alleged new strategy: Apple transferred the intellectual property license, which still consumes most of its European profit, onshore in Ireland, where it is now owned by its Apple Operations Europe (AOE) unit. To make the purchase, AOE borrowed billions of dollars from another Apple subsidiary, which is probably based in the tax haven of Jersey. It is now making tax-deductible repayments from Ireland to Jersey with money received from another Ireland-based firm, Apple Distribution International (ADI). This company executes the iPhone maker’s non-U.S. sales and uses most of its revenue to AOE for the use of the intellectual property. In addition, one of the Irish companies has a cost-sharing agreement with Apple, Inc. in the U.S.: It pays its parent company for research and development conducted in the U.S. For tax purposes, this is considered an investment in R&D in Ireland, creating credits for Apple,” Bershidsky writes. “This setup, according to the report, allowed Apple to pay an effective tax rate in Ireland that was much lower than the statutory 12.5 percent. The most realistic assumptions based on Apple’s financial disclosures point to a rate of between 1.7 percent and 5.6 percent.”

“Apple makes no secret of wanting to pay most of its taxes in the U.S.,” Bershidsky writes. “After President Donald Trump’s tax reform, Apple announced it would pay $38 billion in U.S. taxes on the foreign income it had accumulated offshore for years. The company justified the move with the common sense argument that most of the value it creates originates in the U.S.”

Read more in the full article here.

MacDailyNews Take: Apple pays every dollar it owes in every country around the world.

Margrethe Vestager is so far out of her depth as to be drowned already and, regardless, a porous hodgepodge of tax laws, giant loopholes and vague stupidities are no match for the likes Luca Maestri.

Last November, Apple released the following facts about Apple’s tax payments:

Apple believes every company has a responsibility to pay its taxes, and as the largest taxpayer in the world, Apple pays every dollar it owes in every country around the world. We’re proud of the economic contributions we make to the countries and communities where we do business.

We’re presenting the facts on this page in response to reporting by the International Consortium of Investigative Journalists. Among the inaccuracies in these reports:

• The changes Apple made to its corporate structure in 2015 were specially designed to preserve its tax payments to the United States, not to reduce its taxes anywhere else. No operations or investments were moved from Ireland.

• Far from being “untouched by the United States,” Apple pays billions of dollars in taxes to the US at the statutory 35 percent rate on investment income from its overseas cash.

• Apple’s effective tax rate on foreign earnings is 21 percent — a figure easily calculated from public filings. This rate has been consistent for many years.
Last month, in response to questions from the ICIJ, the New York Times and others, Apple provided the following statement:

The debate over Apple’s taxes is not about how much we owe but where we owe it. As the largest taxpayer in the world we’ve paid over $35 billion in corporate income taxes over the past three years, plus billions of dollars more in property tax, payroll tax, sales tax and VAT. We believe every company has a responsibility to pay the taxes they owe and we’re proud of the economic contributions we make to the countries and communities where we do business.

Under the current international tax system, profits are taxed based on where the value is created. The taxes Apple pays to countries around the world are based on that principle. The vast majority of the value in our products is indisputably created in the United States — where we do our design, development, engineering work and much more — so the majority of our taxes are owed to the US.

When Ireland changed its tax laws in 2015, we complied by changing the residency of our Irish subsidiaries and we informed Ireland, the European Commission and the United States. The changes we made did not reduce our tax payments in any country. In fact, our payments to Ireland increased significantly and over the last three years we’ve paid $1.5 billion in tax there — 7 percent of all corporate income taxes paid in that country. Our changes also ensured that our tax obligation to the United States was not reduced.

We understand that some would like to change the tax system so multinationals’ taxes are spread differently across the countries where they operate, and we know that reasonable people can have different views about how this should work in the future. At Apple we follow the laws, and if the system changes we will comply. We strongly support efforts from the global community toward comprehensive international tax reform and a far simpler system, and we will continue to advocate for that.”

