We already reported on this one yesterday, but it’s official now: after a preliminary investigation, the EU has accused Ireland of providing illegal state aid to Apple by means of Apple-specific low tax rates which the EU states do not conform to market standards. In addition, while there are certain specific cases in which state aid is legal, none of those seem to apply in this case. These cases cover things like aid to severely impoverished regions, natural disaster relief, important projects of common European interest, and similar things.
At this stage, the Commission considers that the measure at issue appears to constitute a reduction of charges that should normally be borne by the entities concerned in the course of their business, and should therefore be considered as operating aid. According to the Commission practice, such aid cannot be considered compatible with the internal market in that it does not facilitate the development of certain activities or of certain economic areas, nor are the incentives in question limited in time, digressive or proportionate to what is necessary to remedy to a specific economic handicap of the areas concerned.
Possible fines, which could run in the billions of euros, would be on Apple. So, unlike what some of our readers vehemently claimed – “There is no possibility of a fine upon Apple whatsoever” – Apple could very well end up paying billions of euros.
The Commission wishes to remind Ireland that Article 108(3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw your attention to Article 14 of Council Regulation (EC) No 659/199935, which provides that all unlawful aid may be recovered from the recipient.
This is only the beginning. Several other companies and countries – Google, Starbucks, The Netherlands, Luxembourg – are also under investigation, and will likely face similar proceedings in the near future.
Karma at work, there is always a reckoning, and Steve Jobs left Cook holding the bag.
but don’t forget the likes of Adobe and Microsoft also have nice little deals with the Dublin Government.
Yes, and if they too has colluded with the Irish government to receive illegal subsidies, they too should be forced to pay back and they too should be publicly called out.
This is not a Apple-vs-Microsoft-vs-Google-vs-Adobe thing.
This is EU taxpayers vs an Irish and Big Business conspiracy.
Disclosure: I live in Ireland.
First of all: I fully agree that this seems illegal.
Let’s get that out of the way, but I would like to put things a bit in perspective.
I think there is a bit of misconception here. The EU didn’t attack the 12.5 percent corporate tax rate here but the fact that Apple got individual preferential rates. And it certainly is not a subsidy from the Irish government.
Also I don’t think this has much to do with European taxpayers. If all countries in Europe would have the same corporate tax rate, more tax would come in for sure overall, but it still doesn’t mean that (in this case) Apple money would go to other EU countries except for the fact that Apple might relocate to another EU country.
Also the fact that in the 90’s Ireland got EU money is as far as I know true. But this was by design. Ireland in the early 90s was one of the poorest countries in Europe. Ireland hadn’t/hasn’t natural resources or a favourable location. Partly because of the low cost wages, partly because of the subsidies, partly because of the low tax regime, partly because of the relatively highly educated people, Ireland dug itself out of the bog (and went the other way). It’s hard to imagine but until 2007 there was only 1 dual carriage motorway in Ireland (between Dublin and Belfast). You could argue the subsidy worked. Note that afaik, no more nett EU money goes to Ireland.
So while I agree that it seems that the EU has a case, it is not because of low tax or subsidy. It is because Ireland is favouring one above others.
If people in other countries want to stop the Double Irish, I understand (note that for American companies the USA could easily change the rules too that make the Bermuda construction impossible, why are they not doing this? Same reason as Ireland!). But then I think we should also stop the Dutch Sandwich and tax havens like Luxembourg, Switzerland, Cayman Islands, Jersey, Monaco, etc, etc.
Edited 2014-09-30 12:52 UTC
Ireland takes EU money (mainly agricultural subsidies) and bribes foreign companies to set up in Ireland. Ireland have been operating this scam for decades. Without the EU subsidies Ireland would resemble Romania or Bulgaria.
This is factually false. Ireland spends more on the EU than it receives.
For instance even Wikipedia has figures on this:
https://en.wikipedia.org/wiki/Budget_of_the_European_Union
And if you refer to the EU bailout after the financial crisis happened in 2007: this is a money maker for the European bankers, all the billions lend to Ireland carry a high interest rate, all that money has to be repaid with little risk to the money lenders. Or do you think that money was free??
