Apple argues that $14.4B EU tax order 'defies reality'
Apple has begun its appeal against the European Union's ruling that required it to pay Ireland $14.4 billion in back taxes, saying the EU order was flawed.
Apple's Irish headquarters
Luca Maestri, Apple's Chief Financial Officer, and five legal colleagues, are at the European Union General Court, to appeal against the EU's previous ruling that forced it to pay Ireland $14.4 billion in back taxes. Apple's argues that the tax order was based on erroneous assumptions and, as such, "defies reality and common sense."
According to Reuters, Apple lawyer Daniel Beard spoke in court and said that the ruling presumed that the company's Ireland operation was involved in work such as the development of devices such as the iPhone and iPad.
"The Commission contends that essentially all of Apple's profits from all of its sales outside the Americas must be attributed to two branches in Ireland," said Beard. "The branches' activities did not involve creating, developing or managing those rights."
"Based on the facts of this case, the primary line defies reality and common sense," he continued. "The activities of these two branches in Ireland simply could not be responsible for generating almost all of Apple's profits outside the Americas."
Beard also addressed previous criticism of Apple's having paid 0.005% tax by accusing the European Commission of looking to make "headlines by quoting tiny numbers."
According to Beard, Apple has not tried to escape paying taxes, it has been paying them globally. Apple pays on average 26% tax globally, he claimed, and is currently paying approximately $22 billion in US taxes on the profits that the Commission claimed should have been taxed in Ireland.
Referring to previous testimony made by Ireland, which agrees with Apple, Beard said that the Commission's ruling damages businesses.
"As Ireland has already emphasized," he said, "it undermines legal certainty if state aid measures are used to retrofit changes to national law... and legal certainty is a key principle of EU law; one upon which businesses depend."
"Some may want to change the international tax system," he continued, "but that is a tax law issue - not state aid."
Apple's Irish headquarters
Luca Maestri, Apple's Chief Financial Officer, and five legal colleagues, are at the European Union General Court, to appeal against the EU's previous ruling that forced it to pay Ireland $14.4 billion in back taxes. Apple's argues that the tax order was based on erroneous assumptions and, as such, "defies reality and common sense."
According to Reuters, Apple lawyer Daniel Beard spoke in court and said that the ruling presumed that the company's Ireland operation was involved in work such as the development of devices such as the iPhone and iPad.
"The Commission contends that essentially all of Apple's profits from all of its sales outside the Americas must be attributed to two branches in Ireland," said Beard. "The branches' activities did not involve creating, developing or managing those rights."
"Based on the facts of this case, the primary line defies reality and common sense," he continued. "The activities of these two branches in Ireland simply could not be responsible for generating almost all of Apple's profits outside the Americas."
Beard also addressed previous criticism of Apple's having paid 0.005% tax by accusing the European Commission of looking to make "headlines by quoting tiny numbers."
According to Beard, Apple has not tried to escape paying taxes, it has been paying them globally. Apple pays on average 26% tax globally, he claimed, and is currently paying approximately $22 billion in US taxes on the profits that the Commission claimed should have been taxed in Ireland.
Referring to previous testimony made by Ireland, which agrees with Apple, Beard said that the Commission's ruling damages businesses.
"As Ireland has already emphasized," he said, "it undermines legal certainty if state aid measures are used to retrofit changes to national law... and legal certainty is a key principle of EU law; one upon which businesses depend."
"Some may want to change the international tax system," he continued, "but that is a tax law issue - not state aid."
Comments
'Apple currently pays' comes over as a PR message. The problem is not what Apple currently pays but what it paid in the past.
Mentioning the 'small numbers' really says little about what the numbers really were
according to Apple and almost in the same breath mentions reality and common sense. What is reality? Surely common sense tells us that those low numbers shouldn't be that low (even if reality is a little higher).
Perhaps I'm just being over cynical but these statements haven't convinced me at this very early stage.
