Pixel Envy

Written by Nick Heer.

Apple Ordered to Pay €13 Billion in Back Taxes

From the E.U. Commission’s press release:

Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a “head office”. The Commission’s assessment showed that these “head offices” existed only on paper and could not have generated such profits. These profits allocated to the “head offices” were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.

E.U. Commissioner Margarethe Vestager:

Our decision concludes that splitting the profits did not have any factual or economic justification. As mentioned, the “head office” had no employees, no premises and no real activities. Only the Irish branch of Apple Sales International had any resources and facilities to sell Apple products.

But under the tax rulings it was the “head office” that was attributed almost all of the company’s profits – in fact, due to Apple’s set-up, it was attributed almost all of the profits Apple made from selling products throughout Europe, the Middle East, Africa and India.

David Gilbert, writing for Vice, elaborates:

However, Vestager added that while the headline figure of €13 billion was the maximum the Irish government could to reclaim, other countries in Europe which felt as if they had lost out on taxes due to all profits being funnelled through Ireland, could now seek to recoup those lost taxes.

[…]

Both Apple and the Irish government have come out to strongly oppose the ruling and said they will be appealing the decision. The Irish government said it “disagrees profoundly with the Commission’s analysis. Ireland did not give favourable tax treatment to Apple.”

In a letter published on Apple’s website, Tim Cook expressed the company’s disagreement with the ruling:

Over the years, we received guidance from Irish tax authorities on how to comply correctly with Irish tax law — the same kind of guidance available to any company doing business there. In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe.

This is a little disingenuous — nobody is disputing that Apple paid all the taxes they owe, but rather that the amount that they owe is disproportionately lower than it ought to be for a company of their size and income.

Apple is far from the only major company using crafty accounting techniques to shuffle money around the world to avoid tax on it. Before Ireland adjusted their tax code in 2015 to remove the so-called “Double Irish” scheme, Google, Facebook, and many other large companies made use of the country’s policies to dramatically reduce the tax they paid outside of the United States. Earlier this year, Google was accused of using a similar scheme to Apple’s in the U.K., which they ended up settling for far less than the expected amount.

For some context, the €13 billion that the E.U. has settled on for Apple’s back taxes is about twice their profits from their most recent quarter, but only a fraction of the over-$200 billion they hold in cash overseas.