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Apple replies to the EU, and it is magnificent

In an astonishing EU ruling, Apple is being told the pay the Irish state €13 billion(!!!) in retrospective taxation that the Irish state never asked for. And the reply from Apple is very well crafted. It is clear they are not going to take this shakedown by the European Commission lying down.

39 comments to Apple replies to the EU, and it is magnificent

  • The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been.

    This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same.

    We are confident that the Commission’s order will be reversed.

    The above section from Apple’s letter hits at the heart of the EU’s claim, in essence that the view of the Commission has supremacy over the sovereignty of the government of Ireland, it’s tax laws and internal affairs.

    The only correct response (which I doubt Enda Kenny will give), is to tell the Commission to go fuck itself with something long, hard and nobbled.

  • Indeed, it is a great letter.

  • CaptDMO

    Let’s see
    1. Simply throw the cash away.
    2. Use it ALL to Bleak House the bastards.
    3. Go all Ron Paul on their asses, “independent contractors” to “negotiate”.
    Which one of these is the most expedient?

  • nemesis

    This could be a big win in a post Brexit UK.

  • long-lost cousin.

    “Dear Brussels,

    The actual sovereign taxing authority is okay with us. Do please accept our most humble invitation to inflict upon yourselves an airway occlusion by the use of a soft-sided container which has been filled with detached genitalia.

    Love and kisses, Apple.”

    Okay, that’s how I would have done it, anyway.

  • DP

    Dear Mr de Havilland

    Sounds more like the death rattle of the EU superbureaucracy.

    The left hand knows not what the left hand does: early onset bureaucratic Alzheimer’s.

    Let’s hope that Brexit is contagious and puts all of Europe out of the EU’s misery.


  • PhilB

    We firmly believe that the facts and the established legal principles upon which the EU was founded will ultimately prevail.



    Sorry about that …


    What part of “We are making it up as we go along” is Mr Tim Cook having problems with?

  • Paul Marks

    Apple, I believe, is sincere in its opposition to this extortion – but the United States government is only pretending.

    In reality the American elite are quite happy with the idea of a Tax Cartel – as long as they are part of the cartel, and they also want it on a world wide “world governance” level.

    The Apple opposition is a sign (which I hope is real) that “Big Business” is finally waking up.

    Standard education system and media propaganda is that Fascism is the control of government by business – actually this is a lie (a lie invented by the Soviets back in the 1920s and 1930s), in reality Fascism is the control of business by government.

    World governance would not be the “rule of capitalist big business” (as the left claim) – in reality capitalist big business would be utterly CRUSHED by such “international cooperation”.

    I hope (no more than hope) that some of big business finally understands this – and is rejecting the siren song of the “educated” (who have “internalised the ideology of the oppressors” to use Marxist language) that “world cooperation” is inevitable or desirable.

    Sadly many business executives (especially in high tech industries) are “educated” people – who believe in the collectivist “liberal” doctrines of our time.

    They must learn (and learn fast) that this “liberalism” or “progressive politics” would exterminate the business enterprises they have built up.

  • Wasn’t the New York Mafia in the 1930’s also known as “The Commission”?

    Sounds about right.

  • Thailover

    If Ireland F-ed up in their deal with Apple, why should Apple be screwed in the end? Let the EU send the bill to Ireland. But then again, Ireland should tell the EU to go screw themselves.

  • Thailover

    John Galt, And if Apple’s and Ireland’s fight-back doesn’t work, it’ll prove that “the sovereignty of EU member states” is a fantasy, which in turn will harm the pro-EU propaganda.

  • Nicholas (Unlicensed Joker!) Gray

    Well, the Irish government IS fighting this, because they realise the stakes are high. If Ireland loses, and has to take the millions, what would this do for Britain? What are the tax rates for Britain now, and what might they be after Brexit?

  • The Wobbly Guy

    Could the Irish take the tax, then channel it back to Apple under the guise of something else?

    Of course, it still means they have lost some of their sovereignty, having to resort to such measures to sidestep the EU.

  • Bruce

    It occurred to me that the VERY LAST people with whom you would want to pick a fight, would be a bunch of heavy-duty nerds like Apple.

    The response should be something like:

    “That’s a very nice personal-data collecting system you have there; shame if anything were to happen to it.”

    Not to forget the “taxpayer-funded” ‘phones and pads.

  • Lee Moore

    The “analysis” by the BBC johnny at the bottom of the BBC link is also magnificent in its own way – a shining example of the BBC’s outlook on the world. It totally ignores the EU v Ireland angle, and frames it as a mighty corporations v tiny powerless state battle. As you would expect.

  • Eric

    Apple, I believe, is sincere in its opposition to this extortion – but the United States government is only pretending.

    I doubt it. From Washington’s perspective anyway, if Apple ends up paying this money to Ireland it ultimately comes out of the US treasury since Apple can write off the Irish taxes against its income when the money is repatriated. The US congress is counting on a big windfall through some kind of corporate semi-tax-holiday, but this move by the EU could throw a wrench into the works.

  • Lee Moore

    It seems to me that both the EU and Apple are being a tad disingenuous. As I understand it, from snippets in the press, the structure is probably something like this :

    1. Apple Tax HavenCo owns the Apple brand and IP relevant for sales in Europe
    2. Apple TaxHavenCo has a branch in Ireland which is in charge of selling
    3. Apple has various subsidiaries in Europe which act as Apple TaxHavenCo’s local sales agents.

    A punter buys an Apple gadget in Germany for 1000 Euros. The local German Apple subsidiary takes a sales commission of, say, 50, which it sets against its local selling costs of 40. And declares a profit of 10 fully taxable in Germany.

