An Apple a day, keeps the tax man away. Unwanted windfall gains for the Irish Government?

The Apple story has reappeared, like Granny’s reheated tart. The Irish Times reports here that Apple have said that a direction to pay additional taxes due to Ireland would be “material”. The story is also covered in the Financial Times (€) here. The two pieces are based on a quarterly stock exchange filing by Apple, which can be openly accessed here . The relevant comment, causing the controversy is,

On June 11, 2014, the European Commission issued an opening decision initiating a formal investigation against Ireland for alleged state aid to the Company. The opening decision concerns the allocation of profits for taxation purposes of the Irish branches of two subsidiaries of the Company. The Company believes the European Commission’s assertions are without merit. If the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid. While such amount could be material, as of March 28, 2015 the Company is unable to estimate the impact.”

The particular subsidiary of Apple under investigation is an Irish Registered, Non Resident company. Or put more simply, born on the Northside of Cork, after a long gestation, the international consultants present at its birth decided for the good of its financial health, it should emigrate post haste to sunnier climes. However the precocious baby contracted its old friends back in Cork to do its household chores.

The company has two sorts of income, investment income, taxable at 25% and trading income taxable at a 12.5% rate. The problem for Apple is that little if any of this income was taxed anywhere and any direction from the European Commission would cost it serious money. The Irish Government are likely to be in the awkward position of having to collect tax (perhaps with interest and penalties), which in its view, are not due. It went so far as producing a “Technical Paper” as part of its defence, which I analysed in this piece  on Unite’s Notesonthefront site.

The yield from the Commission’s investigations is likely to be huge. The Irish Times mentions a minimum figure of $2,500M dollars and the FT are talking about a penalty north of €1,000M. It is ironic that the party complicit in the crime, Ireland, will receive the benefit. But ee simply don’t know yet how big any final deal will be.

Apple is left with an awkward decision. Does it decide to fight the Commission or try to cut a deal. No multi-national wants to include disturbing statements such as the above comment in its statutory filings. Yet, Apple’s tax strategy from very early in its existence was extremely aggressive. The choice now is best described as the Prisoner’s Dilemma. However, the position of its fellow accused, Ireland, is slightly weaker. It has built an economic strategy based on conniving with International tax avoidance. It may be left with Hobson’s choice, take the windfall in taxes and suffer the long-term consequences.

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  • Sharpie

    Is Apple the only rotten thing in the barrel or are there others who will also have to contribute to such a windfall over time? This could shake them to their core – especially if they get squeezed until their pips squeak. I bet it all gets dressed up as motherhood and apple pie. Juicy stuff.

  • terence patrick hewett

    This is all about US competitive technology versus the endemic EU protectionist mind-set.

    German publishing and manufacturing industries are very worried by the new technology of Apple, Sony and Google.

    Apple, Sony and Google are becoming significant players in the automobile and publishing industries: this has got German and French publishers and manufacturers so worried that they are attacking Google and Apple with EU anti-trust charges. According to Stefan Heumann of Berlin think-tank Stiftung Neue Verantwortung:

    “Initially this was publishers against platforms. Now it is about Google expanding its reach into areas of traditional manufacturing [like] cars and home appliances. This has German industry worried.”

    They pulled the same stunt with Intel in 2007: the last organisation that will ever be investigated is the un-representative and repulsively corrupt EU.

    This is typical EU behaviour: If you can’t beat it, legislate against it. This is just one of the reasons that the EU is such a pernicious organisation.

    My money is on Apple and Google.

  • Old Mortality

    Surely a win-win for Ireland. A windfall with the excuse that that they’re just obeying orders: nothing personal or corporate, like. As for Apple, if they want to have a base in the EU, the ROI is still the most tax-friendly plausible location. I can’t see them pitching their tent in Tallinn.

  • NMS

    OM – I am no sure it is good news for Ireland. Multi-nationals crave certainty and the re-opening of your tax files, not by the tax authority, but by an international regulator is a very uncertain thing. The question is how many more cases are as openly questionable as Apple. I am personally aware of another very strange arrangement, where the Irish Revenue signed off on a deal to secure employment and it happened much more recently than . I agree with you about Tallinn,fine for the weekend, but not all year around.

    The worry must be that the new Danish Commissioner Margrethe Vestager will open up Ireland to wider scrutiny. The yield of additional tax will be a mixed blessing, a sort of Judas money. I referred to the particular case in the piece I did for Unite mentioned above and have included the relevant section below. The annual tax savings in this case came to €50M p.a. plus

    “Yet in one recent decision, the Irish Revenue accepted that an Irish registered company was resident in Netherlands, yet it still had hundreds of employees here. It became an Irish registered, non resident company with a branch in Ireland. The myth is that it is “controlled and managed” from Amsterdam because the directors may meet there, while the staff and all economic activity occurs in Ireland”

  • 23×7

    Nice attempt at defending the filthy corporate practices of Apple and Google.

  • terence patrick hewett

    Hallelujah! Praise the Lord and pass the ammunition!

    The EU is also pursuing Facebook.

    Apple, Sony, Google, Intel, Facebook. Begin to see a pattern? Not those wicked business corporations but highly competitive high-technology companies who just happen to not be European. The fact that they are making great inroads into EU publishing, industry and manufacturing thro data systems is just a coincidence.

    Facebook is fighting back: it has warned that it might change the rate at which new features are introduced in the EU. And all these companies are not just social networks

    If the EU are so concerned with privacy/anti-trust, why is Google, Facebook et al so popular with the punters? Why don’t Europeans build competitive systems that they like rather than using regulation to hamstring the competition to solve a problem that millions of Europeans are unconcerned about? Google amazingly has a greater share of the search engine market in Europe than it does in the US.

    All this activity carries consequences: it reduces European competitiveness. Companies are leaving: BASF Plant Science have decamped to the US. Ford, GM, Renault, PSA-Peugeot-Citroën are pulling out of European manufacture because bureaucracy and regulation is hampering their attempts to deal with technology change.The French government has learnt nothing from the British experience: it is increasing its stake in Renault in an attempt to derail this trend: much to the concern of Carlos Ghosn the CEO. It is not unlikely that it will destroy the successful partnership with Nissan (and Nissan is where all the money is made)

    The EU is a patient whose arteries are slowly clogging up with corruption: when the inevitable stroke occurs we must hope that there will be a sign at the end of the bed:

    “Do not resuscitate”