"The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years."
A lot of Europeans (me included) are not at all happy to see massively profitable companies operating in Europe without paying practically any taxes. This makes it impossible for European companies to compete with them and I'm very glad the authorities are looking to level the playing field and bring in some tax revenue while doing so.
[1] http://www.bbc.co.uk/news/business-30844962
[2] http://ec.europa.eu/competition/elojade/isef/case_details.cf...
[3] http://ec.europa.eu/competition/elojade/isef/case_details.cf...
EDIT: Formatting
In the European union, where funds are easily transferred between subsidiaries in different countries, tax competition by individual member states can have particularly harmful effects on the public economy as a whole.
In a typical multinational corp tax avoidance scheme, a coproration has a subsidiary A in e.g. Ireland and has a very small corporate tax rate on profits. Then another country, e.g. Netherlands gives subsidiary B a tax break on some commodity, typically an IP licensing scheme of some kind.
Subsidiary A licenses some IP from B, and the licensing fees are conveninently 100% of the profits of A, so they're not making a profit in Ireland and don't have to pay tax there. Subsidiary B gets all their profits from IP licensing that pays hardly any tax in the Netherlands.
Add a few subsiriaries and loan arrangements between them (free movement of capital in Europe is one of the fundamental pillars of the EU), and no taxes get paid and all of the profits get funneled into a tax haven such as Bahamas or Caymans.
So while you'd think that tax competition would just be a fair competition when talking about individual countries, at EU scale it ends up being a race to the bottom where a few select countries (Ireland, Netherlands, Luxemburg) get a nominal fee from the multinationals but all European states end up losing billions in tax revenue.
And then there's also the corruption aspect. These tax deals aren't a gesture of goodwill.
This is not about tax competition, this is about abusing tax loop holes and trying to avoid paying any tax at all. E.g. before 2015 Amazon declared their entire European income in Luxembourg and payed about 1 percent of tax on that money. This way other (much bigger) European countries like Germany and France lost billions.
(The US avoids much inter-state tax competition through federal taxes)
The people paying for your product are able to buy it because they live in a country that provides for them, through added value, jobs, health care, infrastructure and so on. If you want to profit from these people's buying power, then you have to conform to that country's rules of business, that's all.
Apple is very happy to make huge sells of iPhones thoughout France, Germany, Italy and such countries, siphoning money from their people to Ireland, without ever contributing as much into the local economy. They employ a few hundred people in Apple stores and hotlines, but compared to their profit it is just ridiculous.
Apple subsidiaries in random countries selling phones don't pay taxes because they don't make any profit. They don't make any profit because they're "charged" an amount for the phones (and IP, branding etc) that exactly equals the sales.
"people paying for your product are able to buy it because they live in a country that provides for them": wow... really? I know governments love considering people's money as theirs, people's lives as theirs, but that's a bit far stretched maybe? I'm not any country's liability. I'm a free man in a free society. Aren't you?
Here's a business producing commerce-enabling technology in an extremely valuable manner, hence the profit. Consumers exchanged their earned, post-tax savings for those things and paid additional tax along the way. To act like governments were short-changed is preposterous. It's "you didn't build that" taken to the extreme, and borderline extortion.
The two are vastly different, and the first is tolerated only by the latter because it's the best way we know to bring order and organization to trade.
In the past?
This is ongoing - enabled by Junker himself ...
No, it is not. Before 2015 many companies (one prominent example being Amazon) declared their entire European income in Luxembourg and payed about 1 percent tax on that money. This tax loop hole has since been closed by the EU, Luxembourg lost about 10 percent of its budget because of this. Today when somebody from e.g. Germany buys a product from Amazon.de, Amazon pays tax in Germany for this product.
Luxembourg is like the delaware of Europe, it's a banking and financial institution state and both its own laws and the EU laws and policies it lobbies (and when you effectively are not only Delaware but also the DC of the EU it kinda helps) for ensure that it would continue to operate as one.
The bad thing that Ireland and is a big no-no in the EU is to go to the likes of apple and say:
Hai Apple I really want you inside of me! I know I'm small, and I don't have a huge workforce and internal market, I'm not like Germany. I also don't have a huge economic and financial infrastructure like Luxembourg, Switzerland or UK (London) but I'm a really hard worker! Tell me what skills you need, and I'll educate my people, I'll give you low interest loans to build your shiny offices and I will give you tax deduction if you employ my peeps. I would do all that I can to make sure it will be easy for you to operate here because I really don't have much to offer and I need to compete with the bigger countries since the euro is expensive and the price stability is managed by the ECB and my people need to eat and loans I've been taking on are becoming harder and harder to pay.