Ireland was destitute when it joined the EU in 1973. It took 20 years of milking EU subsidies to become prosperous.
The EU has sucked in so many destitute countries (Greece, Iceland, Portugal, Cyprus, Bulgaria, Poland etc) since then it would be virtually impossible for Ireland not to be a net wealth contributor.
But I’m glad we’re getting there finally. The most annoying thing of these schemes is how they create a disparity between citizens and companies. How convenient that a company can chose where to pay its taxes and haggle for better rates and regular citizens do not.
Not sure if this is companies vs. individuals. Rich individuals do this too.
When you are rich you can hire people to find the loop holes in tax systems and move your money to another country.
I am (relatively) poor and can’t afford to do this. But I would if I could (I think most people would). You may find that amoral but I don’t think it is. Governments should set the rules and if the taxpayer is within the rules than there shouldn’t be an angry mob complaining to the taxpayer that it isn’t enough but the angry mob should demand from the government to sharpen the rules.
Else it’s going to an eternal debate on what percentage of tax paid is morally right.
The problem is that governments are not willing to change the tax rules as the rich people/companies threaten to move to another country. A choice between receiving little money or none.
Apple might have to pay billions, but not as a fine but simply as taxes owed and not paid, possibly plus interest. Ireland might have to pay fines if they don’t comply = collect those taxes from apple.
Thank you for pointing this out, as this is basically what the comment which Thom called out in his post says.
I don’t know why Thom would want to so prominently draw attention to his failure to properly read the comment that he linked to…
A fine is different from balancing the books…
Edited 2014-09-30 13:55 UTC
More likely the local Irish operations of Apple (a separate company) will declare bankruptcy and avoid paying any money.
If there was new news to report… why not amend/update the story posted two posts down.
One might think this site likes to repeat negative Apple news.
You got me. Totally. That’s it. We like to report negative news about Apple and milk it for all it’s worth. It’s all part of a big conspiracy to bring down Apple’s stock and make Ive cry.
Goshdarnit you’ve exposed us. Whatever shall we do.
I didn’t make any such accusation…. but thank you for owning up to it regardless.
Edited 2014-09-30 16:03 UTC
did a reader say something wrong or differing from Thom’s own opinion? When will these people ever learn?lol,this is turning into the angry Thom show.
So a sovereign nation agrees to give Apple tax breaks, and it’s Apple that is going to be fined for it?
A sovereign nation who has signed a treaty which requires the sovereign state to adhere to the “inner market” rules.
Rules that are put in place to protect *other* sovereign states from rogue sovereign states leeching on their tax systems.
The sovereign state (of Ireland) can decide any corporate tax rate they want (but should expect diplomatic pushback from its peers).
But the sovereign state has agreed to a treaty where they are obliged to NOT interfere with the competition on EUs “inner market”.
It appears that this particular sovereign state has deliberately failed to tax certain companies in exchange for promises of HQ activities and job creation. That is interference with the inner market as it put competitors at a disadvantage.
If it can be proven that Apple deliberately and intentionally colluded with the Irish government to hide the arrangement, then yes, they would be criminals and should be fined massively for it.
However, that will probably be hard to prove. The real culprit is Irelands government who provably should have known better.
The most likely outcome for Apple will be that they will have to pay taxes owed, when taxes are calculated according to Irish law (12.5% corp tax, I believe) which *should* have been used in the first place.
And I can guarantee you that the rest of Europe is not going to look favorably to Ireland. Ireland has already ruffled feathers with the tax-haven practices. This is not going to improve their standing. Take that from an EU citizen.
If we are truly concerned with promoting “competition,” then that should apply to states as well, and favorable tax rates are really one of the few incentives to provide a firm to influence where it locates its headquarters. So there is as much of this about states within Europe not wanting to face tax rate competition from other European states, when there are large bureaucracies and welfare programs to pay for, as it is about real or perceived disadvantages for Apple’s competitors at the micro level.
And that is before you factor in the huge political pressure the U.S. is putting on Europe because it feels that it has a claim to every penny earned around the globe, whether it has already been taxed or not.
