[Cap'n Tightpants]

Apple must pay up to $14.5 billion in unpaid taxes to Ireland | The Verge

Did Ireland have the legal right to make a sweetheart tax deal with Apple? (Being part of the EU.) Was it ethical for Apple to negotiate such a deal in the first place?

Apparently they'll now be required to pay all the amount that the EU believes is "past due", and pay a significant penalty on the amount they are in arrears. The last part is what really bugs me; if it was a lawful agreement, how can Apple be assessed a penalty?

More: Forbes Welcome

[P]

It is posturing. The equivalent of the FTC says that Ireland gave Apple (and by extension a lot of other multinationals like Google, MS, Oracle and Facebook) state aid. Ireland says that they disagree, so the case will go to court. The Irish law that is the center of this dispute has been repealed, with a grandfather clause that lets people keep up the old arrangement until 2020. There is no way in H, E, double hockey sticks that the EU courts decide the case before then, but at some point they will, and then we will know the answer to your first question.

Note that Vestager's term is up in 2019, so she likely won't see the end of this case either.

The second question is easier: no, it wasn't ethical. I don't expect corporations to be ethical about this sort of thing, though.

The background to all of this is that certain EU states are competing for tax income by having the lowest rates on some things, and this is becoming unsustainable. Ireland sets a tiny tax rate and gets to apply it to a very large amount, which makes it a win-win for them and the corporations but lose for everyone else. The commission is finally doing something about this. There have been similar cases against other corporations and other member states, and they also cracked down on the tax base shopping that was going on with VAT on digital goods a year or so ago (short version, everyone who sold digital goods did so from Luxembourg which had a 3% VAT on digital sales, so the rules were changed into having to charge the VAT in the buyer's jurisdiction, the same way it works with physical goods). Ireland in particular has no friends in the EU right now - they were bailed out by the Eurozone members after the banking crash, and yet they continue to have a very low corporate tax rate and is very slow in phasing out rules like the one that allowed the Double Irish.

The question whether this is legal is very murky. I would lean towards Ireland's interpretation on this. The state aid accusation relies on the idea that this is a tax rate that is not available to everyone, because you have to be able to set up multiple corporations in the Carribean etc. That is a very weak argument to me. We'll see what the courts say (eventually).

Apple will not have to pay a penalty. They may have to pay interest, which can be punitive when governments get to set the rates, but I believe that that is also up to Ireland.

[OreoCookie]

Originally Posted by Cap'n Tightpants 

Apple must pay up to $14.5 billion in unpaid taxes to Ireland | The Verge

Did Ireland have the legal right to make a sweetheart tax deal with Apple? (Being part of the EU.)

No, they can be considered a breach of anti-trust regulations, because such agreements give undue advantages to companies. Of course, this assessment will be tested by the courts. But it isn't the first time such an assessment has been made. The idea here is that the deal Apple gets is not available to all other businesses, and hence, puts other companies at a disadvantage.

Originally Posted by Cap'n Tightpants 

Was it ethical for Apple to negotiate such a deal in the first place?

Let's forget about ethical, I don't even think it was smart to come to such an agreement with Ireland (whose corporate tax rate is really low anyway) and expect to get away with it. Apple expected to get away with an effective tax rate of 0.005 %. That is bound to attract the attention of the European Commission's anti-trust branch.

Originally Posted by Cap'n Tightpants 

Apparently they'll now be required to pay all the amount that the EU believes is "past due", and pay a significant penalty on the amount they are in arrears. The last part is what really bugs me; if it was a lawful agreement, how can Apple be assessed a penalty?

If the agreement were lawful, Apple wouldn't have to pay up anything. If it wasn't how does that change your assessment?

[Waragainstsleep]

I thought Ireland refused the bailout offers.

I don't get the argument that no-one else can do what Apple did either. How hard can it really be to register a few companies? Maybe an independent market stallholder couldn't do it, but Microsoft and the other guys are in Ireland for the same reason Apple is.

[Cap'n Tightpants]

Originally Posted by Waragainstsleep 

I thought Ireland refused the bailout offers.

They accepted, and then paid off the IMF loan, and then refused a later offer.

[Doc HM]

Originally Posted by Waragainstsleep 

I thought Ireland refused the bailout offers.

I don't get the argument that no-one else can do what Apple did either. How hard can it really be to register a few companies? Maybe an independent market stallholder couldn't do it, but Microsoft and the other guys are in Ireland for the same reason Apple is.

