EU tax investigation concludes, Apple hammered with $14.5 billion bill

Posted:
in AAPL Investors edited August 2016
On Tuesday, the European Commission handed down its biggest tax penalty yet, ordering Apple to pay 13 billion euros ($14.5 billion) in back taxes -- but both Ireland and Apple are appealing the ruling.




The European Commission has declared that tax rates on European profits were illegally low at 0.005 percent in 2014, and 1 percent in 2003. The ultimate amount to be paid to Ireland may drop, as other nations in the European Union demand a piece of the demand.

"Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years," "said Competition Commission Margrethe Vestager.

The European Commission is the European Union's antitrust and tax agreement investigative body. The agency has been examining Apple's tax deals with Ireland since 2013, alleging that the Irish government provided Apple favorable terms in order to attract jobs and money.

The Commission also declared that the tax arrangement between Ireland and Apple was "reverse engineered" on-the-fly when it was created, guaranteeing a minimal tax bill.

Ireland's government generally disagrees with the European Commission's assessment, and said that the tax system under fire by the Commission no longer applies, and is irrelevant. Apple claims that it pays Ireland's 12.5 percent tax rate on the revenue it generates in the country.

Both Ireland and Apple have announced intentions to file an appeal against the commission's ruling.

"The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process," Apple said in a statement. "The Commission's case is not about how much Apple pays in taxes, it's about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe."

The U.S. government has examined the matter as well. In the middle of August, a study ordered by U.S. Treasury Secretary Jack Lew declared that that the European Commission is turning into a "supranational tax authority," and undermining "tax certainty."

Amazon, Google, Ikea, McDonalds, and Starbucks are all facing European Commission tax probes for similar reasons in other countries.

Regardless of the ultimate determination, Apple has said that they will remain in Ireland.
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Comments

  • Reply 1 of 106
    lkrupplkrupp Posts: 6,608member
    As someone mentioned in another thread this will be in the courts for decades and even the U.S. government is backing Apple on this one. This story will be good clickbait for a few days and then fade away. Meanwhile there’s an excellent response for the inevitable trolling about evil Apple... How much will Google have to cough up for doing the same thing?
    edited August 2016 latifbppalominejbdragonbadmonk
  • Reply 2 of 106
    slurpyslurpy Posts: 5,085member
    What a laughable fucking ruling. 

    http://www.apple.com/ie/customer-letter/
    latifbppscooter63hlee1169badmonkurahara
  • Reply 3 of 106
    gatorguygatorguy Posts: 19,805member
    lkrupp said:
    As someone mentioned in another thread this will be in the courts for decades and even the U.S. government is backing Apple on this one. This story will be good clickbait for a few days and then fade away. Meanwhile there’s an excellent response for the inevitable trolling about evil Apple... How much will Google have to cough up for doing the same thing?
    They're already in the process. The Brits and the French both came up with figures on back taxes (the British one was ridiculously low IMHO) and other countries are doing their own investigations too, no doubt also including Apple now. 
    ronngwydionbadmonk
  • Reply 4 of 106
    jfc1138jfc1138 Posts: 3,090member
    Good thing then Apple has that $231 billion in cash reserves then. No worries either way. 

    Ireland, otoh, sovereign or not. They'd better decide. 
    edited August 2016 badmonk
  • Reply 5 of 106
    "The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws..."

    EU Law supercedes that of individual country member laws, Ireland signed up to this by joining the EU. To make it easier for US folks, think of the EU as the united states and Ireland as a state within the USA. Federal law > state law.

