Apple & Ireland head to court to battle $14.4B EU back tax on Sept. 17
The battle between Apple and the European Commission over the iPhone maker's tax affairs with Ireland will be heading to court in September, with the legal challenge set to determine whether Apple will be paid back any of its 13 billion ($14.4 billion) back tax payment.
A date has been set at the European Union General Court to hear Apple's appeal on September 17 and 18. The second-highest tribunal on the continent, it will hear arguments from Apple and Ireland fighting against the European Commission's ruling Apple had been given "illegal state aid" to avoid paying taxes.
Ireland advised to Bloomberg it "profoundly disagrees" with the European Commission's decision, and is "engaging fully with the process and ensuring the best presentation of the state's position" in the case. The Commission declined to comment, while Apple did not respond to requests by the publication.
The case stems from a 2016 ruling by the European Commission that the Irish government offered preferential tax breaks to the iPhone maker. In a financial trick known as the "double Irish," where billions of dollars in European revenue were funneled through Ireland, the government offered Apple tax rates of just 1% on its European profits in 2003, and as little as 0.005% in 2014.
The preferential tax treatment to Apple is not allowed by the EU, with rules forbidding individual member states from offering companies benefits not available elsewhere in the EU. Both Apple and Ireland announced their intentions to appeal the decision shortly after the Commission offered its ruling.
As a result of the investigation, Apple was ordered to pay 13.1 billion euro, as well as 1.2 billion extra in interest, to the Irish government. The total 14.3 billion euro balance has been kept in escrow during the appeals process, but despite investing in sovereign and quasi-sovereign bonds, has actually lost 16 million euro in value.
Apple CEO Tim Cook has maintained Apple pays "all of the taxes we owe," and that it follows the "spirit of the laws," though this hasn't stopped it from falling afoul of the tax laws in other countries.
A date has been set at the European Union General Court to hear Apple's appeal on September 17 and 18. The second-highest tribunal on the continent, it will hear arguments from Apple and Ireland fighting against the European Commission's ruling Apple had been given "illegal state aid" to avoid paying taxes.
Ireland advised to Bloomberg it "profoundly disagrees" with the European Commission's decision, and is "engaging fully with the process and ensuring the best presentation of the state's position" in the case. The Commission declined to comment, while Apple did not respond to requests by the publication.
The case stems from a 2016 ruling by the European Commission that the Irish government offered preferential tax breaks to the iPhone maker. In a financial trick known as the "double Irish," where billions of dollars in European revenue were funneled through Ireland, the government offered Apple tax rates of just 1% on its European profits in 2003, and as little as 0.005% in 2014.
The preferential tax treatment to Apple is not allowed by the EU, with rules forbidding individual member states from offering companies benefits not available elsewhere in the EU. Both Apple and Ireland announced their intentions to appeal the decision shortly after the Commission offered its ruling.
As a result of the investigation, Apple was ordered to pay 13.1 billion euro, as well as 1.2 billion extra in interest, to the Irish government. The total 14.3 billion euro balance has been kept in escrow during the appeals process, but despite investing in sovereign and quasi-sovereign bonds, has actually lost 16 million euro in value.
Apple CEO Tim Cook has maintained Apple pays "all of the taxes we owe," and that it follows the "spirit of the laws," though this hasn't stopped it from falling afoul of the tax laws in other countries.
Comments
Personally, I just want the court case to get underway so we stop speculating and learn the result. I'm sure like most of us here, I have zero insight into the "EU General Court," but I give it the benefit of the doubt in being a fair, mostly objective court of law. If it's a rubber stamp for other branches of the EU, Apple/Ireland has no chance, but we'll see.
No, what is not allowed is offering benefits not available to other companies
As has been noted in the past, the $14.4B was placed in escrow pending the outcome of this case. The US treasury gets the taxes if EU case against Ireland was wrong, the EU gets the taxes if EU was correct. By treaty, companies don't get taxed twice on the same income.
We don't have the exact details. Those will be laid out during the hearings. We have the summary of the investigation that took things to this point and some background information collated by news sources but until things are heard, all we can do is sit back and wait for an outcome.
If, however, Apple wins, then that escrowed cash, and its interest, gets added immediately to Apple’s available cash.
At least that’s what I think.
Compared to the buildings the Lisa and Macintosh came from, it’s outright glamorous.
Good article on them here:
https://9to5mac.com/2017/11/13/apple-original-campus-headquarters/
After decades of activity in Cork many foreign employees now have roots and family there. I can't see Apple moving elsewhere without being forced to.
