European Commission finds Ireland's tax deal with Apple amounts to illegal state aid

Posted:
in General Discussion edited October 2014
In an official preliminary finding published on Tuesday, the European Union's antitrust watchdog said it believes Apple is receiving special treatment from Ireland in the form of tax agreements, a situation that constitutes state aid and could therefore be viewed as illegal.


Source: European Commission


As outlined by the European Commission, Ireland's 1991 and 2007 tax deals with 100-percent Apple subsidiaries Apple Operations International, Apple Sales International and Apple Operations Europe constitute an existence of aid by an EU member state. The commission made the document available through its website on Tuesday (PDF link).

From the commission's decision:
In the light of the foregoing considerations, the Commission's preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU [Treaty on the Functioning of the European Union]. The Commission has doubts about the compatibility of such State aid with the internal market. The Commission has therefore decided to initiate the procedure laid down in Article 108(2) TFEU with respect to the measures in question.
Ireland is one of the stops used in the famous -- and legal -- "Double Irish with a Dutch Sandwich" tax strategy used by multinational corporations to save billions of dollars. The EU has taken interest in companies like Apple, which route money through subsidiaries in Ireland, because the strategy allows companies to avoid paying higher tax rates in individual countries. Intellectual property licensed in Ireland is then assigned to an offshore entity located in a no-tax country, like the Caribbean, meaning Irish tax is not applicable to said income. Income from international sales is funneled through another subsidiary in the Netherlands to further avoid EU taxes, which the union believes is unfair.

The tactic has reportedly saved Apple up to $9 billion per year.

For its part, Apple denies that the Ireland deal is illegal and is not receiving special treatment from the country. The company offered the following statement to Business Insider:
Apple is proud of its long history in Ireland and the 4,000 people we employ in Cork. They serve our customers through manufacturing, tech support and other important functions. Our success in Europe and around the world is the result of hard work and innovation by our employees, not any special arrangements with the government. Apple has received no selective treatment from Irish officials over the years. We're subject to the same tax laws as the countless other companies who do business in Ireland.

Since the iPhone launched in 2007, our tax payments in Ireland and around the world have increased tenfold. To continue that growth and the benefits it brings to the communities where we work and live, we believe comprehensive corporate tax reform is badly needed."
The statement echoes comments made in June when the EU investigation began, as well as stateside calls for tax reform in a series of U.S. Senate hearings.

It was reported on Sunday that the EU would pin the tax burden on Apple and seek fines or other punitive action against the company, but those rumors were later debunked as coming from misinformed sources.

Ireland, Apple and interested parties have one month to furnish the commission with a reply and financial documents pertaining to Apple's annual income, employee status and subsidiary cost-sharing agreements, among other details.

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Comments

  • Reply 1 of 75
    MarvinMarvin Posts: 14,179moderator
    It was reported on Sunday that the EU would pin the tax burden on Apple and seek fines or other punitive action against the company, but those rumors were later debunked as coming from <a href="http://appleinsider.com/articles/14/09/29/european-commission-seeking-retroactive-tax-windfall-from-apple-inc-subsidiary-in-ireland">misinformed sources</a>.

    The linked PDF says:

    "The Commission requests your authorities to forward a copy of this letter to the potential recipient of the aid (Apple) immediately.
    The Commission wishes to remind Ireland that Article 108(3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw your attention to Article 14 of Council Regulation (EC) No 659/199935, which provides that all unlawful aid may be recovered from the recipient (Apple)."

    It doesn't sound like fines or punitive action will be issued to Apple because they were just following the setup Ireland allowed but they can pin the tax burden on Apple because they received the aid that they have now determined was illegal and that tax burden remains unpaid. It's what they'd have had to pay if the setup didn't exist.
  • Reply 2 of 75
    This wasn't on Tuesday.. this was Monday...

    Forbes did a whole writeup on it and has a very different view on what you just reported.

    http://www.forbes.com/sites/timworstall/2014/09/29/the-european-commission-is-not-about-to-fine-apple-nor-even-to-accuse-the-company-of-anything/
  • Reply 3 of 75
    I think the tax situation in Ireland is unacceptable. Companies like Microsoft, Apple and Google do not pay enough tax. The fact that Apple is sitting on $150 Billion which it does not know what to spend on says it all.
  • Reply 4 of 75
    gatorguygatorguy Posts: 19,262member
    adrayven wrote: »
    This wasn't on Tuesday.. this was Monday...

    Forbes did a whole writeup on it and has a very different view on what you just reported.

    http://www.forbes.com/sites/timworstall/2014/09/29/the-european-commission-is-not-about-to-fine-apple-nor-even-to-accuse-the-company-of-anything/

    I suggest you read the EU letter then rather than a newspaper report that included an opinion guessing what the EU might decide. The letter just became public and linked in the AI article.

    If you want to skip all the intimate details then begin with paragraph 58 where they start the explanation of why the Ireland/Apple tax agreements did not rely on traditional and legal transfer pricing arrangements and thus amount to illegal state aid. The section Marvin noted, reminding Ireland and Apple that unlawful aid can be recovered from the recipient (Apple) is in the "Decision" near the end of the letter.