No.
It already is, whether you like it or not. It’s why totalitarian governments post guards at the borders, with their guns pointed inward instead of outward.
And this competition between states is not only allowed by the EU, it is encouraged!
But one have to follow the rules of the EU to be a member and reap the benefits.
What have that to do with anything? People who do tax evasion shouldn’t – if one wants to reap the benefits of being a citizen one should follow the rules and pay the taxes. If not one can choose to move to a country without taxes – yes, there are some.
The “I’m entitled to do whatever I want because I want it” rant is something best left to 5 yo kids…
That’s true and they wonder why the anti EU sentiment is growing in Europe.
The EU was supposed to promote cooperation and working together on stuff to prevent war and look at what we have…
I don’t know exactlty when the EU has gone full retard but I think that’s about when the UK entered (I’m not saying it’s related)
Edited 2014-09-30 21:05 UTC
What?
The EU was created for economical reasons and is essentially a forum for making trade between member states as free as possible in a regulated system.
This means that things like taxes are regulated between states – the VAT for example is IIRC to be at least 15% but can be higher (a number of countries have 25% general VAT). This means that there are advantages to move things to countries with lower VAT – but in general this is compensated by other local laws, availability of educated workers and things like transport costs.
The VAT is just one example of course.
So there will be competition between states and that have been the general idea from the beginning. Free movement between countries for both citizens, goods and corporations is also a natural fallout from the idea of an economic union.
No. That’s what the EU is now. It’s not what it was supposed to be from the beginning. The ECSC that began at the treaty of Paris was a a about preventing war. In the words of Shuman: “Not only make war unthinkable but also physically impossible.”
I think that’s when the UK joined that it started being about finance, finance, finance and kill anything that’s not finance.. The VAT bullshit was introduced in 2006. The ECSC started in 1951.
The EU is not supposed to be about finance only. There are student exchange programs, common defense policy, space agency, frontier removal, etc… Please pay attention when I say frontier removal I’m not talking about finance and competition! It means that there is no barrier and that citizens can travel and settle.
I believe that’s only in the UK and the US that they think the EU is only about trade and finance. Out of curiosity are you from there?
Edited 2014-10-01 12:00 UTC
kittynipples,
I feel individual states and counties should be free to differentiate their tax policies, but I am disturbed when government panders to corporate favoritism.
If a benefit is given to one company, it should be given to all companies. If the benefit cannot be given to all companies, then it shouldn’t be given to any of them. Exceptions to this rule should have very strong justification because legal favoritism is extremely anti-competitive.
In the mean time we have an American President claiming that it is unpatriotic for a firm to want to avoid paying taxes where it legally can. As if a strong desire to pay taxes has ever been a part of the political traditions of the United States.
I am not sure if anyone will be fined over this matter. It’s not the way State Aid rulings usually work, in state aid cases the EU just mandates that improperly-given state aid be repaid.
What usually happens is the EU says “we think State Aid rules have been broken†(the stage we are at in the Apple case). A back and forth of arguments and submission takes place involving both the alleged recipients of the state aid and the alleged donors. If after all that the EU says that it still thinks State Aid rules were breached it will also say how much state aid was wrongly paid and it is this amount that has to be repaid by the recipient (in this case Apple) to the public body deemed to have paid out the state aid (in this case Ireland).
In this particular case it seems quite a bit more complicated because this case involves an unusual use of the state aid regulations. Assuming the Irish tax system was deemed to have broken the regulations I cannot quite work out who would be paid what. If the EU says that some taxable income was shifted to the lower tax system in Ireland, and the lower tax is what constitutes the state aid, then I assume the EU would want Ireland to hand back to Apple the corporate tax it collected (because it should have been collected elsewhere at a higher rate) and then Apple would have to pay backdated tax to the UK government (or whatever the correct member state is deemed to have been by the EU) at a higher rate than was paid to Ireland. If that is in fact what happens then Apple will have to pay back dated new high taxes and Ireland will have to pay back a lesser amount of backdated tax to Apple. Both Apple and Ireland would be out of pocket.