More Information About Apple’s Tax Payments

Throughout its history, Apple has designed new products — and established entirely new industries — by focusing on innovation. That hard work and dedication has led to the creation of revolutionary products and services that have profoundly improved people’s lives and created millions of jobs around the world.

Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company’s profits are taxed based on where value is created. The Organisation for Economic Co-operation and Development, Ireland, the United States and others all agree on this principle.

1. Apple is the largest taxpayer in the world, paying over $35 billion in corporate income taxes in the last three years. Apple pays taxes in every country where we sell our products.

When a customer buys an Apple product outside the United States, the profit is first taxed in the country where the sale takes place. Then Apple pays taxes to Ireland, where Apple sales and distribution activity is executed by some of the 6,000 employees working there. Additional tax is then also due in the US when the earnings are repatriated.
Apple’s worldwide effective tax rate is 24.6 percent, higher than average for US multinationals.

2. The vast majority of the value in Apple products is created in the United States, where design, development, engineering work and more are accomplished. So under the current international tax system, the majority of Apple taxes are owed to the US.

In a white paper last year, the US Treasury expressed concern over European regulators’ attempts to tax money that is owed to the US. “To the extent that such foreign taxes are imposed on income that should not have been attributable to the relevant Member State, that outcome is deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the US government and its taxpayers.”

3. Apple has cash overseas because that’s where it sells the majority of its products. Under the current tax system, post-tax earnings from foreign sales are subject to US tax. Apple has earmarked more than $36 billion to cover US deferred taxes. This is in addition to the $35 billion the company paid in corporate income taxes over the past three years.

4. Apple has been operating in Ireland since 1980 when Steve Jobs looked for a base to expand outside the US. The facility in Cork, Ireland started with 60 employees and now has over 6,000. Apple’s innovation and investment supports a further 12,000 jobs across Ireland. And across Europe, Apple supports more than 1.5 million jobs.

When Ireland changed its tax laws in 2015, Apple made changes to its corporate structure to comply. Since then, all of Apple’s Irish operations have been conducted through Irish resident companies. Apple pays tax at Ireland’s statutory 12.5 percent.

As part of these changes, Apple’s subsidiary which holds overseas cash became resident in the UK Crown dependency of Jersey, specifically to ensure that tax obligations and payments to the US were not reduced. Since then Apple has paid billions of dollars in US tax on the investment income of this subsidiary. There was no tax benefit for Apple from this change and, importantly, this did not reduce Apple’s tax payments or tax liability in any country.

5. Apple believes comprehensive international tax reform is essential, and for many years has been advocating for simplification of the tax code. Reform that allows a free flow of capital will accelerate economic growth and support job creation. A coordinated legislative effort internationally will remove the current tug of war between countries over tax payments and ensure certainty of law for taxpayers.

Read Fortune’s independent explanation of Apple’s tax payments and how they illustrate the complexity of the international tax system.