Now this is the only way that Ireland can really attract large corporations and make it more lucrative to invest in its industry, this is what effectively every country on the planet does when it wants to grow. And since Ireland can't control it's own monetary policy and currency it also can't just be a cheap place to be, while there is some local variation because of the mandate of the ECB to control the price stability within the Eurozone the prices of many goods and services are quite similar (Ireland is actually more expensive than Germany because it's an island which increases the costs of logistics and it has lower production which means more imports which add costs even if they import within the EU) it needs boost its economy in order to match the salary level of the other Eurozone states and to do it it needs to offer something to corporations.
It can't offer them a huge workforce because it doesn't have one, It can't offer them access to financial and banking infrastructure because it doesn't have that either, what it can offer is English, fund both academic and vocational education and training based on the skills those companies need and give them tax incentives to come and employ Irish people. Ireland isn't Luxembourg Apple didn't set up effectively a "shell" there that's pretty much there for easy tax loopholes and actually employes no one, Apple employees directly over 6000 people in Ireland and indirectly 4-5K more, same goes for Microsoft, Google, Facebook, Amazon and the likes. This isn't some tax break Island that those companies incorporate in by name only and don't actually have staff, companies have "real" employees in Ireland because the Irish "incentives" are tied to direct employment. Ireland isn't trying to create tax loopholes to make a quick buck to split it between a few 100's residents, it tries to keep it's 5M people employed, forcing them to play by the "same rules" as 4 of the world's 10 largest economies is asinine.
But most taxes in the US are Federal.
In Europe they are effectively 'state level' - making the problem worse for Europe than for state-by-state tax competition in the US.
Re: your Ireland comment - yes - I see your point, but the issue here is not Ireland having a 'lower tax rate' of 12.5% - rather than they allowed Apple to have 'special privileges' thereby paying next to nothing, right?
Are you sure about that?
It's going to depend very much on where you are, how you're organized, what tax breaks you get, and how much money you make, but states generally have both a) many different kinds of tax: income tax, property tax, sales tax and b) a cumulative higher tax rate. A much higher proportion of my money personally goes to the state than it does to the feds.
For for example you might have:
State A: State income tax: 5% Property tax: 5% Sales tax: 5%
State B: State income tax: 6% Property tax: 6% Sales tax: 5%
Yes, everyone in both State A and B pay, let's say, a federal 7% income tax and payroll taxes. But the state taxes make a huge difference. State says to Wal-Corp - build a store here and you'll be exempt from property taxes and sales tax for 5 years, and we'll give you a special state income tax credit that reduces it to 3%. That's the kind of deal making we have going on with states, except the federal government doesn't intervene to stop it like the EU did here.
http://www.newsworks.org/index.php/local/brandywine-to-broad...
> Since June 2013, the Commission has been investigating the tax ruling practices of Member States. It extended this information inquiry to all Member States in December 2014. In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. In January 2016, the Commission concluded that selective tax advantages granted by Belgium to least 35 multinationals, mainly from the EU, under its "excess profit" tax scheme are illegal under EU state aid rules. The Commission also has two ongoing in-depth investigations into concerns that tax rulings may give rise to state aid issues in Luxembourg, as regards Amazon and McDonald's.
The "smaller" economies have to give incentive to large corporations so they could set up shop. Ireland did it with various incentives, Poland, Estonia and the likes are also doing it with others.
Ireland is in the Eurozone so they can't set up their own monetary policy so they can't offer much in terms of favorable interest and conversion rates to large corporations.
If they can't offer tax incentives companies would be less inclined to set up shop in Ireland if their operating costs would be similar to those in Germany or France. English gives Ireland some advantage but it's not nearly as big as people think, the culture in Germany or France is close enough and you can train people to speak English and with the shared market even import a few 1000's Irish to man the phones.
Apple and the other big guys set up their shop in Ireland because the Irish government gave out huge incentive both direct and indirect it provided funding for training and education for its residents to meet the specific requirements that companies like Apple, Google, and Facebook had. It provided financing, loans and tax breaks to those companies to come in and employ Irish workers and it did it because it's the only way it could compete with the likes of Germany.
Tax loopholes are bad, laws that prevent smaller countries from being competitive are even worse, an equal playing field works when the players are equal, when they aren't "equality" is only advantageous to the strong and established players.
http://www.timesfreepress.com/news/business/aroundregion/sto...
what is different about this?
I have doubts that these MNCs help the society that much to be eligible for these tax breaks. They are not charities... The loss for the EU as a economic partner is negligible.
From the letter, it seems Apple thinks it should be paying taxes in California rather than were the profits are coming from (the EU). Excepts from the letter: "In Apple’s case, nearly all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States."