    "The law that applies to situations where state and federal laws disagree is called the supremacy clause, which is part of article VI of the Constitution. The supremacy clause contains what's known as the doctrine of pre-emption, which says that the federal government wins in the case of conflicting legislation"

    similar case here.
    edited August 2016
  • Reply 6 of 106

    The original case http://ec.europa.eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf


    the ruling http://europa.eu/rapid/press-release_IP-16-2923_en.htm

    Summary from the ruling
    Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.
    The role of EU state aid control is to ensure Member States do not give selected companies a better tax treatment than others, via tax rulings or otherwise. More specifically, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").
    In particular, the Commission's state aid investigation concerned two consecutive tax rulings issued by Ireland, which endorsed a method to internally allocate profits within Apple Sales International and Apple Operations Europe,two Irish incorporated companies. It assessed whether this endorsed method to calculate the taxable profits of each company in Ireland gave Apple an undue advantage that is illegal under EU state aid rules.
    The Commission's investigation has shown that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits within Apple Sales International and Apple Operations Europe,which has no factual or economic justification. As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its "head office" when this "head office" had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter. Only the Irish branch of Apple Sales International had the capacity to generate any income from trading, i.e. from the distribution of Apple products. Therefore, the sales profits of Apple Sales International should have been recorded with the Irish branch and taxed there.
    The "head office" did not have any employees or own premises. The only activities that can be associated with the "head offices" are limited decisions taken by its directors (many of which were at the same time working full-time as executives for Apple Inc.) on the distribution of dividends, administrative arrangements and cash management. These activities generated profits in terms of interest that, based on the Commission's assessment, are the only profits which can be attributed to the "head offices".
    Similarly, only the Irish branch of Apple Operations Europe had the capacity to generate any income from trading, i.e. from the production of certain lines of computers for the Apple group. Therefore, sales profits of Apple Operation Europe should have been recorded with the Irish branch and taxed there.
    On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules.
    This decision does not call into question Ireland's general tax system or its corporate tax rate.Furthermore, Apple's tax structure in Europe as such, and whether profits could have been recorded in the countries where the sales effectively took place, are not issues covered by EU state aid rules.
    croprronncrowleyh2plilsmirkyblitz1
  • Reply 7 of 106
    Seems to me that tax rates are a matter of opinion.


    latifbp
  • Reply 8 of 106
    Being pedantic, 0.005 isn't an actual tax rate, the EU judgement says it was the effective tax rate.

    So it seems that Apple have a mind numbingly complex set of corporate entities and the Irish tax authorities made a ruling that Apple could allocate the vast majority of their profits to a corporate entity that didn't pay tax while a much smaller amount of profits were allocated to another entity that paid tax at the Irish corporate rate which is 12.5%.

    The EU are basically saying that everything should have been taxed at 12.5%.

    Expect this to go to appeal with an argument if the ruling about allocation of profits was correct or not. The Irish government will back their own tax department. 
    latifbpjbdragon
  • Reply 9 of 106
    gatorguygatorguy Posts: 19,805member
    redhanded said:
    Being pedantic, 0.005 isn't an actual tax rate, the EU judgement says it was the effective tax rate.

    So it seems that Apple have a mind numbingly complex set of corporate entities and the Irish tax authorities made a ruling that Apple could allocate the vast majority of their profits to a corporate entity that didn't pay tax while a much smaller amount of profits were allocated to another entity that paid tax at the Irish corporate rate which is 12.5%.

    The EU are basically saying that everything should have been taxed at 12.5%.

    Expect this to go to appeal with an argument if the ruling about allocation of profits was correct or not. The Irish government will back their own tax department
    Do you think their citizen's will too?  There's certainly little to no benefit for them when a wealthy corporation is permitted to completely avoid taxation while they themselves are not. The Irish politicians that choose to get involved will be walking a fine line. 
    GfiveTMcnocbuisingularityronn[Deleted User]
  • Reply 10 of 106
    ClexClex Posts: 3member
  • Reply 11 of 106
    mike1mike1 Posts: 1,804member
    So, what benefit does Ireland get from the EU that is worth giving up sovereignty? Perhaps they should follow Britain and give the EU a big middle finger. I laugh at the claim of state aid, while the French and German governments kept Airbus afloat so they could compete with Boeing.
    latifbppacificfilmbadmonk
  • Reply 12 of 106
    gatorguy said:
    redhanded said:
    Being pedantic, 0.005 isn't an actual tax rate, the EU judgement says it was the effective tax rate.

