According to Beard, Apple... is currently paying approximately $22 billion in US taxes on the profits that the Commission claimed should have been taxed in Ireland.
I thought Apple had stated this past fall that they would be paying $38B in repatriation taxes on those profits held overseas. This says $22B.
That would mesh with a financial article I was reading recently that said Apple (and others) would not actually be claiming some of the overseas revenue's and not paying repatriation taxes on them. I've no idea how the law on that works.
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.
I'm curious what you're referring to - what in the recent (U.S.) corporate tax law changes allows Apple to escape taxation by not realizing foreign profits for U.S. taxes? It just isn't clear to me what you're talking about. So I'm interested for more detail so I can understand your meaning.
That said, how the U.S. taxes foreign earnings has certainly changed. Generally speaking we tax it at a lower rate than we used to. There's, in effect, a minimum tax level depending in part on the nature of the earnings. In many cases no U.S. income taxes would be due on foreign earnings because we have, to some extent, moved away from the extraterritorial taxation scheme which we had (and which many other developed economies had already moved away from). But we still, unfortunately I think, presume in many cases to impose income taxes on foreign earnings of domestic corporations.
To be clear though, whether a corporation repatriates earnings doesn't really matter now as it did before. For instance, regardless of whether Apple chose to repatriate all of the foreign earnings which had been held by foreign subsidiaries, because of the recent tax law changes it would have to pay U.S. income taxes on those earnings. They are effectively deemed-repatriated.
The problem is that Ireland abused the union by working as a tax haven for multinationals and giving itself unfair advantage over other union countries within the union and at the union level loss of tax money.
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?
Exactly. Apple paid all the taxes it was required to according to Irish law. If the law was bad, make Ireland change it and pay a fine. How can you fine a company retroactively because it took advantage of a law that may have been unfair, but was a law nonetheless? Besides, where was the EU all those years that this went on??
This is not a fine.
You think you misread @fred1's comment - I think he's suggesting that Ireland should pay a fine to the EU for writing a law that's bad. Not sure that's feasible, but I agree with the sentiment that Apple didn't do anything wrong - at least nothing that was shown by the commission ordering the tax backpay. @Carnegie's comment explains it better than I could.
Actually I misspoke (miswrote?). But I stand by the concept: paying an increase in taxes even when all taxes required by law were paid is wrong. Revise the tax law and collect taxes from then on based on the new tax. If the laws had been different “back then”, Apple would have acted differently. Can Apple say that the iPhone 5 should have cost $2000 and force everyone who bought one to pay the difference? 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)
Gatorguy is right that this, nominally, wasn't a fine. But speaking practically it was.
We aren't really talking about Ireland being forced to collect unpaid taxes. Apple had paid the taxes which were rightfully due under Ireland's tax laws. This was the Commission effectively telling Ireland that its tax policies should have required Apple to pay more in taxes, and then ordering Ireland to collect something closer to the amount that the Commission thought would have been appropriate. The Commission, of course, frames its actions differently. It has to in order to paint over the reality that it doesn't have the rightful authority to do what it did.
I believe the EU rationale for their legal actions is based on this principle, no doubt enshrined in the EU fundamental agreement:
"We need money. They have money. Let's get some."
Just what exactly is “the EU fundamental agreement”?? I assume you mean “argument” and not “agreement”, but how is this an EU policy (and not one of every government everywhere?)
On the face of it this doesn't sound like a solid defence. The devil will be in the details.
'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.
Conversely your not being convinced means precisely bupkus
oh no the defender of all things Apple has spoken, expect a bonus from Tim Cook this xmas.
On the face of it this doesn't sound like a solid defence. The devil will be in the details.
'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.
Stay cynical buddy, there are only a few of us commenting so, however beware of the Apple apologist and explain-away-ers, they will attack you and tell you to only read Samsung blogs. They seldom leave a comment unless its to attack someone else.
Exactly. Apple paid all the taxes it was required to according to Irish law. If the law was bad, make Ireland change it and pay a fine. How can you fine a company retroactively because it took advantage of a law that may have been unfair, but was a law nonetheless? Besides, where was the EU all those years that this went on??
