Apple & Ireland head to court to battle $14.4B EU back tax on Sept. 17

Posted:
in General Discussion edited August 16
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.
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Comments

  • Reply 1 of 27
    Cue up the gnashing about the politics and ethics of this.

    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.
    spice-boyanantksundaram
  • Reply 2 of 27
    I have to laugh at how lame and unimpressive that Apple building is.  Apple has dozens of Apple Stores that are more impressive (to say nothing of their HQ).  I mean it's nice HQ for a local business, but we expect more from trillion dollar companies.
  • Reply 3 of 27
    gwydiongwydion Posts: 1,076member
    " with rules forbidding individual member states from offering companies benefits not available elsewhere in the EU."

    No, what is not allowed is offering benefits not available to other companies
    crowleyh2p
  • Reply 4 of 27
    larryjwlarryjw Posts: 420member
    Aside from legal fees, is the merely (though important) a case about legal interpretation of EU tax law, without real financial consequences for Apple, but real financial consequences for the EU.

    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. 
  • Reply 5 of 27
    avon b7avon b7 Posts: 4,214member
    Cue up the gnashing about the politics and ethics of this.

    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.
    Exactly. A common sense approach by someone (most of us) on the outside.

    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. 
    muthuk_vanalingam
  • Reply 6 of 27
    croprcropr Posts: 961member
    larryjw said:
    Aside from legal fees, is the merely (though important) a case about legal interpretation of EU tax law, without real financial consequences for Apple, but real financial consequences for the EU.

    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. 
    You do not understand the issue at stake.It is not about tax law and definitely not about the EU getting the tax money.   

    It is about anti competitive behavior of Ireland.  The court has to answer the question if Ireland has violated the competition rules in the EU by collecting only 0.05% tax money from Apple while all other companies in Ireland have to pay 12.5%.   Basically the EU commission accuses Ireland that it has used anti-competitive means (a special tax regime) to attract Apple to put its European HQ in Ireland. If Ireland loses (and most probably it will), Ireland will be forced to collect the unpaid taxes from Apple.  The money would go straight to the Irish budget.

    In any case the EU is not paid any money.

    gatorguy
  • Reply 7 of 27
    larryjw said:
    Aside from legal fees, is the merely (though important) a case about legal interpretation of EU tax law, without real financial consequences for Apple, but real financial consequences for the EU.

    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. 
    Re escrow: I think Apple paid the old US tax and the old EU tax based on the old tax requirements. Technically, if the ruling goes in favor of the EU, it should be the US paying back Apple. Apple, however, would still be responsible for the debt repayment. EU will also want the interest on that cash, hence the escrow. I seriously doubt the US will pay back the taxes with interest, and may just allow a future tax write-off for Apple. So Apple will end up eating the past interest and future potential interest.

    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.
    edited August 16
  • Reply 8 of 27


    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. 
    So true but that has never stopped people from having definitive opinions anyway. 
  • Reply 9 of 27
    PS. I am not a expert on international tax laws but I'm sure a few will be commenting here shortly. 
    crowley
  • Reply 10 of 27
    StrangeDaysStrangeDays Posts: 8,586member
    I have to laugh at how lame and unimpressive that Apple building is.  Apple has dozens of Apple Stores that are more impressive (to say nothing of their HQ).  I mean it's nice HQ for a local business, but we expect more from trillion dollar companies.
    Eh, it’s older. It’s a huge site, mostly industrial warehouse, with that as the reception. Here is another angle:



    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/


    edited August 16 spice-boybb-15
  • Reply 11 of 27
    crowleycrowley Posts: 6,019member
    sacto joe said:
    larryjw said:
    Aside from legal fees, is the merely (though important) a case about legal interpretation of EU tax law, without real financial consequences for Apple, but real financial consequences for the EU.

    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. 
    Re escrow: I think Apple paid the old US tax and the old EU tax based on the old tax requirements. Technically, if the ruling goes in favor of the EU, it should be the US paying back Apple. 
    That presupposes that Apple repatriated any of the profit registered in the period in question.  It's not unreasonable to assume that a large part if not all it was kept overseas, outside of the US IRS jurisdiction.  Maybe some was brought back during the GWB tax holiday.
  • Reply 12 of 27
    cropr said:
    larryjw said:
    Aside from legal fees, is the merely (though important) a case about legal interpretation of EU tax law, without real financial consequences for Apple, but real financial consequences for the EU.