    I'll be curious to read both Anand and Sog's opinions now on whether they still believe the EU "can't do jack sheet" in light of the release of these preliminary findings and decision.
  • Reply 5 of 75
    Marvin wrote: »
    The linked PDF says:

    "The Commission requests your authorities to forward a copy of this letter to the potential recipient of the aid (Apple) immediately.
    The Commission wishes to remind Ireland that Article 108(3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw your attention to Article 14 of Council Regulation (EC) No 659/199935, which provides that all unlawful aid may be recovered from the recipient (Apple)."

    It doesn't sound like fines or punitive action will be issued to Apple because they were just following the setup Ireland allowed but they can pin the tax burden on Apple because they received the aid that they have now determined was illegal and that tax burden remains unpaid. It's what they'd have had to pay if the setup didn't exist.

    That is 100% correct. It's not fines or punitive action but it can include the recovery of the unpaid taxes.
  • Reply 6 of 75



    Ok if the EU wants to extort money from Apple and other American businesses 

    we will have a look at your questionable Airbus subsidies and take appropriate action, rest assured. 

  • Reply 7 of 75
    vulcan747 wrote: »
    Ok if the EU wants to extort money from Apple and other American businesses 

    Probably you should read again this part: " To skirt U.S. tax rates, companies like Apple route money through subsidiaries in Ireland by paying profits on products sold as royalties on owned patents. "
  • Reply 8 of 75
    xixoxixo Posts: 414member
    "Designed In California. Rigged In Ireland."
  • Reply 9 of 75
    lilgto64lilgto64 Posts: 1,147member
    Quote:

    Originally Posted by bradipao View Post





    Probably you should read again this part: " To skirt U.S. tax rates, companies like Apple route money through subsidiaries in Ireland by paying profits on products sold as royalties on owned patents. "



    Perhaps you should consider that "to skirt" implies that complying with the laws exactly as they are written is somehow illegal because someone "believes" that it is their "view" that there is wrong doing. 

     

    Maybe in Baseball we can have rulings that one team gained an unfair advantage because they have players who can run faster and take advantage of the "stealing a base" rule that was clearly set up to favor those teams who are able to assign players to a roster in a manner that skirts the law. 

     

    There may be no possible way to have comprehensive tax law in all its details be perceived as fair by all parties either directly involved, indirectly involved, peripherally affected, or utterly unaffected by them. 

  • Reply 10 of 75
    I seriously doubt Apple, Google, or any tech Titan on that scale is paying the max tax rate anywhere especially with access to the best tax technicians money can buy. So the $8 billion figure is for shock value at best. It has been notated on the web that most companies with ties to Ireland pay much less than 12%. Wow, I was expecting to see some hard evidence of some sweetheart deal. Not, the EU stating we believe apple owes more money because they are able to find loopholes that are available to every company.
  • Reply 11 of 75
    richlrichl Posts: 2,213member
    Quote:

    Originally Posted by lilgto64 View Post



    Perhaps you should consider that "to skirt" implies that complying with the laws exactly as they are written is somehow illegal because someone "believes" that it is their "view" that there is wrong doing. 


     

    The report is written in British legalese. Beliefs and views are common terms when putting across an argument. It's up for the judge to decide on the facts.

  • Reply 12 of 75
    gatorguy wrote: »

    I'll be curious to read both Anand....

    The name is not 'Anand'. Read the the first five letters. Repeat until you see the right spelling.

    Apropos the topic at hand, wow: a dog with a bone, aren't you? :rolleyes:
  • Reply 13 of 75
    gatorguygatorguy Posts: 19,262member
    rumormill wrote: »
    I seriously doubt Apple, Google, or any tech Titan on that scale is paying the max tax rate anywhere especially with access to the best tax technicians money can buy. So the $8 billion figure is for shock value at best. It has been notated on the web that most companies with ties to Ireland pay much less than 12%. Wow, I was expecting to see some hard evidence of some sweetheart deal. Not, the EU stating we believe apple owes more money because they are able to find loopholes that are available to every company.

    The loopholes are not available to every company if the initial findings are correct. The facts determined so far indicate that Apple's favorable tax situation in Ireland was not the result of an arms' length use of transfer pricing arrangements. Instead it was set up in closed door negotiations using arbitrarily set formulas with no basis in fact for determining the profits to be reported each year. Most companies do not have access to those tax officials and the pull to pressure them for back-room dealing.
  • Reply 14 of 75
    sog35 wrote: »
    This is 100% POLITICAL.  The EU commissioners are up for re-election and their terms are about to end. 

    Here's the deeper irony: the next Commissioner, after Alumnia, is likely from Luxembourg! Guess the name of the other country that is under 'investigation'.....:lol:
  • Reply 15 of 75
    gatorguygatorguy Posts: 19,262member
    The name is not 'Anand'. Read the the first five letters. Repeat until you see the right spelling.

