An Apple windfall awaits us, so why won’t we shake the tree? Caroline O’Doherty looks at the tax sweetener that’s turned sour.
What’s the background to the Apple case?
In 2013, the US Senate began probing why some big American companies were paying tiny sums in taxes on vast profits earned abroad. Apple, one of the world’s biggest tech companies, was a particular focus. The probe found two of its key subsidiaries, Apple Operations International and Apple Sales International, were registered in Ireland but paying a pittance in tax here — or anywhere else.
How could that be?
Apple doesn’t just employ clever techies, but also supremely smart corporate lawyers. Apple Operations was based in Ireland so the US couldn’t tax it, but largely managed from the US so Ireland couldn’t tax it. Apple Sales looked after a lot of the research and development (R&D) and intellectual property (IP) side of things. IP firms are taxed where the IP is produced. You try pinning down where an idea was formed.
Why did Ireland Inc let Apple away with this?
Well, everyone likes a sweet Apple and it pays — politically and to some degree economically — to keep a company that employs 5,500 people in Ireland sweet.
But hasn’t it left a sour taste in Europe?
Following on from the US investigation, the European Commission began its own probe into the tax arrangements of Apple in Ireland, Fiat in Luxembourg, and Starbucks in the Netherlands. The preliminary report, expected to be confirmed this week, concluded the Apple tax deal amounted to state aid to a commercial company which is illegal under EU law.
So what happens now?
The commission will order Ireland to get back the tax it says Apple should have paid. That could mean a tax bill of anything from €150m to €19bn depending on the analyst you listen to and how the profits are calculated.
So we get to ask Apple for loadsa money and put the blame on Europe? Sounds like a win-win for us. When do we write the tax demand?
We don’t. We’re planning to fight any such ruling by the European Commission.
Brain can not compute. Explain please.
Well, to meekly accept the commission’s findings would be to admit we did wrong. We’re not good at that. It is also feared it would embolden the commission to probe other tax deals and generally interfere with whatever autonomy we have left in handling our tax affairs. It would also upset the Apple cart.
But there’s a budget coming up — couldn’t we do with some extra cash in the kitty?
Absolutely but we’d have to use the windfall to pay off some national debt rather than spend it on budget goodies so not even a new hospital wing with a ‘kindly financed by Apple’ plaque would result.
Tackling national debt is no bad thing. Wouldn’t Apple just get over it?
Global companies are loyal to profit, not places. If it can’t be protected by us, the Apple cart may be tempted to trundle off elsewhere.
What’s Apple saying?
CEO Tim Cook described the preliminary findings as “total political crap”. There is no evidence to suggest his view has changed.
So is Apple planning to challenge the commission too or will we be effectively fighting their corner — and paying for the privilege?
We’re already paying a heap in legal fees but Apple isn’t going to leave it entirely up to us. It has its corporate lawyers primed.
So who will win?
Easier to answer who will lose. The taxpayer currently tops the list. Put it this way, Apple’s next product isn’t likely to be the iPaid.