Linked by Thom Holwerda on Wed 21st Dec 2016 22:48 UTC

On Monday, an angry Apple appealed against an August ruling by the European Commission ordering the company to pay Ireland some €13 billion in back taxes, plus interest. Disappointingly, the Silicon Valley tech giant failed to address the fundamentals of the case, relying instead on a series of ad hominem attacks and procedural objections. If this is the best the company has to offer, it deserves to lose its case and pay its bills in full.

The problem for Apple (and Ireland) is that the company has no leg to stand on - so it has to resort to flat-out lies, like stating laws are being applied retroactively (not true - the treaties and laws applied are much older than this case) or that the case is unprecedented and Apple is being singled out (not true - dozes of companies all across the EU have been punished for the same thing) or that it's just anti-American rhetoric (not true - many of the punished companies are European).

What's even worse for Apple - this thing is a PR nightmare, at least here in Europe. In many European countries, we're used to relatively high taxes (compared to other parts of the world), so large corporations, be they American, European or otherwise, paying an effective tax rate of only 0,005 (no joke!), doesn't exactly sit well with European citizens.

It's really hard to swallow for people in a EU net contributor country like The Netherlands to see our tax money sent to Ireland in the form of bailouts - Ireland received a €64 billion bailout from the EU after the 2008 banking crisis - while Ireland then proceeds to illegally give Apple one of the biggest tax breaks in history. It's a little populist to frame it this way, but here it goes: I pay taxes to my government in the assumption they would go to maintaining services in my own country and all across Europe (I'd like other nations to come to our aid, too, if we were ever in such a position), while in reality, a part of it went to Tim Cook. That irks me.

Apple is not going to win this case. The EU's case is strong, detailed, and built on a solid base of legal precedent. And this brings us to Trump's meeting with technology leaders last week. During that meeting, Tim Cook also got some one-on-one-one time with Trump (and Elon Musk), something not all attendees were granted. When asked by Apple employees why Tim Cook attended the meeting, he had this to say (among other things):

We have other things that are more business-centric - like tax reform - and something we've long advocated for: a simple system. And we’d like intellectual property reform to try to stop the people suing when they don’t do anything as a company.

Apple has several hundred billion dollars sitting in foreign, non-US bank accounts. If it were to repatriate that money, Apple would have to pay the United States corporate tax, which amounts to about 39.6%. Apple obviously doesn't want to pay those taxes, so that's why it keeps its massive cash pile in foreign bank accounts.

Apple wants a tax holiday. It wants the US government to give Apple a special tax deal wherein it can repatriate those more than 200 billion dollars at a much, much lower tax rate, and with a Republican president, Senate, and House, such a deal seems a lot closer than it was before. However, the Trump administration is, obviously, not going to declare such a tax holiday out of the goodness of their hearts. This is politics, this is business; nothing comes for free.

This means Apple will have to give the Trump administration something it wants, and if you look at Trump's campaign, one of the first things that could come to mind is Apple bringing manufacturing back to the US. The problem here is that bringing manufacturing back to the US is a multi-decade undertaking of strengthening, improving, and expanding vocational education, construction of factories, and the development of brand new manufacturing lines (assuming it's even possible at all, which is a big assumption). Tim Cook can't just snap his fingers and magically recreate Foxconn in the US - this will take decades, and far outlive Trump's four-year or even eight-year term, at which point some other president will take credit for it.

Trump will want something else - and it's going to be Apple's cooperation in the fields of anti-terrorism and homeland security - big, big issues during Trump's campaign. During the campaign, Trump called for a boycott of Apple because the company refused to assist the FBI in breaking into a terrorist's iPhone. Admirably, Apple and Tim Cook took a very principled stand against it, standing up for encryption and user privacy.

And here we have it. I wouldn't be surprised if over the coming years, Apple will be forced to choose between a tax holiday for its 200+ billion dollars stored in foreign bank accounts on the one side, and encryption and user privacy on the other. How do you think shareholders will react when they hear Apple can repatriate more than 200 billion dollars at a very low tax rate... And all they have to do is give in on encryption and user privacy? Do you think shareholders will be able to resist that?