The second half of the sentence seems to be a non-sequitur, or intentional misdirection -nothing about it follows from the first half.
http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
http://www.dailymail.co.uk/news/article-3688861/Jean-Claude-...
https://en.wikipedia.org/wiki/President_of_the_European_Comm...
Sorry but this is typical American FUD, European companies are scrutinised on the same terms and when breaking the law or dodging stuff are getting (high) fines as well.
It is not Europe's fault that this kind of news doesn't find its way in the US... .
Right. MNC have, but local companies had no way to do that. That's the crux of the issue. In fact, some people started an inquiry how to replicate that scheme.
Apple innocently, and unknowingly[1], accept an illegal tax benefit. Apple lose the benefit of the illegal activity.
What's the difference? Caveat Emptor for both. Even if you want to consider them the innocent victim they don't get to keep the benefit of a crime.
[1] I'm less convinced it's unknowing here - Apple probably have a surfeit of international taxation experts and lawyers.
Losing the benefit, sure. Paying back taxes that don't exist nor asked for? There's a problem in there somewhere.
A better analogy would be finding that someone deliberately and knowingly claim mileage expenses at an absurdly high cost per mile in lieu of a larger annual bonus after discussing tax efficient solutions with HR. Would they face a revised tax bill for past years and be expected to stop overclaiming for future years if an authority with more standing than their employer got involved? Of course. Does Apple's team of tax law specialists have more understanding of the potential for such a scheme to be ruled illegal than the average employee? Of course.
they are being forced to buy the car that they won't keep as well.
Following your borrowed car analogy, Apple finds a gas card in the glove box on the first day and uses the car every day for 4 years and uses the gas card. When it's discovered that the borrowed car is stolen and the gas card wasn't Ireland's, who has to pay the gas card off?
Come on, really?
lol
Should Tesla be worried that the United States Federal Government might deem Nevada's special tax deal invalid?
Want to know how you can tell this didn't happen to Apple innocently and unknowingly? If they were actually innocent and unknowing they'd certainly say so, and make a coherent legal argument to back up that point of view.
The post we're all commenting on has some bullshit black and white pictures and stories about shit that happened in Cork Ireland in 1980 and Steve Jobs feelings and whatnot.
Q.E.D.
Yes, what you said is that ridiculous.
If you want to get an opinion from the US Federal Government on how to account for a transaction for tax purposes there is in fact a procedure for that: https://en.wikipedia.org/wiki/Private_letter_ruling
One in the business of importing phones from another country who has questions about competing taxation and tariff rules has many options for getting guidance on the implications of their accounting.
And nothing that happened in this matter was shocking or surprising to Apple. They have elaborate tax avoidance schemes. For example, they didn't like trip and fall and land on a convoluted Double Irish arrangement by accident: https://en.wikipedia.org/wiki/Double_Irish_arrangement
It depends who do you mean with everyone? In this case the only party which should have been asked would have been the EU, which doesn't sound mad at all in my opinion.
Hell yes, they better have a plan should that happen.
Once they pay their 14B in taxes.
If this tax activity was illegal, why wasn't it stopped 25 years ago, when it started?
It was illegal all the way, only Apple wants to make it legal.
"why wasn't it stopped 25 years ago, when it started?"
If murdering is illegal, why wasn't it stopped 5000 years ago? Don't know. People do illegal things all the time, most people doing illegal things do not get prosecuted for various reasons, fashion, society, not enough prosecutors.
The argument "I was not prosecuted some years, so it was not illegal" doesn't work with any court.
"Statutes of limitations"
I don't know the time frames and for what time frame Apple needs to pay fines. Could you share the time frames where you think Apple got illegally fined?
I'm no expert in tax law but would assume, here in Germany, there is no "Statutes of limitations" for taxes. Countries lose all their humor when it's about taxes.
That's exactly how it works. Look up statute of limitations.
Most civil violations have stringent limits.
> I'm no expert in tax law but would assume, here in Germany, there is no "Statutes of limitations" for taxes. Countries lose all their humor when it's about taxes.
I didn't know German law applied in Ireland. Perhaps that's the entire point of the EU, I don't know.
Anyway, Ireland explicitly says that nothing is owed. Maybe you should read a bit more about this issue before commenting?
Yeah - but this arrangement has been going on for more than 20 years, no?
A little late in the game to be declaring it 'illegal'?
I'm not against the ruling, but it's clear that the EU is messed up.
Make no mistake - the only reason Apple was under investigation is because they were making so much money.
This thing should have been brought up the moment it was implemented.