I don't expect Apple to win this case, but it should easily win it. Ireland is allowed to have the tax policies it wants, even if those policies are disfavored by the entire rest of the EU. This was not, as the Commission superficially alleges, a special deal (contrary to Ireland's generally applicable tax policies) which Apple was given. I've yet to find anyone who can identify what specifically Apple was allowed to do, in figuring its Irish taxes, which is contrary to Irish tax policy. The Commission's decision didn't identify any such thing.
The reality is that the Commission's qualms are with some of Ireland's unusual tax policies (which have since been changed) and the undesirable, in the Commission's view, results which they can, intentionally from Ireland's perspective, lead to. But the Commission doesn't have rightful authority to punish Ireland for those tax policies. So it pretended that it was going to demonstrate that Apple was allowed to violate those policies. That, however, is something it never did. It merely demonstrated that Ireland's tax policies are unusual (and disfavored by many) and lead to undesirable (in the Commission's view) results. Then it made the superficial assertion that it had demonstrated that Apple was allowed to do something otherwise not allowed by Irish tax policy.
The Commission's argument essentially boils down to this: Ireland's interpretation of its own tax policies would mean that Irish law allows for tax accounting methods which most of the developed world thinks are bad. And although Ireland would be free to have such laws and policies, we think the results of such policies are so out of line with what the rest of us think should be allowed that Ireland couldn't possibly have chosen those policies. So Ireland can't really have interpreted its own tax policies in the way it claims to have interpreted them. Yes, it would be free to have those policies and enforce those interpretations thereof, but we think those policies are so bad that Ireland wouldn't have actually chosen them. Never mind the fact that Ireland says that it did choose them.
The real issue was the unusual aspect of Irish tax law which only required that Irish income taxes be paid on the profits attributable to the Irish branches of domestic corporations. Irish income taxes didn't, at least in some circumstances, have to be paid on profits attributable to non-Irish branches of Irish corporations. But that unusual policy was clearly the chosen law of Ireland, so the Commission couldn't - as much as it might have wanted to - punish Ireland for that policy. So it tried to build a case around how Apple was allowed to allocate profits between non-Irish and Irish branches of Irish corporations. The problem is, there wasn't a legitimate case to be made on that issue. There's no there there in the Commission's decision. It's never able to demonstrate that the methods used to allocate profits were contrary to Irish tax policies in general. In what way does Irish law (or prior interpretations thereof) prohibit costs-plus-a-percentage as a way of determining the profits fairly attributable to a related party? That may not be the EU's preferred method for determining such profits, but under some circumstances its a reasonable method for doing so. More to the point, it doesn't seem to be a method which Irish law doesn't allow.
If I had to bet, I'd bet that Apple ultimately loses this case. But, if it does, that result will evince substantial disregard for the rule of law. The attitude is... to hell with the rules we've agreed to abide by, we should exercise power arbitrarily if we need to in order to achieve the results we think are proper. That impulse is understandable, or at least expected. It's always been strong; that's part of why the rule of law developed as a foundational ideal in come societies. But we shouldn't countenance indulgences of that impulse, even when given indulgences lead to results which we favor. It's dangerous. And it's wrong.
Long live Brexit 😎
I have to pay back taxes if I pay too little. So does everyone around the globe even after a long time. Why do companies deserve special treatment even if their income is ridiculous amounts of money?
EDIT: Read up on the law some more and no Apple, Google, etc would not be obligated to repatriate all their overseas profits. They can still escape taxation (for the most part) on the majority of the the overseas profits where they've chosen not to realize them for US taxes, and very often not in the countries where the buyer resides either. Thus we have countries like France and Italy taking things into their own hands.
https://appleinsider.com/articles/19/06/10/tim-cook-supported-apples-legal-team-after-very-ugly-ibooks-lawsuit
When you follow that course, you will sometimes make mistakes and end up breaking the law.
On the other side, we've got the EU, which really is a pretty new entity that doesn't have as long a track record as dealing with the realities of a complex legal and regulatory system, including balancing EU laws/regulations with those of national governments. The EU is kind of where the US would have been in, say, 1840, IF the US had stayed under the Articles of Confederation rather than the US Constitution (that is, an arrangement in which the central government was much weaker relative to the states).