You can register as many companies as you like. You'll NEVER get the tax deals Apple got. So, MS and GOOG got some breaks too, that doesn't make it right. It's time that corporations, that have never been as cash rich as they are now, started paying back into society.

[P]

The scheme in question, the Double Irish, is available to anyone. If Apple got special deals, than that's bad, but the press release from the commission doesn't really try to make that argument. It says that because not everyone can register companies in Ireland and run them from the Cayman's, it is unfair. It is not really a strong argument.

Let me be clear here: I am happy that Ireland's tax evasion scheme is crumbling. Apple should pay more tax than it does. I just don't think that the commission has a case here.

There is also the other side. This is a power grab from the commission. That I happen to like what they're doing with the power in this case doesn't mean that I will like the next thing they do. If the people of the EU decide the there should be limits to the tax schemes the member states can set up, THEN the commissoin should enforce those limits. Them enforcing rules that they think should be there is not a good thing. That sort of thing never ends well.

[Waragainstsleep]

Yeah retroactively changing or introducing laws is a dangerous precedent.

[OreoCookie]

Originally Posted by P 

The scheme in question, the Double Irish, is available to anyone. If Apple got special deals, than that's bad, but the press release from the commission doesn't really try to make that argument. It says that because not everyone can register companies in Ireland and run them from the Cayman's, it is unfair. It is not really a strong argument.

Legally speaking, I don't know. I have an inkling that the EU wouldn't go through the hassle if if thought it couldn't win (their opponent is literally the world's biggest company whose cash reserves are almost as big as Ireland's GDP). Of course that's not an argument for whether it is right, moral or anything, though.

Originally Posted by P 

There is also the other side. This is a power grab from the commission. That I happen to like what they're doing with the power in this case doesn't mean that I will like the next thing they do. If the people of the EU decide the there should be limits to the tax schemes the member states can set up, THEN the commissoin should enforce those limits. Them enforcing rules that they think should be there is not a good thing. That sort of thing never ends well.

I wouldn't phrase it in terms of a power grab, if anything it's more of a power creep. Because you have to judge new circumstances with older rules. In principle, the argument that tax breaks could be anti-competitive is actually quite old. For instance, Airbus and Boeing have a long-standing dispute about this in front of the WTO. So I don't think it is necessarily out of the question to develop “case law” (which it turns into once the European courts rule on these interpretations) according to circumstances. A healthy political process should steer this by adapting laws, rules and regulations explicitly to present circumstances. It's not the European Commission that is the problem, it's the lack of activity from the other parts of the EU and the national governments of its member states.

Moreover, I would argue that your post goes at it too selectively: instead of asking whether (legally or politically speaking) Ireland should be able to offer special tax rates to select companies, I'd question the wisdom of the whole current global tax scheme. The problem isn't new and happens on every level: since I was in high school the biggest 7 (I believe) companies in Munich (which includes lesser known behemoths such as BMW and Siemens) did not pay local business taxes (Gewerbesteuer) to the city of Munich even though they were making plenty of money (of course, the mother companies were barely breaking even, the profits had all been moved to different parts of these companies). This is not a one-off problem (even though the media often spins it as a something only “new” economy companies do), all bigger companies are involved in these tax minimization schemes.

We should question the wisdom of why we (as in the citizens of our respective countries) allow for the shifting of profits and losses in such a way as to make it possible that essentially all taxes for the European operation of Apple, Amazon and whoever else are due in a single country? The fact that you can move profits and losses through several countries (including off-shore shell corporations in countries like the Cayman islands) needs to be addressed. Taxes should be due where sales happen, i. e. the jurisdiction of your customer. (AFAIK the EU has already changed this for digital goods with respect to the VAT.)

Even if you want to side with Ireland in this, I don't think it's smart for them either: this artificially inflated tax revenue (because only 6.6 million people get a piece from sales to a market of 500 million) does not correspond to real economic activity in Ireland.

[OreoCookie]

Originally Posted by Waragainstsleep 

Yeah retroactively changing or introducing laws is a dangerous precedent.

Nothing here is changed retroactively: it's an interpretation of existing anti-trust rules which for sure will be challenged in court. And if the European courts were to confirm the Commission's assertion, then of course Apple will have to pay back taxes from the moment they entered into the agreement with the Irish tax authorities.

[Spheric Harlot]

My thoughts on this:

These kinds of tax breaks ("loopholes") are designed specifically to encourage businesses to settle in particular regions or countries - be it in the interests of local job creation, raising economic standards, and/or a calculation that figures that even collecting vastly discounted corporate taxes will be preferable to having none at all.