    So it seems that Apple have a mind numbingly complex set of corporate entities and the Irish tax authorities made a ruling that Apple could allocate the vast majority of their profits to a corporate entity that didn't pay tax while a much smaller amount of profits were allocated to another entity that paid tax at the Irish corporate rate which is 12.5%.

    The EU are basically saying that everything should have been taxed at 12.5%.

    Expect this to go to appeal with an argument if the ruling about allocation of profits was correct or not. The Irish government will back their own tax department
    Do you think their citizen's will too?  There's certainly little to no benefit for them when a wealthy corporation is permitted to completely avoid taxation while they themselves are not. The Irish politicians that choose to get involved will be walking a fine line. 
    I am an Irish citizen... I'll take the jobs provided by foreign investment over a possible one-off windfall.  Even if Apple end up paying, it is hardly the case that the Irish government will get EUR 13 B.  All the other EU countries and the US government will be saying - feck off - we want our share.
    h2ppacificfilmrerollbadmonk
  • Reply 13 of 106
    latifbplatifbp Posts: 544member
    adm1 said:
    "The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws..."

    EU Law supercedes that of individual country member laws, Ireland signed up to this by joining the EU. To make it easier for US folks, think of the EU as the united states and Ireland as a state within the USA. Federal law > state law.

    "The law that applies to situations where state and federal laws disagree is called the supremacy clause, which is part of article VI of the Constitution. The supremacy clause contains what's known as the doctrine of pre-emption, which says that the federal government wins in the case of conflicting legislation"

    similar case here.
    Federal law is not greater than state law in the U.S. The Federal government does not dictate each states tax rate. States decide that. State law prevails in that case. Always. Nice try though. States are technically 'less' sovereign than a country, but the EU can dictate what member countries do and don't do in a way that does not happen at all in the U.S. Sounds like Fascism is making a comeback over there.
    edited August 2016 mike1h2ppacificfilm
  • Reply 14 of 106
    latifbplatifbp Posts: 544member

    The original case http://ec.europa.eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf


    the ruling http://europa.eu/rapid/press-release_IP-16-2923_en.htm

    Summary from the ruling
    Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.
    The role of EU state aid control is to ensure Member States do not give selected companies a better tax treatment than others, via tax rulings or otherwise. More specifically, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").
    In particular, the Commission's state aid investigation concerned two consecutive tax rulings issued by Ireland, which endorsed a method to internally allocate profits within Apple Sales International and Apple Operations Europe,two Irish incorporated companies. It assessed whether this endorsed method to calculate the taxable profits of each company in Ireland gave Apple an undue advantage that is illegal under EU state aid rules.
    The Commission's investigation has shown that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits within Apple Sales International and Apple Operations Europe,which has no factual or economic justification. As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its "head office" when this "head office" had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter. Only the Irish branch of Apple Sales International had the capacity to generate any income from trading, i.e. from the distribution of Apple products. Therefore, the sales profits of Apple Sales International should have been recorded with the Irish branch and taxed there.
    The "head office" did not have any employees or own premises. The only activities that can be associated with the "head offices" are limited decisions taken by its directors (many of which were at the same time working full-time as executives for Apple Inc.) on the distribution of dividends, administrative arrangements and cash management. These activities generated profits in terms of interest that, based on the Commission's assessment, are the only profits which can be attributed to the "head offices".
    Similarly, only the Irish branch of Apple Operations Europe had the capacity to generate any income from trading, i.e. from the production of certain lines of computers for the Apple group. Therefore, sales profits of Apple Operation Europe should have been recorded with the Irish branch and taxed there.
    On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules.
    This decision does not call into question Ireland's general tax system or its corporate tax rate.Furthermore, Apple's tax structure in Europe as such, and whether profits could have been recorded in the countries where the sales effectively took place, are not issues covered by EU state aid rules.
    Name one competitor who did not get the same tax 
    h2ppacificfilm
  • Reply 15 of 106
    lkrupplkrupp Posts: 6,608member
    adm1 said:
    "The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws..."

