Matt Gardner, the director of the Institute on Taxation and Economic Policy, took a look at Tim Cook’s terrible letter to EU consumers regarding Apple’s tax evasion, and pretty much tears it to shreds.
Apple created a complicated web of subsidiaries to avoid taxes, and the Irish government allowed it. Both the company and the country were complicit in this agreement. The idea that Ireland gave Apple guidance on “how to comply correctly with Irish tax law” makes both parties sound less guilty than they are. A better characterization would be that Apple cooked up a tax-dodging scheme, and Ireland allowed it.
Further along, Gardner actually opens up a major can of worms, arguing that either Apple provided false figures in its annual report, or Tim Cook is lying in his letter to EU consumers:
It doesn’t appear to be even remotely truthful based on the numbers they publish in their annual reports. Each year they report that the majority of their profits are earned outside the U.S., with roughly a third (on average, over the past five years) coming from the U.S. When you look at the 10K, the annual report for 2015, you see the company reports earnings of $72 billion worldwide, and just one third of those profits are attributed to the U.S. And yet Cook’s statement says that the vast majority of their income is taxed in the U.S.
We think that is a very low estimate. It certainly appears that the company is shifting profits out of the U.S. and into tax havens overseas. So one of these things must not be true: Either the numbers presented to shareholders in their annual report are false, or Tim Cook’s new statement that the majority of its profits are taxed in the U.S is false. They both can’t be true.
That’s a bold claim to make, but it’s hard, if not impossible, to argue with Gardner on this one. Since it’s incredibly unlikely Apple is falsifying its annual reports, the most logical conclusion is that Tim Cook is lying in the open letter.
Tim – if you find yourself in a hole, stop digging.
Cook is flat-out lying here, there is nothing unprecedented about it: http://europa.eu/rapid/press-release_STATEMENT-16-44_en.htm – also, pretty much all of them are European companies here, so no “anti-US” sentiment either.
Edited 2016-09-02 00:19 UTC
Of course! EU Commission is a technocratic organisation. They are ridiculously apolitical.
Calling it a political decision is not only baseless, it’s top level of ignorance for a person that much have been briefed on this.
A bit more detail here about apple’s tax subsidiary. It’s an interesting read:
http://www.newyorker.com/business/currency/how-apple-helped-create-…
It will be for a judge to decide this and not some self proclaimed expert seeing a chance to get into the spotlight for a moment. The “Institute on Taxation and Economic Policy” is some opaque leftist lobbying group that has no democratic legitimacy.
What about the most serious of allegations, that Ireland gave Apple a special deal on taxes? It is obviously nowhere founded and this Gardner guy conveniently ignores that.
Tax avoidance is not a crime. Everybody tries to avoid taxes and as long as they follow the rules it is their right in a jurisdiction that is based on rule of law. Better blame the lawmakers for the messy legal situation they create.
It seems a case of the EU introducing retrospective laws to make perfectly legal tax scheme illegal.
http://www.maplesandcalder.com/news/article/international-and-irish…
One of the great features of Common Law jurisdictions is the general prohibition on retrospective laws. The unelected EU bureaucracy don’t seem to have the same restraint.
No it’s not.
While new ATA laws try indeed to make illegal some corporate tax avoidances schema, the current European Commission decision is not grounding on it at all but on the EU state aid rules, which were already the same before the tax dodge, sorry, the tax ruling endorsing tax dogde was negociated.
One of EU’s founding principles is that no country is allowed to subsidize or provide special rules targeting any single entity, to gain their business. That’s called single market.
So please…. As much as Tim’s statement is ignorant, your statement is a flat out lie. Apple is not the first.
UK was not allowed to bail out Tata Steel not long ago, under the same damn rules!!!
Better blame both, companies and lawmakers. You are clearly ignoring the insidious relationship they run with, being even lawful on USA and on many places. Until lawmakers get their possesses compromised when their collusion get exposed the situation is not going to improve. And no, the general prohibition on retrospective laws should not apply when collusion can be reasonably established.
Democracy is horribly flawed, but it is the best political system so far created.
