Eight-billion-dollar Irish tax bill looms over Apple An upcoming European Commission ruling on tax laws could result in Apple having to pay as much as $8bn (€7.33bn, £5.6bn) in back taxes. This according to Matt Larsen, an analyst at Bloomberg Intelligence who expects the Cupertino maker of iStuffs will be found to have incorrectly reported its financial figures in Ireland and, …
The little man always loses
Given the price premium and excess margins on Apple products when adequately functional alternatives exist, the little man has chosen to lose. This has already been christened "the Apple tax", but now that will be particularly apposite.
Weep into your soya lattes, bearded hipsters!
Foreign taxes paid are taken as a tax credit against US taxes. The reason Apple and other US companies keep money overseas is because it allows delaying the payment of US taxes. They are still due, just in the future when they bring the money into the US. They all hope that will be done at lower rates than today's 39%, but in the meantime they wait. They even get the benefit of whatever interest they can earn on the money, since they won't owe interest on the US taxes as they are not payable until the money is brought into the US.
If Apple has to cough up an extra $8 billion in Irish taxes, that means its future US tax liability drops by an identical $8 billion. So no need to raise anyone's prices, or do anything except pay the $8 billion out of the giant pile it was already holding overseas (or more likely just divert the next $8 billion it would have added to that pile)
Very interesting. How about penalties, not taxes, that might be collected?
In a very perfect world, the penalties would be so large that any mega-corp would think twice, thrice about defrauding the tax collectors.
(Said by someone who may have missed a payment or two....)
Apple borrowed a ton of cash in the US to pay their shareholders a dividend. Their foreign cash holding was used as collateral. Now that collateral might have to shrink by 8 billion those loans might have to be reconsidered.
Not that it will matter to Apple. But it might to other US companies that have used the same trick and have cut things closer. They might get a sudden and unwelcome bill...
It should not be viewed as tax and that is probably how someone suitably high enough in Ireland will be paid to see it. Viewing it a sort of Dan Geld to stop the Tea party declaring war on them and then possibly the rest of Europe (most likely for having too many Muslims.)
The idea of having the Tea Party faction at war with you is not as funny as it seems, although the idea of being attacked by the likes of Bush, Palin and Trump sounds hilarious. The evil schemers behind that shit hole are the Koch Brothers and Dirty Rupert Murdoch. Even if they do manage to provide their own calamity, it won't cost them anything but the USA and look at what Bush managed to destroy in Iraq etcetera.
Not surprisingly, another left wing lunatic outrageously works a flame post toward conservatives into a subject that it is impossible to blame them for. None of the people you hate so much could possibly have any influence over the EU courts or what Ireland taxes Apple or Starbucks. Two of your favorite cows are getting gored and you just have to try, don't you? Sorry, nobody buys your paranoid tirades any more, especially when you invoke the dreaded 'it's Bush's fault' manta. The lefties have become a complete joke.
Have Apple actually done wrong here? They were offered a deal by the Belgian govt, which the EU have now said is illegal state aid. So if anything it's the Belgian govt which is in the wrong. Apple can easily say they accepted the offer in good faith. No doubt the devil is in the details though.
I would imagine Apples lawyers earn a lot more than the Belgian governments and any Belgian government lawyer that saw the illegality of this was outsourced to Apple asap. And Apple would have had a very very big influence on the way the offer was made.
As they say ignorance is no excuse.
John,
I am with you on that matey, (when) my nascent business actually makes a profit (bit of luck circa 2017/2018) I won't pay a penny more in tax than I am rightfully required to do under law.
If there are R&D or 'regional development grants' or somesuch available I fully intend to make use of them!
Of course, anyone running their own (or their shareholders business) may elect to pay more tax than is due, were I an Apple shareholder and it became known that Apple WERE NOT minimising the tax due, I would be a grumpy bunny...
Regards,
Jay
Apple uses a different scheme, in Ireland rather than Belgium.
Apple Operations International is registered and tax resident in Ireland. It pays money to Apple Investments International which is registered in Ireland, but controlled from Texas. It isn't tax resident in Ireland because no activity takes place there, and it isn't tax resident in Texas/USA because it is registered in Ireland, so pays no tax anywhere in the world. This is known as the "Double Irish" loophole.