    Apropos the topic at hand, wow: a dog with a bone, aren't you? :rolleyes:

    Dang. . . twice in 24 hours. Sorry about that Anant. So your opinion now would be . . . ?
  • Reply 16 of 75
    gatorguygatorguy Posts: 19,262member
    sog35 wrote: »
    EU can't do jack sheet.

    It is the EU's OPINION that Apple is receiving AID.  Lets see if that stands up in court (of course it won't).  An expert on the situation said this could take 5-10 years to be resolved.  But the EU basically has ZERO chance of winning because the arrangement was in place since 1990 (friken 24 years ago!) yet they do nothing till now?  If what Apple/Ireland was truly illegal its the EU that should also be fined for not doing there job and taking almost 25 years to 'uncover' the illegal activity.

    This is 100% POLITICAL.  The EU commissioners are up for re-election and their terms are about to end.  They just want to show that they were doing something with the tens of millions they have been paid. 

    The EU can suck on a Cock (rooster).  They have no power and they know it.  If they somehow magically win this case every single Corporation headquarter in the EU will pull out.  It would totally tank the EU when that happens.  They know this, everyone does.  No corporation will want to be in the EU if they can magically force you to pay MORE TAXES than you were LEGALLY OBLIGATED to.  And the EU has the right to go back 25 YEARS!!!  No way.  NO F'ing way.
    So you don't think the EU could find the tax agreements to be illegal and no longer usable for Apple tax advantages? Ignore for the moment whether Apple might or might not have to pay back taxes. That's a separate issue that you're clouding your opinion with.

    The story is more whether Ireland can continue with the back-room negotiated tax schedules with specific large corporations, giving them an unfair financial advantage, that others have no access to. Do you think things will continue just as they have, the EU cannot pressure them to discontinue the practice?
  • Reply 17 of 75
    gatorguygatorguy Posts: 19,262member
    sog35 wrote: »
    EU is toothless.  If they go hard at Ireland than Ireland will take this to the higher courts where EU has no power.  Even if the EU some how wins you will see a MASS EXODUS of Big Corporations leaving the EU.  They would take away HUNDREDS OF THOUSANDS of jobs from the EU. 

    Why on earth would a large corp want to be headquarter in the EU that has the right to DEMAND MORE TAXES THAN LEGALLY OBILIGATED? AND THE POWER TO GO BACK 25 YEARS?  No friken way.  Even the IRS does not have that power against normal US citizens.  You think the EU can do that to a $600B corp?  No way.

    EU can cry all they want.  Bottom line is they did NOTHING for 25 years.  The higher court will throw this out as fast as you throw out a steaming pile of sheet in your kitchen.

    You keep throwing the back taxes issue in there rather than actually answering the question I asked. Do you think the EU cannot pressure Ireland into discontinuing the unique tax arrangements they have with Apple. Ignore the back taxes issue, where I tend to lean your way when it comes to that.

    By the way I think the EU could only go back 10 years if they decided to pursue the back tax issue, not 25. Could be wrong.
  • Reply 18 of 75
    gatorguygatorguy Posts: 19,262member
    sog35 wrote: »
    This is the TRUE reason why this EU bull sheet is happenning.

    The 5 year TERM for the EU commisioner and the member EXPIRE on Oct 31, 2014....

    So why did they wait 25 YEARS and only bring it up now?

    Because those FAT CATS want to be re-elected and continue to get paid millions in bribes.
    [/URL]
    I don't think Commissioner Almunia can be "re-elected" can he when he and the other members are not elected in the first place.
  • Reply 19 of 75



    Right, because the state stealing less is "aid" in the EU mindset....

  • Reply 20 of 75
    MarvinMarvin Posts: 14,179moderator
    sog35 wrote: »
    Even if the EU some how wins you will see a MASS EXODUS of Big Corporations leaving the EU.  They would take away HUNDREDS OF THOUSANDS of jobs from the EU.

    Why on earth would a large corp want to be headquarter in the EU that has the right to DEMAND MORE TAXES THAN LEGALLY OBILIGATED?

    Ok so they move from the EU to where? The USA where they pay even higher taxes? Asia? A PO Box stuck to a buoy in the middle of the Atlantic Ocean? Pure fantasy. If Apple is happy to pay a 25% rate in the USA, they can happily pay a 25% rate in the EU and it's half that anyway. Ireland's expected corporation tax rate is 12.5%, the US is 35%. Apple's effective rate has been reported as 2%. If they'd just paid 1/3 of the US rate in the first place without the no tax jurisdiction loophole, there would have been no problem.

    If the EU tax rates would cause an exodus of large companies, the same should be true of the US as the tax rate there is significantly higher than the entire EU. All businesses by that logic should move out of the US and setup in the EU to get a 12.5-25% rate vs 35%. The US is screwing big business.

    One plus in paying the EU tax btw is that it offsets the repatriation tax rate. If the US agrees to a 15-25% rate vs 35% and Apple pays 12.5%, they may get the single digit rate they wanted and be able to repatriate the cash.
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