    EU Law supercedes that of individual country member laws, Ireland signed up to this by joining the EU. To make it easier for US folks, think of the EU as the united states and Ireland as a state within the USA. Federal law > state law.

    "The law that applies to situations where state and federal laws disagree is called the supremacy clause, which is part of article VI of the Constitution. The supremacy clause contains what's known as the doctrine of pre-emption, which says that the federal government wins in the case of conflicting legislation"

    similar case here.
    Big difference between the EU and the U.S. EU countries can vote to exit the EU as the U.K. just did. This kind of nonsense will be more incentive for other countries to exit the EU as well. The EU is an experiment that has failed miserably. It was supposed to be an effort to normalize financial issues between european nations. It has turned into a grab for total power much like the Federal Government of the United States. The “United” States and the European “Union” are no such thing. It is globalism/federalism at its worst, a concentration of power and dominion over all.
    latifbpmike1h2pbuzdots
  • Reply 16 of 106
    gatorguygatorguy Posts: 19,805member
    latifbp said:

    The original case http://ec.europa.eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf


    the ruling http://europa.eu/rapid/press-release_IP-16-2923_en.htm

    Summary from the ruling
    Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.
    The role of EU state aid control is to ensure Member States do not give selected companies a better tax treatment than others, via tax rulings or otherwise. More specifically, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").
    In particular, the Commission's state aid investigation concerned two consecutive tax rulings issued by Ireland, which endorsed a method to internally allocate profits within Apple Sales International and Apple Operations Europe,two Irish incorporated companies. It assessed whether this endorsed method to calculate the taxable profits of each company in Ireland gave Apple an undue advantage that is illegal under EU state aid rules.
    The Commission's investigation has shown that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits within Apple Sales International and Apple Operations Europe,which has no factual or economic justification. As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its "head office" when this "head office" had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter. Only the Irish branch of Apple Sales International had the capacity to generate any income from trading, i.e. from the distribution of Apple products. Therefore, the sales profits of Apple Sales International should have been recorded with the Irish branch and taxed there.
    The "head office" did not have any employees or own premises. The only activities that can be associated with the "head offices" are limited decisions taken by its directors (many of which were at the same time working full-time as executives for Apple Inc.) on the distribution of dividends, administrative arrangements and cash management. These activities generated profits in terms of interest that, based on the Commission's assessment, are the only profits which can be attributed to the "head offices".
    Similarly, only the Irish branch of Apple Operations Europe had the capacity to generate any income from trading, i.e. from the production of certain lines of computers for the Apple group. Therefore, sales profits of Apple Operation Europe should have been recorded with the Irish branch and taxed there.
    On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules.
    This decision does not call into question Ireland's general tax system or its corporate tax rate.Furthermore, Apple's tax structure in Europe as such, and whether profits could have been recorded in the countries where the sales effectively took place, are not issues covered by EU state aid rules.
    Name one competitor who did not get the same tax 
    You're arguing with the wrong entity. Message your outrage over this to the EU Commission. 
    singularitycnocbuironn
  • Reply 17 of 106
    cnocbuicnocbui Posts: 3,613member
    Well I said it would be billions rather than SOG's ludicrous millions.

    I hope the final outcome is that Apple eventually have to cough up.  They have over $200 Billion in the bank because they are worlds biggest and most effective tax avoider.  I hope this is just the start of all the other multinational tax dodgers finally getting what's coming to them.

