On Monday, an angry Apple appealed against an August ruling by the European Commission ordering the company to pay Ireland some â‚¬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 â‚¬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?
As the man in charge, Cook might be able to wring his hands, wipe a tear from his eye and claim fiduciary duty and patriotism outweighed the rights of terrorists.
And think of the children.
But what if this was his plan all along, to have a bargaining chip against the gov’t who were never to going to accept his supposedly principled stance against weakening Apple’s encryption?