Matt Gardner is a lobbyist for a small Left Wing think tank. I’ll take his ‘expertise’ with a very large grain of salt.
http://www.itep.org/about/staff.php
Apple and the Irish government both would have obtained the best legal advice available before setting up the tax plan. So the ‘illegality’ is most likely in the mind of some petty EU bureaucrat wanting five minutes of fame.
Edited 2016-09-02 09:32 UTC
Edited 2016-09-02 12:00 UTC
Matt Gardner is policy advisor. I would suggest his expert knowledge of EU and Irish tax law is probably somewhere between minimal and non-existent. To claim he knows more than the world’s best tax lawyers and the Irish government is absolutely farcical.
The EU has retrospectively changed the legislation to make a perfectly legal scheme of arrangement illegal. One of the most important principles of Common law is that laws should never be made retrospective
The EU is a place where some insignificant (unelected) shitkicker from a bankrupt third/fourth tier country can get promoted far beyond his/her ability.
I really hope you’re talking about Vestager now. That would be hillarious. Pro tip: she’s from one of the lest corrupt countries in the world. Maybe that’s why things are changing now?
Edited 2016-09-03 07:00 UTC
Great. Good for those legislations founded on English Common Law but the EU is not one of those, so relevance?
Ireland and the US (the signatories to the deal) both have common law systems. They were overridden by some petty bureaucrat from Brussels.
Ireland is part of the EU and has ratified the treaty of the EU. There’s a whole Title VII in there to cover the basis on which this case is based.
In Mrs Doyle’s words “stick this effing pitchfork up your effing hole”(referring to your ignorant statements about retroactive laws).
Even on Brazil, a country know for big companies even paying tax system judges to rule in their favor (google for Zelotes), and governments creating laws to benefit those companies and not the small ones, once you get caught using the system in a “creative way” to avoid paying taxes, what happens is that the calc all taxes you should had paid and send you the bill. This is no retroactive paying, this is paying what you should had paid if you had follow the regular tax laws instead of inventing ways to avoid them.
Pretty simple and logic.
Except that if you weren’t doing anything illegal, they have no right to punish you. I’m not saying whether Apple and Ireland were engaged in illegal activity. I don’t know the laws well enough, and it’s not my call to make. I’d say they were skirting the edges of morality, but then again who doesn’t do that in someone else’s eyes?
This is why I blame the system and the lawmakers who do not try to clarify tax law, rather quite the contrary deliberately make it more difficult so they (and their friends) can benefit from the very schemes they claim to abhor. It’s “creativity” when they do it, and “illegal” when someone else does exactly the same thing. Fsck that, I say. How can anyone take these assholes seriously?
Nobody is punishing anybody. A lot of people seem to think this is a fine, but it isn’t.
This is no different than paying your taxes over 2015, only for the government to realise a mistake has been made and you payed too little. You WILL have to pay those back taxes, whether you like it or not, but it’s not a fine or a punishment. This happens all the f–king time, all over the world, in every country.
It’s become pretty clear that even the simple use of the word “tax” leaves a lot of people – especially on the right, and especially especially in America – confuzzled, to a point of blind rage, causing them to conflate issues and not see things straight.
Apple got a very special tax deal not available to anybody else. This amounts to illegal sate aid. Other companies and countries – including my own – were ordered to respectively pay and collect these back taxes as well. There’s a ton of precedent in EU history for this, no matter how many lies Tim Cook puts in cringy open letters.
Edited 2016-09-02 13:55 UTC
Wait! What? Are you saying that past 2013 nobody else got that hypothesized 0.5%?
Here is another point of view:
http://www.pcmag.com/commentary/347599/the-eus-tax-ruling-against-a…
Edited 2016-09-05 22:51 UTC
brichpmr,
I don’t think anyone’s denying the benefits for Ireland. Look at the money:
Ireland gets a couple hundred million in jobs that it wouldn’t otherwise get in exchange for letting apple off the hook for 15 billion in taxes. It’s a great deal from Ireland’s point of view and it’s a hell of deal for Apple too; both of them have a strong incentive to fight to keep this arrangement. However giving these multinational companies tax breaks violates the EU rules prohibiting state aid to preferred companies.