An alternative possibility is that this ruling, if it stands, is used to leveraged a change to the corporate tax system in Ireland, perhaps applied retrospectively. If that happens then Apple would have to pay Ireland more tax for past activity. That to me seems potentially an explosive political outcome because it would represent a big increases in EU control of the corporate tax system, and that is a very hot potato indeed because control of the corporation tax system is a jealously guarded power of member states.
As this case was actually the opening salvo in an EU campaign against Ireland’s corporation tax system, a long standing bone of contention in the EU, I would expect a very strong response from Ireland. Almost the entire ‘Celtic Tiger’ economy was built on attracting inward investment through the inducement of lower tax and if that is now corroded by this state aid ruling it will pull the rug from under Dublin’s economic policy at a time when Ireland has still not recovered from the economic crash.
So – lots at stake. I expect an army of lawyers to be very busy on this but like almost anything of real import in the EU politics can trump the regulations.
Found an estimate that the cost to Apple could be $200 million in additional backdated taxes.
Source:
http://www.marketwatch.com/story/apple-may-owe-200-mln-in-back-taxe…
Alternatively Business Insider says the back dated tax bill could be $8billion.
Still only pocket change to them greedy sods anyway!
The first thing to learn about capitalistic society is that it’s Apple’s job to make money, and thus save as much as possible from taxes. They are beholden to their shareholders, just like any public company.
So it is their duty to shop for the best deal, and if they can get one then they have done their job. I don’t see any allegations of bribes here, so it seems that the Ireland government are the ones that have broken the law by offering the preferential tax rates. Funny how it’s presented as an “Apple breaks the law” story instead of a “corrupt Irish government breaks EU law”.
You are probably right but it’s our job to burn their shop when they do so. It may seem extreme but if you think about it we will have to do it anyway, when we collapse. Better now than then.
It makes no legal difference whether Ireland offered the tax breaks or not. Apple knowingly broke the law by accepting them.
The law applies to countries. Therefore Ireland broke the law.
Knowingly taking an illegal deal can also be illegal, even if you’re not the one proposing it, see e.g. selling/buying stolen goods. Dutch law, for instance, states that if you should reasonably expect that a good is stolen but you buy it anyway, you’re committing a crime.
I’m probably a bit cynic but the real issue is not Ireland’s Apple tax cut. That’s perhaps 8*10^9 dollars or so I heard. They will negociate and pay maybe 10% of that. Whatever, I’m not concerned about that.
Now let’s look at the real problem. The double Irish is in active use since the late 80’s. Apple was among the pioneers creating thie tax “structure”. We’re not talking about a few billions dollars but probably hundreds of billions of dollars. It’s in use since the 80’s. It’s done in plain sight. They boast to their shareholders about it and it’s in the news since the 80’s. It’s a huge middle finger they give to the tax paying citizens. Nothing has been done about it since more than 30 years, nothing is done now and nothing will be done in the future. We should storm their shops, take everything we can take and burn the rest.
Yes, wanton destruction of property and mob violence are the European way.
Edited 2014-10-01 17:06 UTC
Not only the european way, it’s the way of the world, mate.
Basically we are heading towards a global system of government where tax evasion is becoming impossible. It’s a good thing in general, as long as it’s tempered with the ability for new businesses to appear and grow.
Nothing more needs to be said.
So there will be no fines AND no finding that Apple actually commuted a crime.
At worse Apple would pay back a percentage of back taxes (a portion of 8 billion seems to be the number) and not admit to any guilt.
Sounds like another over blown story because Apple is big.
Next.
http://9to5mac.com/2014/09/30/apple-ireland-tax/
The EC has made no accusations of any sort against Apple or any other company. It’s not even implied any wrong doing on any companies part – you called these companies ‘criminals’ which was at best extreme hyperbole.
The letter is addressed to Irleand and the EC’s clear intention is – as I have said several times – to bring about political change on Ireland’s part.
This document further supports my assertion that no company is going to be found liable for any breach of law here.
Is Apple likely to have to pay the EU back the ‘state aid’ it received? I’ve absolutely no idea, but it’s certain no one will claim it committed any breach of law.