Source: Apple Inc., November 6, 2017

SEE ALSO:
Apple declines invite to EU hearing, cites appeal against EU tax clawback – June 1, 2018
Apple $1.8 billion tax arrears payment eases EU pressure on Ireland – May 18, 2018
Apple to fight EU Irish tax clawback without U.S. support role – May 17, 2018
Ireland, Apple appeal over EU tax clawback gets timeframe – April 24, 2018
EU says Ireland’s Apple complaint will only be dropped if it takes the full $16 billion in tax clawbacks – February 27, 2018
Ireland expects final disputed Apple bill remaining around $16 billion – February 22, 2018
EU court rejects U.S. government intervention in Apple’s Irish $15 billion tax case – December 15, 2017
EU sues Ireland over $15.3 billion tax clawback from Apple – October 4, 2017
Ireland opposes EU’s 13 billion euro Apple tax grab, calls it unjustified – August 17, 2017
Apple close to deal protecting Ireland in fight over EU tax grab – August 11, 2017
Ireland seeks custodian for Apple $15.2 billion in back taxes as collection nears – July 22, 2017
EU Commissioner Vestager: Ireland ‘taking too long’ to recover Apple tax – May 19, 2017
EU’s hypocritical Margrethe Vestager going after Apple while backing Madeira tax avoidance scheme – February 14, 2017
Apple has missed the deadline to pay $13.9 billion to Ireland in illegal tax benefits – January 31, 2017
Apple CFO Maestri: What the EC is doing here is a disgrace for European citizens, it should be ashamed’ – December 19, 2016
Apple’s EU tax nemesis Margrethe Vestager takes aim at other U.S. companies’ offshore profits – September 19, 2016
The ‘Brexit-Apple’ connection: What in the world was Margrethe Vestager thinking? – September 12, 2016
EU ministers line up to take tax bites out of Apple – September 12, 2016
Former EU competition commissioner: Vestager claim that Apple owes back taxes an incorrect use of EU law – September 2, 2016
Irish government to fight EU on Apple tax – September 2, 2016
Treasury accuses EU of trying to steal U.S. tax revenues with Apple decision – September 1, 2016
Irish residents opposed to EU’s tax demand of Apple – September 1, 2016
Apple Inc. pushes back against EU tax grab – September 1, 2016
Apple may repatriate billions of dollars next year after new U.S. President takes office – September 1, 2016
U.S. tax code allows for dramatic retaliation against EU overreach in Apple case – September 1, 2016
Apple CEO Tim Cook on EU tax demand: ‘No one did anything wrong here and Ireland is being picked on… It is total political crap’ – September 1, 2016
U.S. Treasury: The European Commission’s retroactive tax demands on Apple are unfair – August 30, 2016
EU demands Apple pay massive $14.5 billion in taxes plus interest – August 30, 2016

18 Comments

  1. Calling it a tax grab by the EU is a lie, since they aren’t getting any of the money. Of course everybody knows that, but bashing foreigners is so much fun that the truth doesn’t matter.

    1. Well said, how anyone can read this and express the absurd MSN take is as amusing as it is pathetic. You can be sure if events were reversed the present administration in particular would be preaching about economic war against the country. As a loyal supporter and contributor to Apples profits and long him defender of so much, I would have hoped for better from them. Seems that rather than be at least average or better amongst foreign operators tax concerns they are amongst the worst.

      1. Castigating Apple for following the laws that the EU and member countries have on their books is the epitome of liberal illogic.

        No, Libs, you won’t be getting another 13 billion euros to flush down the toilet on inefficient, failed government boondoggles.

      2. First,

        We won’t know whether Apple followed the law until the courts tell us. Until then, your opinion (which I hope is correct) is just an opinion.

        What isn’t just an opinion is the factual assertion that the EU will get 13MM euros for boondoggles if Apple loses. It will not. That money would go exclusively to the Republic of Ireland, which is fighting in court alongside Apple because it does not want the money.

        This cannot truthfully be called a tax grab because nobody is trying to grab the money. Using that term just feeds the burgeoning American paranoia about foreigners.

          1. I can hope that Apple followed the law without rejecting a commitment to justice or equal protection. It appears that they werIf the deal was illegal, of course they should pay the taxes. I have some sympathy with a taxpayer who may have received bad advice from the taxing entity.

          2. It appears they were intending tax avoidance, which is legal, and not tax evasion, which is not. They skated close to the line, however, which is why this is in court.

    2. Actually there are lots of folks who are ready to shower praise on other nations that are advancing humanitarian values but you are spot on for the rest.

      Me, I’m going to wait for the fat lady to sing so to speak before I worry about the fate of all that money but yes, it’s not a tax grab by the EU, that much is pretty clear.