The reason this is bad is because tax payers who play by the rules end up having to pay higher taxes to offset the amount that these companies are not paying. In other words, everyone’s tax obligations have to go up to subsidize tax breaks for some of the most profitable companies in the world. Not to mention how unfair this is for the competition.
Edited 2016-09-06 00:55 UTC
Apple’s employment footprint in Ireland is a joke. ROI taxpayers are hardly benefiting much from the relationship.
JAlexoid,
So maybe collectively these corporate deals to these companies in aggregate lowered unemployment in Ireland by up to 0.5%.
Now it would mostly be US and other countries loosing the real tax dollars through these accounting schemes. Ireland takes a loss of hundreds of billions of tax dollars on paper, but it is for business activities that are taking place entirely outside of Ireland. In fact, only reason these companies come to Ireland is because of the negotiated tax rates enabling them to avoid taxation in foreign countries. In other words, it was never Ireland’s money to loose, which is why Ireland is so willing to dismiss it in return for anything else.
Of course, even in Ireland this scheme must harm the local competition. If it’s anything like the US, the little voices have no say in anything.
No, it’s Apple that should blame Irish and their own advisers for looking too narrowly (at the Irish tax deal and not the EU context).
They were probably ensured that EC would never trigger the state aid bill as they didn’t in case of German shipping industry (e.g. http://europa.eu/rapid/press-release_IP-16-1643_en.htm).
They forgot EC only makes exceptions for struggling industries that would cause huge uproar in core countries if collapsed…
and they’ve probably bet on wrong lobbysts
Thing is, the exceptions to spacial treatment, has to be based on a economic benefits. Treaty of Lisbon(consolidated version) Title VII Chapter I Section II covers a lot of cases of state aid.
It’s very clear that giving any aid to Apple yielded nothing. It is likely that Irish politicians knew about it.(Apple employs very only a small workforce in Ireland, not even a single Apple Store in ROI)
Google may be in the same boat, but Apple I hear negotiated a great deal.
You know that when it comes to the application of laws – the intent to circumvent the laws is very much an illegal activity and will cause you to lose your legal battle.
Disclaimer, I live in Ireland, there could be some bias
, though trust me this very much splits Irish opinion…
It’s clear that something wrong when you pay only 0.005 percent tax while the official rate is 12.5%
Most companies pay 12.5% but not the big multinational companies and the EU is right to attack this. Note, I don’t think it is against European law to set 12.5% corporation tax as long as all companies pay that rate.
The only question I have is this: this was known since the early 90’s. Why now suddenly? It seems almost as if some politicians in Brussels have the (right) idea of stopping this type of practice but don’t dare a full frontal attack of putting it on countries national agenda including the USA, instead opting for an easy target that won’t cost them political currency.
The Irish seem to be much divided about this too. Some think is absurd that multinationals get away with no tax at all – applauding the EU, others are afraid multinationals will leave (137000 jobs on 2 million). Others like the windfall the 13 billion might bring. And others think that the EU shouldn’t interfere in a matter between Apple and the Irish state retro-actively and should only stop this deal from now onwards.
I guess the tax avoidance schema in itself is not an issue until you’re known to make big profits.
Before iPhone big success, Apple in EU was making far less exceptionnal profits than, at time, others foreign companies.
Hence why now (well, 2013 actually) Apple tax structure was put under scrutiny, not long before.
Actually, it’s the other way around all over the world. Try paying even €10 too little to your local tax agency, and see how quickly they find you.
Get that, Thom. No second thoughts when small prey get within the hunting perimeter. Algorithmically handled.
Well, Apple was not making less profit in the EU, they were making no profit, they were losing money in the EU before the iPhone.
About the timing: They got a hold of the secret letters between Apple and the Irish government. Those are the critical evidence that the deal was illegal and always had been illegal. Before that the deal had already been abandoned in Ireland due to being bullshit, but only for future tax.
I thought the books of Apple as a public company are open so everyone could come to the same conclusion.
The Irish government and/or Apple probably thought it was legal or that they could get away with it.
Mind you the Irish government used to sponsor a lot of economic activity. I am Dutch but moved to Ireland for the very first time in 1998. My Dutch company got grants for opening a subsidiary in Ireland and got tax breaks on the amount of people employed from the Ireland Development Authority. This type of practice continues to this day. Other countries do it as well of course. Or do you really think Dell moved its manufacturing to Poland (3000 jobs) from Limerick because Poland is so much cheaper?