"Have Apple actually done wrong here?"
Annoyingly enough, no, they haven't. And I say that as one who hates Apple and would dearly love to see them screw up.
It's basically the Irish government being prosecuted for cheating at the rules of the game. The punishment they are likely to face is being forced to charge Apple a bunch of back-taxes and charge them an extra few % ever after - in other words, Ireland has been naughty and so must now collect more money. Apple have done nothing wrong here aside from accepting an offer from a government which, in hindsight, turns out to be against EU rules, and so they have to pay extra - but in tax, not in penalties or fines, because they aren't guilty of any wrongdoing.
So yeah, not really a thread where Apple-bashing makes sense.
Here they're not acting illegally; the Belgium Government passed laws that Apple (and others) rely upon, and those laws have been declared invalid by the EU Commission.
Companies effectively have to obey the laws as passed, if those laws are subsequently invalidated how can you blame the companies, they didn't pass those laws. Should you obey the laws as the currently exist, or break them if you think they are wrong ? You may well chose to break them but you are liable for prosecution as a result.
Virtually all this fuss about taxes anyway misses the point. With very rare exceptions the companies are obeying the law as it is written, and that's exactly how it should be. Companies don't pay tax anyway, the cost is borne in varying proportions by the customers, staff, owners and to a limited extent, the wider stakeholders. Tax a company more ? The actual tax is paid in some combinations by people.
Penalties can only be charged when there is wrongdoing. These deals are not being done in a back alley with companies handing a suitcase full of cash to the head of a country's tax department with a handshake agreement "we'll look the other way when you pay less taxes" like some third world company with rampant bribery.
It is the EU that is forcing the issue here, not the individual countries. Ireland has loved this arrangement as it meant many US companies domiciled there for tax purposes and paying taxes in Ireland instead of another country. Ireland is not going to levy penalties on Apple for following an agreement Apple had with Ireland's government, and if they did Apple would easily win in court when they produced the paperwork showing the agreement they had reached. If that agreement is eventually decided to be invalid, Apple is not liable, any more than I can be put in jail for doing something that was legal at the time I did it and only made illegal later when a new law was passed.
If there were a penalty (though like I said I don't see how that would be possible) then Apple couldn't take a tax credit against US taxes for it. You can only take the credit against taxes paid, not fines/penalties or interest. However, even though it wouldn't be a tax credit it would still effectively be deductible. Whatever a company was fined overseas they'd pay with overseas money. That would mean less money to bring into the US in the long run, so less US tax liability.
"These deals are not being done in a back alley with companies handing a suitcase full of cash to the head of a country's tax department with a handshake agreement "we'll look the other way when you pay less taxes" like some third world company with rampant bribery."
Suitcase full of cash? All of the iTunes purchases made in the EU carried Irish VAT (23%). At the same time MS and Google customers paid the VAT applicable in their own country.
S'funny how a firm is allowed to have a number of subsidiaries that pay absolutely no taxes and the authority that allows the set up gets billions in VAT that they would not have ordinarily received...
"Apple is not liable, any more than I can be put in jail for doing something that was legal at the time I did it and only made illegal later when a new law was passed."
You can be put in jail for doing something you thought was legal at the time, but which further investigation and court ruling now states was illegal at the time the act was committed
Irish Govt. and Apple lawyers interpreted the law and in their opinion what they did was legal. The view of the investigators is that it was not legal at the time and it'll be up to the judicial system to make a ruling.
Is your "lol" because of how high 39% is, or because you think that Apple wouldn't pay 39%? If its the latter you need to learn the difference between marginal and average tax rates. Apple most assuredly pays 39% on the last dollar they make, and billions more before it. They don't pay 39% on every dollar because they have some deductions and credits against income that lower their average tax rate.
This isn't like GE and other large banks (yes, GE is essentially a bank) where they can use financial engineering to pay a rate near zero. Companies that can't do that and have little in the way of credits pay very close to 39% for the average rate. If you don't believe me, look up Walmart's tax rate - it is 37-38% most years.