Also - the EU is structured to incent governments to screw other governments by creating crazy tax schemes.
You know who spearheaded this? Jean-Claude Junker - the same guy who spent 10 years developing tax avoidance schemes for Luxembourg!
IMO they should be able to sue the agency (or agency's employees) that supposedly granted them the tax benefits for damages because they misrepresented the actual tax situation, but they still owe the unpaid taxes and have to pay them back.
Not knowing the law doesn't protect you from breaking it. In this case, they're not even being punished -- the $$ owed aren't a fine, just the taxes (and interest) they should have paid to begin with.
This is similar to buying stolen goods: sure, you may not actually have known they were stolen, so you might not be directly punished, but you still don't legally own the goods (even though you paid for them) so they will be confiscated and returned to their rightful owners. You can sue the seller for damages, but the state is under no obligation to reimburse you for handing over "your property" (because it isn't).
And you're right, it's not a punishment, just asking them to pay what was owed. If you owe the taxman £20000, it's a big problem for you. If you owe the taxman £13,000,000,000, then it's definitely a problem for the taxman :)
He did eventually pay back the entire amount (plus interest) but he was released from prison after having spent only roughly half his sentence (which actually didn't confine him to prison for his entire "stay" anyway).
You are wrong. From EC statement: Ireland gave ILLEGAL tax benefits to Apple worth up to €13 billion [1]
There was a discussion yesterday about this on HN. It's pretty much a corporations responsibility to try to avoid as much tax legally as it can. In this case, Ireland gave them LEGAL tax break (at least that was what the Irish believed at the time) and now Apple is getting blamed..?
It just doesn't make sense, put the blame where the blame is due.
There's certainly some merit to that argument.
> It's pretty much a corporations responsibility to try to avoid as much tax legally as it can.
That's a popular falsehood. It is a corporation's responsibility to fulfill the wishes of its shareholders. That doesn't even necessarily mean maximizing profits, and it certainly doesn't mean avoiding taxes to a degree that incurs both legal and reputational risk. If the shareholders want the company to act as a mature and respectable person would, then the corporation's duty is to do so.
Unless Apple's a benefit corporation, it's only responsiblity to share holders is long and short term profit. I distinguish between the two to make the point that it shouldn't break laws or go out if business because that hurts long term profits, it also should avoid taxes it can, and pay all taxes it can't avoid to maximize short term profits, and minimize longer term tax penalties.
Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919)
> A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes.
Although, there are examples where a court did recognize that helping employees will maximize profit, or not putting up bright lights next to a neighborhood is "moral". All of the decisions had to relate back to helping the shareholders. Most courts in the U.S. view shareholder profit as the #1 responsibility of the board of directors, others argue public safety might be #1, profits #2.
All of them agree that the primary purpose is to make/maximize profits, without which you can do nothing.
https://medium.com/bull-market/there-is-no-effective-fiducia...
Ireland will probably not see a penny from it.
The government maintains that even if it were to take the
cash, European rules mean it would have to use the money
to pay down some of its 180 billion euros of national debt
rather than fund spending.
If you evade tax, you know full well what you are doing, even if it's technically legal you should expect to be retrospectively taxed, especially if you are exploiting the system to such an extreme.
Oh wait, actually even the people who wrote a system for unchangeable, code-backed legal documents don't believe in the letter of the law.
There are actually limits to how far back the dodged taxes can be collected. That's why it's only $13bn. That's what has been due since 2003. This entire thing actually goes back since the 1990s.
Also, we're not even talking about criminal charges or fines here. Apple isn't being sued or facing any punishment. The EC has merely ruled that Apple didn't pay all the taxes it legally owed Ireland and Ireland didn't have the authority to allow them not to pay the taxes in the first place.
This is akin to a janitor charged with collecting rent for the landlord telling you for years that it's okay for you to pay pennies to live in your mansion until the landlord finds out about it and now demands you pay the $$$ you owe him because the janitor was never legally in a position to make that kind of deal and you're actually a highly paid expert in rental contracts and were fully aware of the deal having no legal basis to begin with.
This decision can't have been a surprise to Apple. Seeing this kind of thing coming is what they pay very expensive legal experts for. They knew EU law overruled the Irish laws that supposedly allowed this deal in the first place. They're only crying foul because they were caught.
What it looks like they are trying to do is apply a legally compliant level of taxes retroactively, not laws.
(Yeah, I know you're saying it was legal under Irish law, but the whole point is that some Irish laws take precedence over others. In this case, their treaty obligations to the EU, codified in their laws, take precedence. If this wasn't the case there wouldn't even be a court case, much less a judgement.)
That only applies to new laws.