Do you think Tim Cook will be able to resist that?

The coming years will be a massive test for Apple and Tim Cook. How much is their loudly proclaimed morality - and by extension, that of their customers - worth?

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Member since:

What the EU is trying to do is retroactively alter the law so that a big chunk of the $30B would go to the EU instead of the US.

No - you're drinking the Tim Cook kool-aid. Nobody is retroactively changing anything. The law states that you have to pay corporate tax over the stuff you sell in - in this case - Ireland. Apple pipes all its sales in the EU through Ireland, so it should pay Ireland's corporate tax, which is about 12.5%.

In order to evade taxes, Apple and Ireland entered into an agreement to give Apple a special tax rate of almost zero. EU treaties and law in effect at the time of this deal makes it very clear that such deals are ILLEGAL, since they are a form of ILLEGAL state aid. Several other companies - inlcuding companies in The Netherlands and Belgium - have found themselves afoul of this exact same illegal form of tax-based state aid.

American taxes have absolutely nothing to do with this.

Reply Parent Score: 3

jonsmirl Member since:

Fine -- penalize Ireland for the $14B.

Apple followed the law that was in place at the time so it owes the taxes to the US. And Trump needs to stop the deferral merry-go-round and make Apple pay them.

Reply Parent Score: 1

Thom_Holwerda Member since:

Fine -- penalize Ireland for the $14B.

Apple followed the law that was in place at the time so it owes the taxes to the US.

No. That's not how tax law works. Even if your tax agency makes a mistake and charges you too little tax over 2016, you will still have to pay said back taxes at some point, whether you like it or not. That's no different for companies. Apple paid too little in taxes while partaking in a deal it could have known was highly illegal (such a large corporation with so many lawyers really can't claim it didn't understand the law - that would be pathetic).

So no, Apple will just have to pay up.

Reply Parent Score: 3

kristoph Member since:

No you are mistaken. The crux of the issue is that Apple didn't follow EU law. It made a deal with Ireland to abrogate that law on the assumption that this would trump EU law but - at least according to the EU - it doesn't.

Ireland and Apple argue that the Irish deal does trump EU law and the EU is reinterpreting the laws to punish them retroactively.

Both points have some merit. Apple and Ireland are clearly in violation of the EU laws in question but, on the other hand, Ireland has been doing this sort of things for decades giving at least the impression that the EU accepted its interpretation and now it doesn't ( which is fine, but in most countries they wouldn't do so retroactively).

Reply Parent Score: 5

Dubhthach Member since:

There was no deal though, instead a tax loophole was highlighted and a position of "if nobody talks about it we won't legislate to close the loophole"

Any company that had a competent tax accountant or was paying a Big 4 accountancy firm could use the same loophole in the law. There's reason why Microsoft, Cisco, Oracle, Google etc have their European HQ in Dublin and it's not due to fact that we are English speaking economy as some politicians like to claim.

As for the so called bailout. The Irish government wanted to burn the bondholders in Anglo-Irish Bank (the EU equivalent of lehman brothers), Trichet warned that a "bomb would go off in Dublin" if such a course of action occurred. Anglo-Irish bank as result cost the Irish state nearly €30billion, all because the ECB couldn't stand idea of a European bank going bust. (It's now been wound down anyways).

Given that Dutch and other European fishermen have taken guts of €200 billion in fish catch out of Irish territorial waters in the last 40 years it's bit rich moaning about been "Net contributor".

In any case there will be two separate court cases, one by the Irish government and the other by Apple, given that they'll take 3-5 years and with Brexit occurring in same time period, there's good chance that.

1. Ireland may consider leaving EU -- most of Irish trade will be with non EU states (eg. US and UK are two biggest markets)
2. EU could potentially implode.

The increasing possibility of a hard Brexit will full exist from custom union if anything increases the odds of future Irish exit hugely. Particularly as the implications of a hard-border on the island of Ireland could result in the collapse of the Northern Ireland peace process.

Edited 2016-12-23 19:50 UTC

Reply Parent Score: 1