    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. 
    You do not understand the issue at stake.It is not about tax law and definitely not about the EU getting the tax money.   

    It is about anti competitive behavior of Ireland.  The court has to answer the question if Ireland has violated the competition rules in the EU by collecting only 0.05% tax money from Apple while all other companies in Ireland have to pay 12.5%.   Basically the EU commission accuses Ireland that it has used anti-competitive means (a special tax regime) to attract Apple to put its European HQ in Ireland. If Ireland loses (and most probably it will), Ireland will be forced to collect the unpaid taxes from Apple.  The money would go straight to the Irish budget.

    In any case the EU is not paid any money.

    You may be wrong there. Yes, Ireland will get the money, but EU will credit it to the subsidies that they would have owed Ireland (which is a net recipient of EU funds), i.e., EU gets the money (which is, after all, fungible).
    GeorgeBMac
  • Reply 13 of 27
    SpamSandwichSpamSandwich Posts: 31,417member
    Keep dragging this out until Brexit finally happens, then Ireland will be be begging for Apple’s business there.
  • Reply 14 of 27
    avon b7avon b7 Posts: 4,214member
    Keep dragging this out until Brexit finally happens, then Ireland will be be begging for Apple’s business there.
    I don't quite follow. Brexit (if it ever happens) will almost definitely see the break up of the U.K as a result and I'd much prefer to be under the wing of the EU than Boris Johnson.

    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.
    GeorgeBMac
  • Reply 15 of 27
    Keep dragging this out until Brexit finally happens, then Ireland will be be begging for Apple’s business there.
    How dare anyone question Apple ever, let's ban Ireland from visiting Cupertino. 
  • Reply 16 of 27
    h2ph2p Posts: 268member
    gwydion said:
    " with rules forbidding individual member states from offering companies benefits not available elsewhere in the EU."

    No, what is not allowed is offering benefits not available to other companies
    Thank you, gwydion! That is Exactly my comment. Otherwise a Member State would have 'zero ability' to set tax & incentive policies.
  • Reply 17 of 27
    gwydiongwydion Posts: 1,076member
    Keep dragging this out until Brexit finally happens, then Ireland will be be begging for Apple’s business there.
    What has to do Brexit with Ireland?
  • Reply 18 of 27
    bb-15bb-15 Posts: 269member
    Wikipedia has an informative summary of the case between Ireland, the EU & Apple titled;

    ”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;

    ”...i§ 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".”


    SpamSandwich
  • Reply 19 of 27
    crowley said:
    sacto joe said:
    larryjw said:
    Aside from legal fees, is the merely (though important) a case about legal interpretation of EU tax law, without real financial consequences for Apple, but real financial consequences for the EU.

    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. 
    Re escrow: I think Apple paid the old US tax and the old EU tax based on the old tax requirements. Technically, if the ruling goes in favor of the EU, it should be the US paying back Apple. 
    That presupposes that Apple repatriated any of the profit registered in the period in question.  It's not unreasonable to assume that a large part if not all it was kept overseas, outside of the US IRS jurisdiction.  Maybe some was brought back during the GWB tax holiday.
    That's a good point. The tax is held in abeyance until the cash is returned. Which also means that the cash will come under the new tax rules. Unfortunately, those are complex. I unraveled them once, and I'm pasting my conclusions from that time below. (Sources and additional reasoning also available, but pretty long winded.)

    --------

    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....
    edited August 16
  • Reply 20 of 27
    hexclockhexclock Posts: 594member
    cropr said:
    larryjw said:
    Aside from legal fees, is the merely (though important) a case about legal interpretation of EU tax law, without real financial consequences for Apple, but real financial consequences for the EU.

    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. 
    You do not understand the issue at stake.It is not about tax law and definitely not about the EU getting the tax money.   

    It is about anti competitive behavior of Ireland.  The court has to answer the question if Ireland has violated the competition rules in the EU by collecting only 0.05% tax money from Apple while all other companies in Ireland have to pay 12.5%.   Basically the EU commission accuses Ireland that it has used anti-competitive means (a special tax regime) to attract Apple to put its European HQ in Ireland. If Ireland loses (and most probably it will), Ireland will be forced to collect the unpaid taxes from Apple.  The money would go straight to the Irish budget.

    In any case the EU is not paid any money.

    A win-win for Ireland, I’d say. 
    edited August 16
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