Apple To European Tax Commission: Eat Me
Apple is not a fan of paying taxes.
Apple's European headquarters is in Ireland. In 2014, Apple paid Ireland just 0.005% of its revenue in taxes. This is par for the course, not just for large corporations generally, but also for Apple specifically. As noted by Gizmodo, "last year Apple paid $0.00 in federal tax in the US despite making $11.2 billion in profit."
The EU said, "Not in our jurisdiction," and the European Commission ordered Apple to pay €13 billion ($14 billion USD) in back taxes. Naturally, Apple balked. So now it's taking the European Union to court over the order. Because taxes are for poor people. Or something.
Incredibly, Ireland is taking Apple's side.
Here's the dealEuropean Competition Commissioner Margrethe Vestager has been trying to crack down on multinational corporations dodging taxes. Under Vestager's leadership, the Commission has fingered companies receiving aid from countries that's prohibited by EU law. As noted by Reuters, "The case could make or break [...] Vestager's campaign which has also led to action against Starbucks (SBUX.O), Fiat (FCHA.MI), Engie (ENGIE.PA), Amazon (AMZN.O) and others."
Apple's European headquarters is located in Ireland, and it picked Ireland for a reason: low taxes. And Ireland, which has low tax rates to try to attract international corporations, is siding with Apple. Around 10% of Ireland's workforce is employed by multinational corporations.
The BBC analyzed why Ireland would take Apple's side, rather than enjoy the tax revenue:
Why would any government want to turn down a €14bn tax windfall?In a pair of cases styled T-778/16 Ireland v. Commission and T-892/16 Apple Sales International and Apple Operations Europe v. Commission, Apple -- and Ireland -- are challenging the EU's €13 billion ($14 billion USD) ruling. The EU assessed the €13 billion in taxes in 2016, saying "the tech giant benefited from illegal state aid because of two Irish tax rulings that artificially reduced its tax burden for over two decades." According to the EU, "the Irish government allowed Apple to attribute nearly all its EU sales earnings to an Irish head office that existed only on paper, thereby avoiding paying tax on EU revenues."
For Ireland, the motivation is twofold: First there is the desire to disprove claims that it acts, or has acted, as a tax haven.
The country has faced increasing criticism of its corporate tax policies, with the American economist Gabriel Zucman leading the charge.
He has accused Ireland of being "the world's number one tax haven".
Secondly, Ireland wants to demonstrate to multinational investors that the country is a safe and predictable place to do business.
The General Court held two days of arguments in the cases. On Tuesday, Apple Chief Financial Officer (CFO) Luca Maestri argued that the tax order "defies reality and common sense" and places far too much emphasis on Apple's Ireland office. As noted by Reuters, Apple's lawyer Daniel Beard told the court that:
The Commission contends that essentially all of Apple's profits from all of its sales outside the Americas must be attributed to two branches in Ireland[.]
He said the fact the iPhone, the iPad, the App Store, other Apple products and services and key intellectual property rights were developed in the United States, and not in Ireland, showed the flaws in the Commission's case."
"The branches' activities did not involve creating, developing or managing those rights. Based on the facts of this case, the primary line defies reality and common sense," Beard said.
"The activities of these two branches in Ireland simply could not be responsible for generating almost all of Apple's profits outside the Americas."
Ironically, after Beard accused the EU of defying reality, he suggested the EU just change international tax law -- something that it can't just do. The EU's jurisdiction extends only to the EU, not worldwide -- a fact Apple's lawyers are aware of, assuming they graduated from law school and aren't complete idiots.
Beard also shrugged off the Commission's note that Apple's had paid a tax rate of just 0.005% to Ireland in 2014 and accused it of trying to get "headlines by quoting tiny numbers."
Lawyers for the European Commission refuted Apple's arguments. As noted by Reuters:
Commission lawyer Richard Lyal said Apple's argument that all its intellectual property-related activities take place in the United States was inconsequential.
"To a large extent that is perfectly correct and perfectly irrelevant," he said, adding that Ireland was taxing Apple's Irish subsidiaries, not the group nor Apple Inc.
The drama continued on Wednesday. In his closing argument, Beard argued that the Commission was treating Apple unfairly.
The Commission went out of its way to tell a fairy story about supposed benefits to employment. It has no evidence, it is wrong. There was no sense of any special deal. Ireland properly and correctly taxed the Irish branches. There was no derogation from the normal rules.
And Ireland's attorney, Paul Gallagher, said the Commission had harmed Ireland's reputation and failed to prove its case, saying the EU hadn't "shown one company which [had] been treated less favorably than Apple. This is Ireland's reputation which has been so severely criticized."
A few other EU countries have also jumped into the controversy to offer their opinions.
Luxembourg, told by the EU to recover millions of euros in back taxes from Amazon, Engie, and Fiat, is backing Ireland. Poland and the European Free Trade Association Surveillance Authority support the Commission.
The General Court will likely rule on Apple's appeal in the coming months or year, but the losing party will probably appeal to EU Court of Justice, the European Union's version of the Supreme Court. This means we could be waiting years for a final resolution.
However, we're likely to get a preview of the General Court's view of the voracity of the EU's tax orders on September 24, when it's expected to rule on the Commission's tax recovery orders to Fiat Chrysler Automobiles NV and Starbucks.
So, for now, we wait.