There's a big difference. The latter is legal, the former is not.
Apple did not do anything wrong from what I can see: they were given a good deal, they took it. It turns out that deal was illegal so they have to pay some money to rectify the error.
Doesn't seem very fair but governments are pretty unforgiving when it comes to taxes overall.
https://en.wikipedia.org/wiki/Civil_liberties_in_the_United_...
Selections:
Criminal Justice Act 2003, abrogated double jeopardy in cases with "new and compelling evidence".
Serious Organised Crime and Police Act 2005, created an offence of inciting religious hatred, an advanced notification scheme for protests up to 1 kilometre from Parliament.
Terrorism Act 2006, following the bombings in London on the 7th of July, this legislation allows for people suspected of terrorist offences to be detained without charge for up to 28 days.
Here's someone's blog post listing things that would be legal in the US but not in the UK, citing the specific laws or constitutional provisions in each that make it so. https://prestonbyrne.com/2016/01/06/the-american-english-civ...
Yes and no - the EC's argument makes a bit more sense imo: Yes, it was legal in the sense that Apple broke no irish tax laws. But the tax laws themselves have violated some higher-level EU laws that Ireland had pledged to obey - at least that's how the EC sees it.
Perhaps a more fitting (but still horrible) analogy were if you make an employment contract far below mandatory minimum wage. Neither you nor your employer is violating the contract and both of you might be perfectly happy with the conditions - but your contract might stil cause disadvantages to third parties (other workers) and might violate state laws.
As far as I understand, the EU is saying that it never was legal under EU law.
That is maybe your legal analysis of european union state aid legislation, but in the end it's the commission and the court of justice who have to assess it.
I don't really have a view which is correct, but I think it's important to note that the EU doesn't accept it is acting retrospectively.
The problem here is that the rule of law and the rule of fairness had diverged, and there was a higher-level law forbidding that. This kind of conflict happens all the time. In the US, the most common manifestation is laws being struck down as unconstitutional. Governments are bound by laws too. When they break those laws by treating people unfairly, correction is needed.
I didn't say that corporations should be the same tax as individuals. I've said that's unfair for Apple to pay less tax than any other EU corporation/company. How can you compete with Apple if they pay no tax and your start-up pays 20% ? How could Apple have succeeded if they were to pay 20% tax and all the others (i.e. IBM) was to pay no tax?
> What about the notion that corporations should pay no tax at all, and the only taxes should be on individuals.
That would be basically slavery of foreign people(not nice).
Not all law needs to be 100% formalist. It's perfectly possible to have a blanket law that says "If some tax evasion scheme is generally considered to be unfair/unreasonable, it can be annulled no matter what the letter of the law says".
Something doesn't jive here. If it is that clear cut, didn't EC read its own laws before asking Apple to pay? If there is a paragraph they skipped someone should point to that, Apple should perhaps.
It would seem to me EC is implying what has happened in the past was not entirely legal somehow. Then it is not obvious what should happen next.
Notice Apple mentions how they "asked govt. of Ireland" for guidance. That means they might have documentation of a govt. official advising it to act that way. That is very important because it is building the case of Ireland here doing something illegal against the EC laws. So Apple is washing their hands here of this case.
No it was clearly not. How did you come up with that?
Tax judgements often don't occur immediately. Just ask any one of the 50,000 IT contractors in the UK that are facing this exact situation right now with respect to EBT arrangements. Some owe tax dating back over more than a decade.
They knew the risk, they took it, they lost. No-one is naive here, certainly not Apple.
Seems like interesting timing. They've decided to go after back taxes right before the UK leaves the party.
Just for your info this isn't what happened, it's Ireland's tax money. The EC doesn't collect taxes. Instead the EC ruled that Ireland was providing illegal state aid (under EU rules) to Apple through its tax arrangements. So this loophole was nullified and Apple have to pay the back taxes to Ireland. The EU gets nothing (the EC is the executive body of the EU).
This investigation into dodgy corporate tax deals has nothing to do with Brexit (note that this is about Ireland, not the UK), and it's been going on for most of a decade now.
No. This isn't over money owed to the EC, it's over state aid perceived as manipulating the Single Market in a company's favour, which is [to an extent] undone by requiring that company to repay the money
> Seems like interesting timing. They've decided to go after back taxes right before the UK leaves the party.
It's the culmination of a three year investigation and legal process, and they've been going after companies with other special tax arrangements with local governments for years. I don't think Brexit had anything to do with it.
No, it was not legal, this is what the ruling says
Imagine for a moment that your own government raised your personal tax rate and said that since they felt the previous tax rate was too low, you also owe taxes from the past.