Because that Irish law was illegal , with respect to higher level EU law, to which Ireland has accepted to comply with, by being a EU member, just like all others (at least this is the issue discussed at this trial) (the "crux of the biscuit", as FZ would have said)
I'm imagining that Apple legal tried very hard to push the letter of the law as far as they possibly could while still following the law. We know from the horse's mouth that this is how Apple legal operates:
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.
The issue isn't whether Apple broke the law. With regard to this situation, there's no question that Apple didn't break the law. It did what countless entities (including individuals and corporations) around the world have done in the face of complicated or not-detailed-enough tax laws: It asked the entity empowered to enforce those laws for more clarity on how those tax laws would apply to a given situation - e.g., when figuring out our tax liability, can we do X?
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.
Thanks for the all the detailed post -- very informative!
I must say, though, I'm a little skeptical regarding this statement:
With regard to this situation, there's no question that Apple didn't break the law. It did what countless entities (including individuals and corporations) around the world have done in the face of complicated or not-detailed-enough tax laws: It asked the entity empowered to enforce those laws for more clarity on how those tax laws would apply to a given situation - e.g., when figuring out our tax liability, can we do X?
If it were as slam dunk obvious as you suggest, then how could there be a lawsuit? Nobody goes to court when the outcome is as certain as you are suggesting here.
I'm not a lawyer, but I'd be surprised if regulatory guidance from an agency can be used as a get out of jail free card. Agencies can make mistakes (honest or otherwise) in their guidance. I can't believe any legislature would tolerate such mistakes being used to thwart its intent.
I'm still saying this is 50-50. I don't think it's going to be a slam dunk for either side. But we'll see!
According to Beard, Apple... is currently paying approximately $22 billion in US taxes on the profits that the Commission claimed should have been taxed in Ireland.
I thought Apple had stated this past fall that they would be paying $38B in repatriation taxes on those profits held overseas. This says $22B.
That would mesh with a financial article I was reading recently that said Apple (and others) would not actually be claiming some of the overseas revenue's and not paying repatriation taxes on them. I've no idea how the law on that works.
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.
I'm curious what you're referring to - what in the recent (U.S.) corporate tax law changes allows Apple to escape taxation by not realizing foreign profits for U.S. taxes? It just isn't clear to me what you're talking about. So I'm interested for more detail so I can understand your meaning.
That said, how the U.S. taxes foreign earnings has certainly changed. Generally speaking we tax it at a lower rate than we used to. There's, in effect, a minimum tax level depending in part on the nature of the earnings. In many cases no U.S. income taxes would be due on foreign earnings because we have, to some extent, moved away from the extraterritorial taxation scheme which we had (and which many other developed economies had already moved away from). But we still, unfortunately I think, presume in many cases to impose income taxes on foreign earnings of domestic corporations.
To be clear though, whether a corporation repatriates earnings doesn't really matter now as it did before. For instance, regardless of whether Apple chose to repatriate all of the foreign earnings which had been held by foreign subsidiaries, because of the recent tax law changes it would have to pay U.S. income taxes on those earnings. They are effectively deemed-repatriated.
The "repatriation" involves two different rates: Pure cash at 15.5% and non-liquid assets (research, offices and other corporate facilities, equipment, copyrights and patents, etc.) at 8%. The non-liquid portion is actually the greater part of it. Companies will also be allowed 8 years to pay it, roughly 1%/year for non-liquid.
A quirk in the law also allowed a company like Apple to take advantage of the 9 month difference between their fiscal year and the IRS calendar year to find ways to move more cash over into the non-liquid category. The same rule works to the disadvantage of a company like Alphabet whose fiscal year matches to a calendar year giving them little opportunity to move pure cash into less liquid assets. They would be pretty well locked into the 15% rate.
I suspect that's how Apple went from estimating $38B in tax obligations for the cash held "overseas" (in New York banks) announced at the time the legislation passed, to a revised $22B today as I'm reading it, and according to Apple executives.