Problem is the US has unusually high corp taxes but ample loopholes to avoid paying them. Lower, fully collected, non-avoidable rates would serve everyone better, except tax lawyers and accountants. And where would the world be without those 2 fine professions, I ask you? Not to mention putting all the (justifiably) outraged social justice crusaders outta work as well.
Article missing crucial bit: 8B is Europe-wide tax liability or Ireland-only? Seeing as many game Ireland tax residency.
"If Apple has to cough up an extra $8 billion in Irish taxes, that means its future US tax liability drops by an identical $8 billion"
Surely if Apple bought in that $8 Billion they would pay 39% of $8 Billion, now they might have to pay 100% of $8 Billion?
You're missing the difference between a tax credit and a tax deduction, and how overseas taxation works.
If Apple makes $1 in the US, they owe 39% on it. If they make $1 overseas they owe 39% on it in the US, but only when it is brought into the US, and they get to take a tax CREDIT for the amount paid overseas.
So if they brought in $1 that had been taxed at 10% overseas, they'd owe 29% (39-10=29) on it. Since Apple has so much money overseas, if they brought it all home tomorrow they'd owe far more than $8 billion in US taxes on it. So it is irrelevant to Apple whether they pay that $8 billion to the government of Ireland or to the government of the United States.
If they make $100 in foreign profits, they can claim up to $39 in double taxation relief for foreign tax paid on those profits. If the case goes against them, they will have to pay $12.50 in tax on those profits. At the moment they have paid a lot less than that.
Yes, but in the end that money WILL be brought back into the US (unless Apple figures out how to do a reverse merger like all those pharma companies are doing) When it is repatriated they will pay the difference of 39% and whatever they have paid on it. It doesn't matter to them if they have paid 2%, 12.5% or 30% on that money, they will have to make up the difference to Uncle Sam. So any savings by getting out of the $8 billion tab to Ireland is a short term savings only. If they pay it they reduce their "deferred taxes" balance sheet item by $8 billion and it doesn't change their financial picture at all.
"If they pay it they reduce their "deferred taxes" balance sheet item by $8 billion and it doesn't change their financial picture at all."
Only to the extent that that $8b is working for them as investments or even just "savings account" interest. It's not as if it's all just stored in a warehouse (I was going to say stuffed under the mattress but I don't think anyone makes a mattress that big)
Of course, if Apple are just storing it in a warehouse, that will cost them in terms of storage space and devaluation due to inflation so I'd be quite happy to store it in my bank account and only charge them half the current interest rate so we both win.
Apple keeps their overseas cash in conservative dollar denominated investments, mostly US T-bills. They do this to avoid exchange rate fluctuations causing large changes in the value of their overseas holdings.
So yes they earn interest on it, but it is pretty small. The interest is taxable income when brought back into the US (at 39%) and inflation erodes the value of the dollar one or two percent a year, so there's maybe a 1% gain in real terms per year after taxes and inflation. They would need to hold that money offshore another decade before the difference amounted to 10% of that $8 billion tax bill.
Well- the Irish exchequer actually managed to balance its budget last year (miraculously- and ironically- because we got a couple of billion extra in corporation tax that no-one had been expecting). The logical thing to do with an extra 8 billion- if we get it- would be to pay a lump off our national debt- Ireland's national debt is over twice as much per capita- as Greece's is- we're worse than even Italy- which is saying something. We owe over 210 billion- after our bailouts- paying a lump back on the capital- would save us on interest in future..........
I'll agree with you as long as they do the same to the boss of Google, MS, Adobe and a few dozen other US companies who use Eire for the same reason
Then find a stinky prison in Luxemburg for the boss of Starbucks.
etc
etc
etc
But don't let your blind hatred of everything Apple get in your way. All these companies are a guilty as each other if one of them is guilty.
@AC
I've no problem with the bosses of the big companies, whoever they may be of being personally held responsible.
As for mooted level of 8 billion, which in the case of Apple and their cash reserves is not an issue for them, the only way the bosses will take notice is if they have something to lose - so, make it a criminal offence and also have some extra penalties such as being disbarred from being directors for say 10 years, or even life
I think there will be a little behind the scenes deal where Apple pay 1% of this to Ireland and stay there.
