Ireland ordered to recover €13 billion from Apple #longpost
In times like this, Irish news sources tend to circle the green wagons and pretend that the facts are nothing more than malicious gossip. So let's go to the primary sources.http://europa.eu/rapid/press-release_IP-16-2923_en.htm
EU Commissioner for Competition press release: State aid: Ireland gave illegal tax benefits to Apple worth up to €13 billion
The first thing to notice is that it should be a lot more than €13 billion, but the inquiry is not allowed to order recovery from before 10 years before the investigation. The Irish Government is telling everyone that the 10-year limit is far too long.
The next thing is the narrow scope of the ruling. The Commissioner noted that Apple has been booking sales in Ireland which had nothing to do with Ireland. However, the ruling officially disregarded this, as "outside the remit of EU state aid control". The Commissioner also noted the shockingly low rate of tax that Ireland's deal allowed Apple to pay: "0.005% in 2014, which means less than 50 euros in tax for every million euro in profit".
However, the ruling didn't take any issue with Ireland's ability to offer such tax bargains.
Instead, the ruling was focused on the special exemption from the "arm's length principle":
the rule that corporations must be treated as equals before the law, able to make deals with one another as if they were independent businesses. The exemption allowed Apple to assign almost all of its operating profits to its IRNR, instead of to its sales branch which was supposedly earning the income. The sales office was liable for tax at 12.5%, but the "head office" had the deal allowing them to pay 0%. (Yes, zero.) The Commissioner ruled that because the allocation of profits didn't follow economic reality,
it was fraudulent and allowed Apple to pay less tax than other companies.
A brief explanation of IRNRs is in order. An Irish-Registered Non-Resident
company is a company which is registered in Ireland but not liable for paying tax in Ireland because its board meetings happen somewhere else. It's used as part of tax scams, because other countries' tax authorities regard the IRNR as paying tax in Ireland, and so IRNRs get to avoid being taxable anywhere. (Details: http://www.mondaq.com/ireland/x/5079/Incorporation+Of+Irish+NonResident+Companies
The IRNR "loophole" was allegedly closed in 2015 when it hit mainstream headlines around the world, but the closure was a sham. The new rules have an exception for countries that Ireland has a tax treaty with. Malta and the UAE are such countries, and they also tolerate the taxable-in-country-of-board-meetings standard. For most affected companies, flying to Malta is more annoying than flying to the British Virgin Islands, but the benefit of the scam is enough to make it worth it. According to the Commission's ruling, Apple's IRNR's "activities consisted solely of occasional board meetings". (Details: http://www.natlawreview.com/article/death-double-irish-dutch-sandwich-not-so-fast-re-irish-incorporated-non-resident-com
In an ingenious moment of Eristic scheming, the Commissioner suggested that other European countries (and the USA, and India) could fight over the €13 billion. "other countries, in the EU or elsewhere, can look at our investigation. If they conclude that Apple should have recorded its sales in those countries instead of Ireland, they could require Apple to pay more tax locally. That would reduce the amount to be paid back to Ireland. The amount to be paid back to Ireland would also be reduced if the two companies were required to pay larger amounts of money to their US parent company"
Considering that the basis of the Irish deal is that it allows the diversion of tax revenue away from other EU states, it would be very satisfying if it is clawed back by those other EU states. There's a certain moral hazard in the idea that Ireland could benefit from being caught cheating.
At the Guardian, +Simon Bowers
suggested that the Commissioner's approach may backfire by provoking "powerful vested interests". (https://www.theguardian.com/business/blog/2016/aug/30/ireland-gets-an-apple-windfall-but-tackling-tax-avoidance-just-got-harder
). The same outlet reported Apple's apparent confidence that the ruling will be reversed by the courts after a long legal battle; and, bizarrely, that the US treasury is apparently outraged by the ruling (https://www.theguardian.com/technology/2016/aug/30/order-back-taxes-overturned-apple-shareholders
). It seems that Apple may be able to write off its EU tax against its US tax! There are many worms in this apple, it seems.
Naturally, the Irish Government is anxious that its credibility in offering sweetheart deals should be protected as far as possible. The state-owned broadcaster RTÉ reported (http://www.rte.ie/news/2016/0830/812819-apple-tax-ireland/
) that the Apple companies "were controlled in the US where they held their board meetings" (the Commissioner's ruling was clear that the Apple IRNR "was not based in any country and did not have any employees or own premises"). RTÉ also interviewed Fianna Fáil's finance spokesperson who "said he did not see any economic rationale or legal basis for the commission basing its report on the assumption that up to 60% of Apple's global profits for a decade should have been solely taxed in Ireland." (That wasn't the basis.)
Sure enough, the US treasury is on the side of letting Apple get away with it, out of fear that Apple may find a way to write it off against US tax, or "a transfer of revenue from US taxpayers to the EU" as the White House press secretary put it (http://www.rte.ie/news/2016/0830/813036-white-house-apple/
). Considering that the back taxes would be paid out of the colossal pile of money that Apple has intentionally not
repatriated to the US, it's hard to see how this is a permissible write-off. I would suggest that the US refuse to compensate Apple' Inc. for the back taxes of Apple Sales International. After all, they're different companies, right? It's bizarre that the US would be on the side of Apple; this kind of tax dodging (or "legitimate multinational tax planning", if you prefer) harms the US taxpayer more than anyone else.
I'll finish with this quote from a director of the Tax Justice Network: “Apple illustrates the harm caused by tax wars between nation states. The sheer trickery of their tax arrangements renders their claims to corporate social responsibility risible, and the economic harm caused by these arrangements is also enormous. Despite their sitting on record levels of unspent cash reserves, Apple directors and their tax advisers have been cheating taxpayers around the world of billions of tax dollars. The world urgently needs a new framework for international cooperation to block countries like Ireland and Luxembourg from engaging in tax wars which harm democracy and cause untold damage to the quality of economic development.”