IMHO taxes of $22B on $280B plus in profits, and payable over a period of 8 years (surely Apple can realize 1% returns on less liquid asset investments) make it effectively escaping taxation relatively speaking.
My understanding is a bit better than it was at the time of the initial post tho. I had thought undistributed funds still mattered, but not really. I was also totally unaware companies had almost a decade to continue earning profit from investing the not-yet paid tax bills that will eventually be due. Yay for repatriation. /s That'll teach those multinationals that they are not too big to pay taxes just like the rest of us.
That still ignores some apparent issues with the new "repatriation" tax will continue to encourage to movement/holding of profits to foreign accounts. the following article is probably a bit over-dramatized but not without it's feet planted in tax facts. https://prospect.org/article/tax-act-actually-promotes-shore-tax-tricks
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That said, how the U.S. taxes foreign earnings has certainly changed. Generally speaking we tax it at a lower rate than we used to. There's, in effect, a minimum tax level depending in part on the nature of the earnings. In many cases no U.S. income taxes would be due on foreign earnings because we have, to some extent, moved away from the extraterritorial taxation scheme which we had (and which many other developed economies had already moved away from). But we still, unfortunately I think, presume in many cases to impose income taxes on foreign earnings of domestic corporations.
To be clear though, whether a corporation repatriates earnings doesn't really matter now as it did before. For instance, regardless of whether Apple chose to repatriate all of the foreign earnings which had been held by foreign subsidiaries, because of the recent tax law changes it would have to pay U.S. income taxes on those earnings. They are effectively deemed-repatriated.
Gatorguy is right that this, nominally, wasn't a fine. But speaking practically it was.
We aren't really talking about Ireland being forced to collect unpaid taxes. Apple had paid the taxes which were rightfully due under Ireland's tax laws. This was the Commission effectively telling Ireland that its tax policies should have required Apple to pay more in taxes, and then ordering Ireland to collect something closer to the amount that the Commission thought would have been appropriate. The Commission, of course, frames its actions differently. It has to in order to paint over the reality that it doesn't have the rightful authority to do what it did.
"We need money. They have money. Let's get some."
Stay cynical buddy, there are only a few of us commenting so, however beware of the Apple apologist and explain-away-ers, they will attack you and tell you to only read Samsung blogs. They seldom leave a comment unless its to attack someone else.
I must say, though, I'm a little skeptical regarding this statement:
If it were as slam dunk obvious as you suggest, then how could there be a lawsuit? Nobody goes to court when the outcome is as certain as you are suggesting here.
I'm not a lawyer, but I'd be surprised if regulatory guidance from an agency can be used as a get out of jail free card. Agencies can make mistakes (honest or otherwise) in their guidance. I can't believe any legislature would tolerate such mistakes being used to thwart its intent.
A quirk in the law also allowed a company like Apple to take advantage of the 9 month difference between their fiscal year and the IRS calendar year to find ways to move more cash over into the non-liquid category. The same rule works to the disadvantage of a company like Alphabet whose fiscal year matches to a calendar year giving them little opportunity to move pure cash into less liquid assets. They would be pretty well locked into the 15% rate.
I suspect that's how Apple went from estimating $38B in tax obligations for the cash held "overseas" (in New York banks) announced at the time the legislation passed, to a revised $22B today as I'm reading it, and according to Apple executives.
IMHO taxes of $22B on $280B plus in profits, and payable over a period of 8 years (surely Apple can realize 1% returns on less liquid asset investments) make it effectively escaping taxation relatively speaking.
My understanding is a bit better than it was at the time of the initial post tho. I had thought undistributed funds still mattered, but not really. I was also totally unaware companies had almost a decade to continue earning profit from investing the not-yet paid tax bills that will eventually be due. Yay for repatriation. /s
That'll teach those multinationals that they are not too big to pay taxes just like the rest of us.
That still ignores some apparent issues with the new "repatriation" tax will continue to encourage to movement/holding of profits to foreign accounts. the following article is probably a bit over-dramatized but not without it's feet planted in tax facts.
https://prospect.org/article/tax-act-actually-promotes-shore-tax-tricks