    Of course the situation Apple finds itself in is all the fault of the US government, not Ireland or the EU as it is US tax legislation that allows US companies to indefinitely defer tax repatriation while pretending to their host countries their tax is payable in the US.
    ronnreroll
  • Reply 18 of 106
    latifbplatifbp Posts: 544member
    gatorguy said:
    latifbp said:

    The original case http://ec.europa.eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf


    the ruling http://europa.eu/rapid/press-release_IP-16-2923_en.htm

    Summary from the ruling
    Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.
    The role of EU state aid control is to ensure Member States do not give selected companies a better tax treatment than others, via tax rulings or otherwise. More specifically, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").
    In particular, the Commission's state aid investigation concerned two consecutive tax rulings issued by Ireland, which endorsed a method to internally allocate profits within Apple Sales International and Apple Operations Europe,two Irish incorporated companies. It assessed whether this endorsed method to calculate the taxable profits of each company in Ireland gave Apple an undue advantage that is illegal under EU state aid rules.
    The Commission's investigation has shown that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits within Apple Sales International and Apple Operations Europe,which has no factual or economic justification. As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its "head office" when this "head office" had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter. Only the Irish branch of Apple Sales International had the capacity to generate any income from trading, i.e. from the distribution of Apple products. Therefore, the sales profits of Apple Sales International should have been recorded with the Irish branch and taxed there.
    The "head office" did not have any employees or own premises. The only activities that can be associated with the "head offices" are limited decisions taken by its directors (many of which were at the same time working full-time as executives for Apple Inc.) on the distribution of dividends, administrative arrangements and cash management. These activities generated profits in terms of interest that, based on the Commission's assessment, are the only profits which can be attributed to the "head offices".
    Similarly, only the Irish branch of Apple Operations Europe had the capacity to generate any income from trading, i.e. from the production of certain lines of computers for the Apple group. Therefore, sales profits of Apple Operation Europe should have been recorded with the Irish branch and taxed there.
    On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules.
    This decision does not call into question Ireland's general tax system or its corporate tax rate.Furthermore, Apple's tax structure in Europe as such, and whether profits could have been recorded in the countries where the sales effectively took place, are not issues covered by EU state aid rules.
    Name one competitor who did not get the same tax 
    You're arguing with the wrong entity. Message your outrage over this to the EU Commission. 
    The allegation is that Apple was acting anti-competitively. There'd have to be competition that got stifled in order for that to be true. Not one person can identify any corporation that was stifled in their competition against Apple. We now know that Apple had this tax rate since 1980 and that there was no request by Apple and no 'deal' brokered.
    edited August 2016
  • Reply 19 of 106
    asdasdasdasd Posts: 5,198member
    gatorguy said:
    lkrupp said:
    As someone mentioned in another thread this will be in the courts for decades and even the U.S. government is backing Apple on this one. This story will be good clickbait for a few days and then fade away. Meanwhile there’s an excellent response for the inevitable trolling about evil Apple... How much will Google have to cough up for doing the same thing?
    They're already in the process. The Brits and the French both came up with figures on back taxes (the British one was ridiculously low IMHO) and other countries are doing their own investigations too, no doubt also including Apple now. 
    The British arent owed a cent. Except for the difference in retail prices between the wholesale prices charged to retailers and the retail price charged by them. That's taxable in the UK. 
  • Reply 20 of 106
    asdasdasdasd Posts: 5,198member
    adm1 said:
    "The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws..."

    EU Law supercedes that of individual country member laws, Ireland signed up to this by joining the EU. To make it easier for US folks, think of the EU as the united states and Ireland as a state within the USA. Federal law > state law.

    "The law that applies to situations where state and federal laws disagree is called the supremacy clause, which is part of article VI of the Constitution. The supremacy clause contains what's known as the doctrine of pre-emption, which says that the federal government wins in the case of conflicting legislation"

    similar case here.
    Corporation tax is not a core competancy of the EU.  And the EU is not one country. There is no federal tax system for instance. 
    h2p
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