If Ireland thought that designing its tax laws to such effect would be beneficial, then the onus is upon them. If it now turns out that these national tax laws were in violation of European laws, then it is up to them to deal with this problem.

Forcing the corporations that followed the legal incentive, to now retroactively pay for the consequences of its illegality, is shifting the blame to where it doesn't belong, IMO.

Put another way: I get to offset miles travelled by car against my income tax, and have for decades. If it should be found that this tax deduction has been in violation of European law (for whatever reason), am I liable for back taxes for the last fifteen years or what? That's just ridiculous.

[P]

Originally Posted by OreoCookie 

Moreover, I would argue that your post goes at it too selectively: instead of asking whether (legally or politically speaking) Ireland should be able to offer special tax rates to select companies, I'd question the wisdom of the whole current global tax scheme. The problem isn't new and happens on every level: since I was in high school the biggest 7 (I believe) companies in Munich (which includes lesser known behemoths such as BMW and Siemens) did not pay local business taxes (Gewerbesteuer) to the city of Munich even though they were making plenty of money (of course, the mother companies were barely breaking even, the profits had all been moved to different parts of these companies). This is not a one-off problem (even though the media often spins it as a something only “new” economy companies do), all bigger companies are involved in these tax minimization schemes.

We should question the wisdom of why we (as in the citizens of our respective countries) allow for the shifting of profits and losses in such a way as to make it possible that essentially all taxes for the European operation of Apple, Amazon and whoever else are due in a single country? The fact that you can move profits and losses through several countries (including off-shore shell corporations in countries like the Cayman islands) needs to be addressed. Taxes should be due where sales happen, i. e. the jurisdiction of your customer. (AFAIK the EU has already changed this for digital goods with respect to the VAT.)

Oh I absolutely think that the current system is wrong and should be addressed - by a new treaty between the member states, to set some minimums on corporate taxes (the same way that there is a minimum on VAT). Tax evasion is being addressed internationally, slowly and with some setbacks, but it is happening. Shifting profit and loss is very hard to get at, because it all comes down to company-internal prices for goods and services, and those things are very hard to audit effectively. At least the rate mechanism thing is gone, though.

And it is not just the taxes for the European operation, btw - it is something like 90% of the taxes due outside North America that has been flowing through Ireland.

[OreoCookie]

Originally Posted by P 

Shifting profit and loss is very hard to get at, because it all comes down to company-internal prices for goods and services, and those things are very hard to audit effectively. At least the rate mechanism thing is gone, though.

That's why I think we'd need simple and hard rules for any exceptions and loopholes will be used by the companies. Realistically, though, I think preciously little is going to happen because unfortunately, the governments of the EU member states don't really have an incentive to do anything about it. Every country has her companies to protect, I don't think they are going to push for reforms in this direction. For pushing such things the EU is better suited because it doesn't feel the pressure of individual companies.

Originally Posted by P 

And it is not just the taxes for the European operation, btw - it is something like 90% of the taxes due outside North America that has been flowing through Ireland.

Oh, I didn't know that also non-European revenues were accounted for in Cork.

Originally Posted by Spheric Harlot 

These kinds of tax breaks ("loopholes") are designed specifically to encourage businesses to settle in particular regions or countries - be it in the interests of local job creation, raising economic standards, and/or a calculation that figures that even collecting vastly discounted corporate taxes will be preferable to having none at all.

This wasn't a loophole, nor did it encourage more economic activity in Ireland, it doesn't bring new jobs to Ireland when the tax authorities skim (less and less) off the top. Despite the financial crisis of the late 2000s, it apparently agreed to lessen Apple's tax burden.

The idea to regard undue tax benefits as subsidies is quite old and has been applied to other industries within the EU for a long time. That's why French and Italian car companies compete at eye level with Volkswagen and the like in Germany — and vice versa.

Originally Posted by Spheric Harlot 

Put another way: I get to offset miles travelled by car against my income tax, and have for decades. If it should be found that this tax deduction has been in violation of European law (for whatever reason), am I liable for back taxes for the last fifteen years or what? That's just ridiculous.

But if you were to have an agreement with the local German tax authorities that you would just accept that you drove 1 million kilometers per year without needing any proof, then I do think you should be liable, because you should have known that this deal is too good to be true. Not that you'd get such a deal, of course. Regular people and smaller companies won't fall under anti-trust regulation.

[mindwaves]

I just wanted to say how idiotic it is for the US government to force individuals to pay taxes on foreign earned income. That is all.