”EU illegal State aid case against Apple in Ireland”
- Essentially the EU Commission is using a technicality in the “Double Irish” system.
Apple did not use the standard Double Irish structure of having two companies. Instead Apple had two divisions within the same company.
- There is no clear evidence that Apple’s version of the Double Irish was better (in terms of reduced taxes) than many other companies in Ireland using the standard Double Irish such as by Microsoft or Google.
- Why is the EU trying to meddle with Ireland’s tax structure?
For political reasons.
The EU system of high taxes funds a huge selection of benefits as well as generous pensions & month long + vacations. But the EU economically is under tremendous strain.
Result; the plans to target US companies for much higher taxes (such as by France).
- Why is Ireland resisting the EU? To avoid the eventual elimination of all tax advantages in Ireland which would lead to a mass exodus of multinational corporations from the country & an economic depression in Ireland.
The Wikipedia article explains;
”...in § Understanding Irish decision, US–controlled multinationals are 25 of Ireland's top 50 companies; pay over 80% of all Irish corporate taxes (circa €8 billion per annum); directly employ 25 per cent of the Irish labour force (and indirectly pay half of all Irish salary taxes); and are 57 per cent of all non-farm OECD value-add in the Irish economy. In June 2018, the American–Ireland Chamber of Commerce estimated the value of US investment in Ireland was €334 billion, exceeding Irish GDP (€291 billion in 2016)... The cost of US multinationals abandoning Ireland as a US corporate–tax haven, would greatly exceed the EU's €13 billion "windfall".”
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1. 10% of earnings has been deemed the normal rate of return on tangible assets abroad. It is my understanding that there is no US tax on this. ($10 tax free out of $100)
2. Above that 10% of earnings, US taxes foreign earnings. This tax is called GILTI (Global Intangible Low-Taxes Income). Absent deductions, the tax is at the new corporate rate of 21%. (21% of $90 is $18.90, which is $71.10 net of tax, and $71.10+$10=$81.10)
3. A foreign tax credit is allowed for GILTI tax equal to 80% of foreign income taxes paid. If Ireland charges 12.5% of Irish earnings, Apple can write off 10% of Irish earnings. That would reduce the share the US gets to 11%. (Apple is left holding the bag for$2.50 out of every $100 in profit, so net foreign profit drops to $81.10-$2.50= $78.60.)
4. A new deduction is made available called FDII (Foreign-Derived Intangible Income). It has the effect of lowering the “effective GILTI tax rate” (before allowing the foreign tax credit) to 10.5%, going to 13.125% by 2026.
[The TCJA allows a domestic corporation to deduct 37.5% of its FDII from its taxable income. A deduction of 37.5% means the 62.5% remaining equals (0.21x0.625=) 13.125%. By the same token, the initial 10.5% must indicate an initial deduction of (1-(0.105/0.21)=) 50%.]
So in the case of Ireland, until 2026, Apple can deduct 50% of $12.5 out of every $100 or $6.25. (Apple regains $6.25 giving it $78.60+$6.25 or $84.85, which is an overall tax of 15.15%, Irish and domestic.) After 2026, Apple can only deduct $4.6875 out of every $100. (Apple only gets $83.2875 for every $100 earned, which is an overall tax of 16.7125%.)
5. The TCJHA also added a kind of alternative minimum tax called BEAT (Base Erosion and Anti-abuse Tax). That imposes a tax at the rate of a 10% “base”. [It requires large firms to calculate what their US taxable income would be if they disregard deductions for cross-border payments to foreign affiliates.] AS I UNDERSTAND IT, in the case prior to 2026 above, Apple’s payment to the US and Ireland would have dropped to 15.15%, of which 12.5% would have gone to Ireland, leaving 2.65% for the US. To return to the “base” of 10% tax, Apple would thus need to pay an additional 7.35% to the US, increasing its overall tax bill, Irish and domestic, to (15.15+7.35=) 22.5%. In 2026, that combined tax will also equal (10-(16.7125-12.5)+16.7125=) 22.5%
Bottom line: Apple nets $77.50 on every $100 it earns in a foreign country that taxes it 12.5%. That goes to $89.50 on every $100 it earns if Apple pays zero taxes. Basically, Apple, as a US MNC (Multi-National Corporation) is taxed 10% to 10.5% in spite of whatever tax it pays in the country it sells in.
--------So what does that mean for the cash? I can't even BEGIN to figure that out! But I'd bet that Apple has....