  2. MDN is so wrong they make Fox look like a beacon of truth. Can anybody here borrow money from himself and deduct it from his tax? Small guys pay tax, the rich avoid it with elaborate constructs. That‘s tax avoidance, clear and simple. It might be the “American Way”, but Americans have been screwed over for a long time. And the biggest joke is that some thought Trump was going to change it – instead he gave massive tax relief to the rich, and instead increased tariffs which the little guys are most affected by. Just like Bush before him.

    I don’t mind people getting rich, on the contrary. Good on them. But if they then avoid paying their fair share then that is criminal.

    1. Apple follows the law and pays every dollar it owes in every country around the world.

      Apple has a fiduciary responsibility to maximize profits for shareholders. Following the laws is not criminal.

      Which part of that don’t you understand? I presume you’re just a typical addled Lib, hooked on feelings and devoid of even basic logic, so I can’t wait for your witless reply.

      1. Leave it to First Whatever to demonstrate everyday what a worthless greedy self serving POS he is. Of course he’s so arrogant that he thinks he’s qualified to judge this case, without bothering to read the facts.

        As a conservative, I’m all for efficiency in taxation and a lowering of corruption and needless bureaucracy. But it is not right for Apple to pay 1.5% tax rate in Ireland while others pay 12%, no matter what your personal beliefs are. The EU law is clear and just. Ireland can refund all the companies it overcharged, or it can collect the taxes from Apple that were temporarily evaded with an illegal deal that Apple entered into with full knowledge.

        First Whatever (or Stevejack or whatever you want to call yourself): who pays you to be an arrogant Trump propagandist anyway? Why don’t you join a political blog instead of ruining this one?

    2. “I don’t mind people getting rich, on the contrary. Good on them. But if they then avoid paying their fair share then that is criminal.”

      It is statements like this that scare me. “But If they avoid paying their fair share” . . . statements like that are intentional in casting a negative verbiage at something that is counter to the truth. Those that AVOID are usually caught and charged – usually with criminal intent. Those (the VAST majority) that follow the laws and don’t pay any more than they have to in following the laws as they are written – they are NOT AVOIDING paying taxes. To castigate those ( ALL including rich/wealthy) who pay the minimum required under law – IN WITH those who do criminal intent . . . shows strong bias.

      1. Tax avoidance, which is what Apple and every other company on earth does, is legal and is practiced by everyone with a functioning brain.

        Tax evasion is criminal.

    3. Uhm, no. This isn’t tax avoidance, this is about who gets the tax. Apple pays plenty of tax, more than most companies, but they pay most of it to the US Treasury. The question is where does income tax belong for a multinational. The more one reads, the more you’ll find that the prevailing theory amongst tax professionals is that it primarily belongs where the IP is created, that’s why most of Apple’s tax goes to the US Treasury. That’s what the US tax expert in the original NYTs article about Apple’s taxes that won the Pulitzer argued. And, that’s what those US Senators that grilled Tim were also arguing.

  3. Eh what? The weight challenged lady is still warming up MDN. Too early to call an Apple victory.
    Oh, and thanks for the xenophobic undertones from Trump_think central.

  4. Governments always whine when the very Capitalism that they set in place codified by laws and affirmed in courts does not go their way. The problem, of course, is Capitalism itself not that one Capitalist or another – Apple in this case – is taking advantage of every legal Capitalistic process and practice deplored by the weak regulator.

  5. To always claim the moral high ground in matters of humanity then screw so many by doing everything you can to not pay the proper and correct taxes to a nation you trade in (taxes which pay for better living and health services for everyone); Just exposes Tim as a self-righteous narrow minded crusader on his own blinkered personal agenda.
    It’s sad because I believe in his causes but this evasion of what’s due to the people where he trades (via the tax system) makes me realise it’s just a personal crusade not a true ethos about doing the right thing.

    The richest company in the world should not be fiddling taxes even if the loopholes exist as they constantly try to place themselves as the morally righteous when in truth it’s just Tim’s personal crusade and everything else is PR spin.
    #Paytax #Doitright #Morallyright

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