Why now?
I think it’s combination of several factors:
1st the climate for assault on big tax avoiders have become much better lately esp. with revelations like Panama Papers.
2nd Brexit has also put a big question of legitimacy before EU institutions and EC specially. They (or some particular members) are trying to re-gain some credibility with more and more upset citizens.
3rd the US is now in vulnerable state being a couple of months before the elections with an unpredictable “black swan” candidate. They won’t start a trade war with the EU now, especially that Obama is determined to close TTIP negotiations.
That creates an unique window of opportunity.
Edited 2016-09-02 19:26 UTC
I like your cynical thinking, you could well be right.
Maybe I have even blacker thoughts as I think that point 1 didn’t matter in the bigger scheme of things.
Yes, the Icelandic prime minister was sacked (Iceland seems to be one of the very few countries left where people are willing to protest) but nothing really changed that much. There were about 30 people named in shamed in the paper but nothing happened.
Maybe not wanting Brexit to become UKexit?
I doubt the multi-nationals will leave.
AFAIK Taxes on EU profits have to be paid within the EU.
and Irelands corporate tax rate of 12.5% is far lower than most countries around the world, let alone in the EU.
12.5% is still a sweetheard deal instead of having to pay almost double that in some countries, or 35% in the US.
Edited 2016-09-02 21:49 UTC
This is what why I don’t understand the Irish government through the decades: they already have a good deal out there, why go from 12.5 to 0.005 percent.
There is no reason for it! Except maybe some brown envelopes exchanging hands?
I believe it’s more a case of the ROI striking a deal with Apple to allow their financial flows to move unobstructed in such a way, that their declared profits would be taxed at 12.5%. But the amount of the declared profits would result in the effective tax rate of 0.0005%. If you take into account that the politicians knew it and Apple’s legal team knew that they were dodging the 12.5% – it’s very much illegal in the context of EU treaties.
Many US corporations pay $0 in tax, after all of the loopholes. I believe GE paid $0 in 2014.
“…$0 in tax, after all of the loopholes.”
The more depressing theater I see at politics: The full fire fight to accord a hardly decent tax frame. A year of cooling. Then comes the ‘lobbies’ to destroy any remaining strength. Remaining frame just a JOKE.
0% Residual Tax should be for individuals only. For profit entities should be giving a fixed minimum by industry.
If accounting not resulting, then should transform to a non-for-profit.
A) Multinationals will not leave, that is absurd.
B) There are stricter rules that apply ever since the Lisbon Treaty.
C) Believe it or not, but EC is not omniscient and doesn’t know and verify everything and all. So the delay is unsurprising
D) Considering that there is a big move towards weeding out tax dodging , I’m hardly surprised that they are focusing on taxation now. (The tax avoidance issues were unanimously set as one of the most important issues for EU a few years ago, by the elected heads of executive branches of EU member states)
E) Why from now on? It should be applied since the time that the legal basis for invalidating the deal was valid. EU has not had a change in basic laws since 2009.
False. The U.S. taxes overseas corporate profits, minus a credit for taxes already paid to those overseas governments. So it is both true that the majority of Apple’s revenue originates overseas and that the majority of Apple’s revenue is taxed in the U.S. (at a lower rate than it would have been had it originated in the U.S.)
It is also true that Apple uses, ahem, creative accounting to record their revenue wherever tax rates will be lowest, and that they leave excess profits overseas for excessive time periods so that the Fed doesn’t come in and scoop up the difference. None of this is illegal.
Like Tim Cook said, “[The order] is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been.” Obviously the EU objects to Ireland helping big corpos avoid Continental tax rates, but a) Ireland benefits massively from the arrangement and will actively resist any threat to it, and b) the charge that Ireland specifically colluded with Apple is so far unsupported and probably complete fiction. Their status as a tax shelter is will known.
If the EU can convince or compel Ireland to change the way the game is played, we’ll live in a more honest world. But if the EU can apply a new law retroactively (yes, even against a corporation that did something distasteful), it can’t pretend to belong to the free world.