If Ireland actually extracted the fine, then Amazon, Google, Microsoft and all the other giants of the Irish IT industry with their literaly several Irish employees would all leave for a more accomodating Eu country
"Amazon, Google, Microsoft and all the other giants of the Irish IT industry ... would all leave for a more accommodating EU country"
It depends on how this was calculated. If it's simply a matter of restating the profits and calculating the tax bill at Ireland's standard corporation tax rate it would still be generous compared to what they'd pay in other EU countries. This was an exercise in squeezing a low tax bill lower still. I don't think any of them are going anywhere. But it would be nice to see Ireland spending a little of the windfall on beefing up their data protection regulation.
Unless Malta or Slovenia offer a lower rate than Ireland and an even more accomodating regulator.
Traditionally Ireland was chosen as a european HQ for your American business because they spoke English, you could play golf, they had a close approximation to Whisky and the wife could pop over to London for a weekends shopping.
For a dot-com multinational that just need a single server and a brass plaque they aren't as sentimental.
It isn't Ireland that is doing this - they were happy with the deal they made with Apple (or at least they were when Apple was far smaller back in the 90s)
It is the EU making Ireland do it, because they claim the deal Ireland made with Apple violates EU tax regulations. I don't know if the other companies have the same deal Apple does, but AFAIK they also have deals that the EU will have a problem with. Apple's is the most egregious in terms of dollar amounts and perhaps also in how good of a deal it is, so it is a good one to go after first. Once the precedent is set, the EU will force Ireland to go after the rest and they'll probably pay up quietly because there won't be any point in fighting with the precedent set.
If the EU makes Ireland follow EU tax regulations then there won't be a better deal to be found elsewhere. Probably the companies will stay in Ireland, because it won't be worth the cost of moving, unless there are other factors that make them want to be in Luxembourg or whatever.
IMHO, the likes of Apple, Microsoft, Google, Adobe, Starbucks etc won't move their EU Tax base because any ruling will apply to all EU States expecially those in the Euro Zone (as Eire is) in the quest for ever closer marriage between the EZ states.
Those EU states outside the EZ (eg UK) may prove attractive but it is all moot at the moment.
It is worth mentioning that this all about 'Corporate Tax'. All these companies pay local taxes on sales (even some of that is funneled to lower VAT countries but the range of VAT is very much less than corporation tax) and property and salaries etc.
Countries outside the EU are not useful for holding the money made in EU countries, you can't divert that income out of the EU to a lower tax country. The EU is going to have their pound of flesh, basically the member states were upset that one country was being allowed to lowball them on the tax rate.
That's actually quite smart, as opposed to the US where states and cities are allowed to offer incentives without limits to get a company to locate (or relocate) within their borders by giving breaks on property taxes and occasionally other taxes, based on the promise of job creation. Where I live a department store that was in one city for years was enticed to move to that city's suburb (only a few miles away) thanks to a $15 million property tax break. They weren't looking to move, but who's going to pass up $15 million if it is offered to you? Now that city collects its share of the sales tax revenue, so they'll come out ahead in the long run - until the first city does the same thing to steal a business away from the second one...
That sort of thing creates a race to the bottom, so the EU is smart to put the kibosh on this. If they didn't, maybe Italy decides to lowball Ireland's corporate tax to try to bring some business in, and Spain goes even lower and then Greece says "screw it, we'll go to 0% corporate tax" figuring that at least the companies that move there will create a few jobs (Apple in fact employs 5000 manufacturing workers in Ireland, if they were enticed to move those to Greece it would provide a bit of good news for Greece's terrible economy)
There is no point manufacturing in countries with siesta... that means Spain, Italy and Greece. Madrid and Milan are ok, but I wouldn't ever consider anywhere else. Athens is precisely the wrong place. Oh... and Italy has that little problem of a new president every few hours.
There is no point manufacturing in countries with siesta...
The only "manufacturing" done by Apple in relation to Ireland was the manufacturing of a complex multi-jurisdiction tax avoidance scheme.