So, given how Apple operates, and given that the EU is kind of a newbie to being a "government", I view the probability that Apple genuinely broke the law here as about 50-50. In other words, it's easy to imagine either side screwing up.
A fractured Western Europe and Atlantic alliance is exactly what Putin wants.
And if Ireland acted illegally in creating its corporate tax structure, then punish Ireland, not Apple (or Starbucks, or any of the other corporations that benefitted from it legally)
This bit below the article is where you give your opinion. Not somebody else's.
The only people that know what is going on and in what circumstances are the parties involved. We are merely spectators with opinions.
May the poor billion/millionaires at the top of the board, and top share holders, be blessed with the best of luck in surviving this extremely difficult time and get through this horrific risk to their livelihoods... [yes, extreme sarcasm mode]
In the U.S. we call it a private letter ruling (from the IRS). In Ireland they call it an advance opinion (from the Revenue Commissioners). In other jurisdictions it might be called something else. But it is the way in which people can get clarity - from the horse's mouth, so to speak - on how relevant tax laws would apply to their particular situations. You ask the appropriate taxing authority about X, Y, or Z, and it gives you its interpretation of the laws which it is empowered to enforce.
Apple did that and then, by all accounts I'm aware of, acted in accordance with what it had been told by the Irish taxing authority. So it complied with Irish tax law as such law was interpreted by Ireland. It didn't (as relevant here) just guess or push the limits of what it might be able to get away. It asked what it was allowed to do. Having been told what it was allowed to do, by the entity responsible for such things, it would have had no good reason to think it wasn't allowed to do what it did.
The issue is that some in the EU thought that Ireland's interpretation and implementation of its own tax laws gave Ireland an unfair advantage when it came to attracting business. But there was little they could do about that because, per EU rules, Ireland was free to have such tax policies. So the Commission claimed that when it came to Apple, Ireland hadn't actually interpreted its own tax laws but rather given Apple a special deal which allowed Apple to do things which otherwise wouldn't have been allowed under Irish tax laws. The problem is, the Commission couldn't demonstrate that what Apple was allowed to do was actually contrary to Irish tax laws.
The core of the issue is the method used to allocate profit (for tax accounting purposes) between related parties - in this case between the non-Irish branches and the Irish branches of Irish corporations. Oversimplifying a bit: Ireland allowed Apple to use a cost-plus method to do that. It figured out the expenses of the Irish branches and then assigned it a certain amount of profit on top of those expenses. Frankly, considering the relatively rudimentary functions that the Irish branches fulfilled, that's a fairly reasonable way of determining profit allocation between related parties. Regardless, it's what Ireland said was allowed. That, rather than whether its a reasonable method, is what matters here.
The Commissions' justification for its finding that Ireland had given Apple a special deal, rather than just interpreting how its own tax policies might apply to Apple's situation, is basically this: We (and many other smart people) think Ireland's supposed interpretation of its own tax policies would make for really bad tax policies and (in combination with other Irish tax policies) lead to (what we'd consider to be) undesirable results. So, because we think Ireland's tax policies - as it claims to have interpreted them - are bad, we don't think Ireland actually would have interpreted them in that way. So it's lying when it says it did interpret them that way. To be clear, Ireland had the right to interpret them that way if it wanted to. We can't stop Ireland from, or punish Ireland for, having such tax policies. But it can't have actually had those policies which it claims it did. It had to have had the tax policies (as interpreted) which we think would have made more sense, and then given Apple special treatment contrary to them.
That's it. The Commission, in essence, argued that Ireland wouldn't have interpreted its own tax policies the way Ireland claims to have because the Commission (and others) think that would have made for bad tax policies. Wahla! The Commission thereby demonstrated that Ireland was lying about its own interpretation of its own tax policies and had given Apple a special deal.
To quote an old Wendy's commercial: Where's the beef?
The answer is, there isn't any. The Commission didn't demonstrate that the accounting method Apple was allowed to use was contrary to Irish tax law and policy. It just pretended that it had demonstrated that.