Good thing, then, that the EU isn’t trying to do this. I have no idea why you still spread this nonsense, since by now, everybody who can read knows this isn’t about applying any new law as Tim Cook tells in his lying letter, but a mere case of enforcing long-standing legislation banning state aid.
Legislation, I might add, which has been enforced in entirely similar fashion before countless times – including against The Netherlands and Starbucks, despite Tim Cook’s lies to the contrary.
No matter how many times you tell a lie, even if you’re just repeating Tim Cook’s lie, doesn’t make it any less of a lie.
Edited 2016-09-02 17:42 UTC
The Commission is invoking a law that doesn’t apply in order to get the effect of a law that doesn’t exist.
When the EU says Ireland provided state aid to Apple, they are lying. When Tim Cook says the EU is trying to apply what they wish Irish law had been, he is hitting the nail on the head.
Irish Law and Regulations always public. If conflicting, or loosely aligned, or word misleading to EU’s, THEN the Union should had indicted. [As is quite probably going to do].
As far as Cupertino goes, contemporaneous Irish Laws and Regulations, only.
EU failed oversight over members’ Law-frames shouldn’t be deflected down the fiscal chain.
If wanting to be so, then create an European Fiscal-Framing, supersede and later obsolete the Irish Fiscal Laws.
As I understand, any European working for the EU is an European Citizen, and swear fidelity to the Union, over his own Country.
So, any Irish Fiscal Lawyer Team working for the European Union is obligated to fully advice the EU. Future Wise.
Here’s the thing – if EC can prove that Apple intended to get around the laws, then Apple is fully accountable for the back-taxes.
EU treaties already supersede Irish Fiscal Laws in many cases. EC is the executive branch that is tasked to make sure that these treaties are followed.
I think that Apple did know and that it was their intent to do what they did. They also can’t show social benefits for getting those special conditions, as it is alleged. Apple’s Irish staff is a mere smidgen in comparison to Google or Microsoft.
PS: While Apple is a big fish – it’s not the first time EC has done this.
How can you call wilfully not collecting tax by waiving money to the sum of 13 billlliiiooonnnnn not state aid?
“…Angela Merkel has expressed fears the €13bn Apple tax ruling will hurt investment in Europe, putting her on the same side as Ireland in a looming showdown over the limits of national sovereignty and the rights of the federally minded European Commission.
She is understood to be taking particular issue with the retroactive nature of the ruling -“
http://www.independent.ie/irish-news/politics/merkel-backs-ireland-…
via the Reddit Community.
Well except it appears she has said no such thing about the current case, and the article has no source or even quote.
“Ireland is caught in a dispute between the EU and US over which it has little control,” the UK-based Financial Times newspaper wrote in an editorial.
“Bowing to the commission’s ruling would… be a tacit acknowledgement that there has indeed been something rotten in the low-tax regime that Dublin operates to attract multinationals,” it said.
No.additional.comments.
Again, my neural damage is extended:
Via http://phys.org/news/2016-09-irish-cabinet-appeal-apple.html
I read that Tax was structured in such a way as to maximize benefit to ‘Ring Zero’ of the Economic Alliance. This chain of events shows clearly that was NOT the case.
The problem is that Apple, when sell something, for example, in Italy, they make a profit in Ireland, so they pay sale taxes in Italy but profit taxes in Ireland, where profit tax is much smaller.
This is not fitting well with the rest of European people…
Imagine if Apple does that with the US sales, pay profit taxes of US sales to Ireland instead of the US, could you imagine that?
Edited 2016-09-05 17:36 UTC
fabrica64,
Normal individuals aren’t allowed to do this, US citizens living abroad are expected to pay portions of their US taxes regardless of where they live/work in the world and there are large penalties for failure to do so…
http://www.us-taxman.com/ireland.php
Multinationals corps, however, can & do get away with it because their foreign subsidiaries aren’t under US jurisdiction.
Edited 2016-09-05 20:49 UTC
Apple has always been rotten right to the core, stop pointing the fingers at the EU and point them at Cook where they belong.
I doubt that it’s Cook… Or that he even knew of the potential legal issues when this was being struck.
The lawyers should have been banging a giant gong in offices of directors when they found it out.