And I'll wager that was probably manufactured by law firms and tax accountants in the City of London.
Ctc,
Quite, i was most most amused when on an episode of Top Gear (being filmed in Italy), they were anxious about pulled over by the fuzz, then not a little bemused to be told it was illegal for them to work on a Sunday!!
Have one on me...
Cheers,
Jay
That sort of thing creates a race to the bottom, so the EU is smart to put the kibosh on this.
I agree, it does, but absent a globally harmonized tax system, it is inevitable that some countries will be more desirable corporate locations than others. The EU can't change that, and as it happens, they haven't tried to here - what they have done is tried to clear out the backroom deals that provide special enhanced rates. Ireland's 10% rate will remain and will be the most competitive in the EU; It's where I'd locate any company I was starting.
Nobody (sensible) would argue that government spending is efficient or that there isn't wholesale waste going on. Governments are going to need to get used to a smaller share of the pie going forward as people simply aren't dependent or beholden to them in the way they once were.
Countries outside the EU are not useful for holding the money made in EU countries, you can't divert that income out of the EU to a lower tax country
Actually, you can still do that but it's not as obvious as it used to be. IP may be held anywhere (See my previous posts on U2 and their hedge fund in Holland), and services may be purchased from anywhere.
Unpopular messages aren't the messengers fault. I certainly don't agree with any special deals - the tax system should be applied evenly to all entities, but cost is a major part of the corporate battle ground for this generation of companies, and tax is a large part of that.
I honestly don't think so.
Once upon a time- Ireland sold itself as a manufacturing base for the big US multinationals- with a cheap pliant workforce and corporation tax as the icing on the cake. Those days are long gone (with the possible exception of Intel in Leixlip- but even Dell have fecked off to Poland). Ireland has upskilled itself- and is now a major R&D, Finance and Services location- with the attraction that we add 8-9 hours to the available working day for US corporations- and in the services sector- many of their customers don't realise we're not American.........
There are a number of factors which are limiting the growth of multinationals in Ireland- and have already caused a few to flee- most notably the horrific manner we tax employees- alongside our scandalous house prices (which are at levels which would make even Londoners blush).
Twitter, Google and Intel- have all made public statements indicating that an inability to financially reward staff- or house them- is limiting investment opportunities in Ireland- and Twitter has recently commenced an incentive scheme to encourage pre-existing staff to offer accommodation to new starts who are unable to find accommodation elsewhere.
There are many problems in Ireland- most of them are far more worrying than our corporation tax rates. If only we actually collected our headline corporation tax rates- from corporations based here (not all of whom are US multinationals by the way- there are a sizeable number of even UK companies with back room operations here)- our national debt (which exceeds Apple's entire cash pile) would be sorted. Our national debt for the record- is just over 50,000 Euro per head of population- if the poster who wanted to enumerate the Apple tax in pints of Guinness wants to use another measure...........
No worries, if any new taxes are levied on Apple in Ireland, the government will just pass it on to tax payers via the water bill or property tax or perpetual USC or something new. A bit like how vehicle reg tax actually goes to paying Irish Water's executive bonuses! All good, nothing to see here...
Multinationals provide jobs by the tens of thousands and their stability allows their employees to pay more taxes. In addition, a single 10 story office owned by one of these companies holds a thousand employees, requires 50-100 more workers (lawn, electric, windows, etc..) part time. Provides a booming economy for small business owners near by... creating probably 1000 more full time jobs via the ripple effect. In addition, the real estate market surround the area booms.
Or you can give that money to the government to manage... to make it fair to the smaller company... and then, let those smaller companies completely foot the burden of supporting a staggering economy.
Need proof? Visit Vilnius and see how just having DanskeBank, Swebank, and DnB owning 3 buildings is causing a massive ripple effect in the area and attracting more big and small business.
The visit any European city without those multinationals.
