Apple is in trouble – again. After winning the first round against the FBI in the great debate on encryption earlier this year, the company faced another daunting opponent: the EU Commission. After a three year long investigation into the company’s tax treaty with Ireland, which was first established in the 1980s, the verdict last week. Apple will pay 13 billion euros – 123 billion – in back taxes to Ireland.
Both Apple and the Irish state will appeal the decision, and US authorities also want to interfere in the case. Why not welcome Ireland billion new tax? The whole story is right and confusing the issues are many: How much pay the Apple tax? Each company pays taxes? How does Apple’s tax compared to other technology giants? All that we will try to sort out here.
Pays Apple tax?
Well then, Apple pays obvious tax. Quite a lot, actually. Last quarter it was about 25.5 billion. But the money will not all countries where Apple products are sold to benefit.
Apple strongly believe that the company will be taxed mainly “where value is created,” and it is the United States. The company’s products are developed and designed in California. Therefore it is also in the US Apple pays the most taxes. Apple’s CFO Luca Maestri has said: “These are gains that are taxed in the United States, and for those who understand how the US worldwide tax system works is easy to understand.”
The company’s latest quarterly report was for the third quarter in the split financial year ending 30 september – and the quarter was somewhat of a disappointment for Apple. During that time, was the declared sales of $ 42.4 billion and profit before tax to 10.5 billion dollars, of which Apple added $ 2.7 billion in income tax. There will be 25.5 percent, which is quite high although it probably would have been even higher if Apple did not retain as much of the profits outside the United States. Tim Cook said that Apple as it can not take them home because the tax would be 40 percent. The corporate tax rate in the US is 35 percent, but very few companies pay so much in practice.
In any case, they are 25.5 percent of overall taxes on Apple’s global profits, and in many territories where the company operates is the corporate tax rate significantly lower than that.
in 2014, Apple is said to have paid an effective corporate tax of 0.005 per cent in Ireland, which is one of the reasons behind the European Commission’s harsh verdict. The tax rate in Ireland is 12.5 percent, which is one of the lowest in the EU. The neighbor Britain, for example, 20 per cent and Sweden 22 percent.
But maybe Ireland will be glad they even got that much. 2012 Apple paid no corporation tax in the UK, and in 2014 the company paid 707,146 kronor a profit of 3.8 million kronor in Sweden – while turnover was 412 million kronor, according to Dagens Industri.
How does it work?
trick is to corporation tax is based on profit and not sales. It does not really matter how high turnover – and the other had been difficult to justify since it would mean that the company went back still had to pay taxes.
Gains are significantly more mobile than revenue, and Apple has, like most multinational companies, a complicated corporate structure to minimize tax.
Apple used until the end of 2014, something called a dual Irish and went on to place two wholly owned subsidiaries Ireland, one of which managed sales and the other was a holding company. When a consumer bought an Iphone walked almost the entire selling price to “buy” the phone from the other company, which had a license from Apple Inc in the United States.
Even if the phone cost 3 000 manufacturing was maybe 7 500 SEK to the parent company and only a pittance stayed in the country of sale to cover administrative costs. Since companies in Ireland need only pay tax if they operate in and managed from Ireland could Apple, like many other companies, get away a large part of the tax by moving it to a company that simply were not counted as taxable in Ireland. If the company then instead was ruled from a tax haven sent most of the profits there, and taxed at 0 percent.
Ireland clogged this cover after 2014 and Apple now pays more tax.
How Apple can justify such a low tax in Ireland?
today, Apple seems to have three ways of communication with the outside world: Big press conference, long deep television interviews with Tim Cook, and open letters at www .apple.com. Just like during the battle with the FBI, Apple has released a letter that addresses the European Commission’s ruling.
The company has three main points in his defense. Two is the default response for major companies in these kinds of situations: 1) This is what the rules out and we pay every penny we owe. 2) Nice economy you have here, it would be a shame if someone moved its European operations to another country and brought thousands of jobs.
The third point is to use the EU-criticism in Ireland and the country ability to make their own laws:
– the Commission … will in effect replace the Irish tax code to be consistent with the Commission’s vision of what it should have been. This would be a major blow to the EU member states’ sovereignty over tax issues.
It is also true that Apple has not violated any rules. The Commission’s judgment is about the Irish rules and its special agreement with Apple violated EU rules on state aid (in other words, competition law). Apple can not be expected to pay more than the rules say, but the European Commission believes therefore that Ireland had no right to let Apple pay as little tax to begin with.
Tim Cook has called the situation crazy and politically motivated decision.
Allegedly not Apple be an ethical company?
Yes, it does, but the company is not entirely consistent on this front. We would rather call Apple a company with a passion for social justice. It has made genuine and significant contributions in the debates about gun laws, LGBT rights and environmental destruction in the US, but in economic terms it is equally rovkapitalistiskt like any other multinational giants. It had hardly been the world’s largest technology otherwise.
Most people would agree that Apple and its peers really should pay more tax. If ordinary WARE-SLAVE pay income tax of 30 percent it does not feel right just about a company that makes billions in profits pay 0.005 percent. The corporate taxes are lower than the income tax is often to give companies an incentive to place business in the country.
From this point of view, the Commission’s decision is understandable: By forcing member countries to deal with multinational companies in the same way (although the effective tax rate is still set locally) there is no further reason to move.
other technology companies pay more tax than Apple?
Almost always less. Partly because Apple’s tax arrangements is a fairly common approach in the industry, and partly no earn as much money as Apple.
The Citizens for Tax Justice report Offshore Shell Games in 2015 included nine technology companies among the 30 US large caps that keep most profits abroad. In addition, Apple mentioned Google, IBM, Intel and Microsoft. Between 2007 and 2010 is estimated to have Google pay an average 2.4 percent tax on profits outside the US, according to Bloomberg. It is accomplished by a so-called “double Irish with Dutch sandwich” where profits not only sent via Ireland, but also the Netherlands on a corner.
Why does the European Commission revise the taxes upward Apple?
It is primarily about the rules should be consistent. If individual companies special treatment of one country shooting authorities – especially for really big companies in this case – it counts as state aid.
Margrethe Vestager, Competition Commissioner, was very clear that member states must not give tax benefits to individual business because it is illegal state aid.
Apple’s open letter suggests that the contract it had with Ireland was available to anyone, or at least advice Apple had the Irish state did it.
Why does Ireland do not have the money?
If Ireland would like to thank and receive the 13 billion euros the European Commission said that Apple had to pay had it been able to do much more for the economy in the short term than the 6000 jobs that might risk being lost if Apple would still leave the country.
So how is it that Ireland, just like Apple, intends to appeal the verdict?
One explanation may be that the Irish government is afraid of more companies than Apple. Many American corporations control its European operations from Ireland and the country is forced to tighten up the rules perhaps fewer companies will do it. When these are of far more than 6000 employees at Apple in Cork.
There is also a political aspect. So here said Irish Finance Minister Michael Noonan:
– The decision gives me no choice but to ask the Cabinet for permission to appeal. We need to defend our tax system’s integrity, to give companies certainty in tax matters, and to question the intrusion on the individual Member States’ autonomy in the tax laws of EU competition law.
Will Apple really have to pay ?
the Irish government will appeal against the Commission’s decision, but it is too early to try to guess how it will go. Apple claims to be very optimistic.
Margrethe Vestager also gave Apple a glimmer of hope, in a way. If Apple would have to pay more tax in the United States for the period the target is about (2003-2013) would reduce the taxable profits in Ireland.
Translation: Anders Lundberg
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