Well you're a pretty dumb socialist then. Have a look at Apple's Irish HQ building. See the hundreds of floors in that gleaming tower in Cork? Perhaps we should quote from Fortune (the Trotskyist's bible): "From the front, Apple HQ could well be mistaken for a high school, bland and modern, and just three stories high. And foot traffic is thin enough that when Fortune wandered up to the entrance on Tuesday morning, security guards quickly took notice. Was there anyone we could say hello to, we asked? No, the nearest public-relations staffer was in London."
Kathleen Mavourneen, the Commission is waking
The horn of the taxman is heard on the hill
The shareholders howl and accountants are quaking
If we have to pay taxes, whose pockets will fill?
Mavourneen, mavourneen, my sad tears are falling,
To think that from Erin and thee I must dash!
It may be for years, and it may be forever,
But nookie must end if it threatens the cash.
Is Worstall when you need him ? :-)
On a side note, remember where the real power in the EU still lies. The Council of Ministers. i.e your democratically elected representatives (you mean you seriously believe the Euro Commission or Parliament has any real power - they are just there to take the blame !)
That's why your PM is not cap in hand to the Euro Parliament or Commission. The real decision makers are his fellow Euro leaders....
Unfortunately while the British electorate (and others) continue to send joke figures to the European Parliament, we can't expect the democratic deficit to reduce. Since we elect the people who elect the Council of Ministers and the MEPs, we get the EU we deserve.
We can't avoid responsibility by pointing at Cameron or Farage. They got there because apparently intelligent people voted for them (as well as the terminally thick, the forelock tuggers and the Essex wide boys, of whom there are not enough to send someone to Parliament).
Well, the Starbucks and Fiat cases were about Luxembourg and meant €20 and €30 million in tax respectively.
The €750 million one in in Belgium and is for 35 companies over 10 years: about €2 million each.
This is all nibbling around the edge of the tax system, not undermining the basic principles. And Bloomberg here is appallingly wrong.
Their basic method of calculation is as follows: we've heard that Apple's going to lose that EU case. OK, so, what would be Ireland tax on all Apple's overseas profit: $8 billion.
But that's to miss what the EU case is about. It simply isn't about the Double Irish, nor the way that IP rights are held in Bermuda. And it's that which makes Apple's tax bill so low. Profits pile up in Ireland, the Bermuda company then says you must pay for the IP and off the money goes.
This isn't being challenged, it's not being investigated and the EU has no power over it anyway.
What is being investigated is some minor issues over how Apple's profits made from actually working in Ireland are calculated. Best informed guess is that, if they lose, bill of maybe €200 million to cover a decade.
Bloomberg seriously misfired on this one.
I think most posters here need to read up on "Tax Incidence" and do a little less public showing of greed and envy.
Companies don't pay tax, YOU DO ! Every cent that companies pay in tax comes from some combination of customers, staff, owners, and to some extent, wider stakeholders. So company tax is just another way to to tax you as long as you are too stupid to see it that way.
Apple isn't a monopoly (nor are Starbucks, or most other companies being complained about), tax them more and it is likely that the customers will pay more in most part. This is just you standard political trick, get money from punters in a way that they are too stupid to notice....and you all fall for it.
"I think most posters here need to read up on "Tax Incidence" and do a little less public showing of greed and envy."
And when MegaGlobal Incs are able to pay for the right to avoid so much in taxes it impacts upon smaller firms that are less able to comptete.
These smaller firms are more likely to be more labour intensive and accordingly employ more people
Those numbers at the end seem to confuse profit and turnover.
Unless iphones cost nothing to make (I know they are chock full of cheapo components , but they must still cost at least a few dollars to make), then the 11bn is not profit, its turnover.
Fines are paid from profits.
That's communist!
- Tea Party a worryingly large proportion of el Reg's commentariat
FTFY.
It is important to remind these companies that they like the things governments provide via tax: transportation links, educated workers, protection of property. (Obviously the government could do a better job with most all of these, but the essential point remains.)
Apple or the other megacorps facing inquires will never pay the full amount,an dirty under the table deal will be struck by taxman under political pressure, to keep megacorp happy, so they pay a minor amount. After all, it's easier for the taxman to raid the bank account of the poor and defenceless than megacorp with far better attack dogs (lawyers), who can drag case on for decades cost taxpayers millions !
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