    Apple TaxHavenCo then receives 950 (net of commission). The Irish branch has its own costs of 50. The Head Office in Zerotaxland has costs of 10. So AppleTaxHavenCo’s profits are 890. The question is then – how much of the 890 is attributable to Head Office (not taxable in Ireland) and how much is attributable to the Irish branch (fully taxable in Ireland) ? Tax rules usually say that the amount attributable to the branch is the amount the branch would have made if it was an independent entity dealing with its head office at arms length (ie at market prices.) In the above case this boils down to – at what price would Apple Head Office have sold the kit to Apple Ireland if Apple Ireland were a separate company ? Depending on the facts, the answer could be anywhere between about 15 and 890. That is the sort of question that tax authorities round the world haggle with companies about, reach deals, and set parameters for the future. Note that it is NOT a question about what rate of tax Ireland should apply to those profits determined to be Irish. As I understand it, the EU is not attempting to challenge the Irish tax rate, merely the division of profit between the Irish branch and its Head office.

    For the US, Australia, UK (post Brexit) it’s entirely up to the national tax authority how to conduct these negotiations – though if it’s a US company doing business in Germany haggling about the “transfer price” into Germany, the US tax authorities will also have a haggle with the German authorities under the US / German tax treaty. But if anybody else butted in and tried to interfere it would be a shock horror scandal, invasion of tax sovereignty type palaver.

    But Ireland is in the EU. The EU has state aid rules, which – according to the EU – overtrump national tax rules. It also has a court that adjudicates such arguments. Both Apple and Ireland know this. If Ireland has agreed an unreasonably high notional “transfer price” from Head office into Ireland (thereby minimizing the profits subject to Irish tax) as an inducement to get or keep Apple’s business that may indeed be covered by the state aid rules.

    Apple’s letter says nothing, and the EU’s announcement next to nothing, about the substantive issues :

    1. do EU state aid rules apply to allocations of profit in these circumstances (eg is there any previous case law saying so, or is it clearly stated somewhere) ?
    2. if they do, or might, what are the arguments for and against Head office having the lion’s share of the profit ?

  • Greytop

    Perhaps this is merely the first broadside in a soon-to-be-developing war against everyone who has money. The EU has made a pig’s ear of their border policy and foisted upon the peoples of Europe a massive immivasion. That much is evident. But all these new mouths to feed will require more and more money. If Article 50 is signed by the UK (as it should be now the decision has been made) the EU income stream is going to be light by a few billion a year, so the money has to come from somewhere.

    The overpaid and underworked fat cats in Brussels will have looked at Apple’s profits and decided they should have some of it to pay for their errors of judgement. If Apple cough up, the EU may be happy for a time but then in turn someone else will have to pay up their ‘share’ to keep the prospect of mass muslim riots down. Microsoft, possibly, would be next?

  • Alisa

    I think Greytop captures the likely thinking at the base of this ruling. But Apple’s response shows it is not too impressed with this muscle-flexing. As Perry says, it is well crafted, but that does not mean that it means what it says – because at least on the face of it, Apple could have just said (and maybe they did, less publicly): screw you, we are not paying up – now, whachagonna do about it? With the answer being, not so much.

  • Alisa

    Apple aside, to me the real issue here is the EU vs Ireland – namely, can the latter afford its own version of Brexit?

  • Stonyground

    Maybe post Brexit, Apple could move their operation to the UK?

  • jmc

    Sorry guys. You are all completely wrong on this subject.

    What Apple (and MS, Facebook, Google et al) does is pure criminal fraud. Tax evasion pure and simple. They do it in every jurisdiction. Even down to the state level. Pure RICO organizations.

    US corp tax laws are insane and counterproductive. They start at 43% in CA. Driven by decades of Dem Party populist anti-business class bating. So that is the initial prime mover in the criminal activity of companies of Apple. But everyone else doing business in the States has to pay all this tax so Apple et al need to be taken to the coal shed and given a good beating. MS alone owes somewhere north of $200B in back tax by this stage. If companies like Apple and Google dont want to pay this level of corp tax then they should just spend a few $10M’s in lobby money buying the relevant Dem politicians in DC and getting the tax law changed. Because thats how DC works.

    As for the EU decision. Apple and Ireland are guilty as charged. It was a special deal for Apple only. Nice trick, HQ being tax domiciled nowhere. Thats a felony fraud quite separate from the regulatory angle.

    Been in the business from more than three decades and who knows where *all* the bodies are buried. Like MS’s two sets of books and APPL’s completely fraudulent 10Q’s in the early 2000’s when they were trading insolvent.

  • Lee Moore

    Nice trick, HQ being tax domiciled nowhere. Thats a felony fraud quite separate from the regulatory angle.

    It’s probably best not to throw phrases like tax evasion and felony fraud around, if you’re hazy on what they mean. Ditto “tax domicile.” I’m guessing you’re American and have absorbed the American tax notion that incorporation implies taxability. And so it does. In America. But other countries have different rules. Some impose taxability by reference to place of management, place of business, source, whatever. Consequently it’s perfectly possible, and perfectly legal, for a company incorporated in X-Land (which imposes taxability by reference to place of management) and managed in Y-Land (which taxes by reference to place of incorporation) to be taxable in neither country. Likewise it’s quite possible for a company to make itself taxable in both countries by incorporating in Y-Land and being managed in X-Land. For several decades almost every UK company with an American subsidiary had a US incorporated holding company, managed in the UK, as its US holding company. So as to be able to deduct interest expense against both countries’ taxes. This is not fraud, it’s applying the law to minimise your taxes legally.

    The same is true for humans. If you plan your life judiciously you can be taxable nowhere, quite legally. Unless you’re American of course.

  • monoi

    @lee more,

    So by your reckoning, Apple sells widgets for €1000 which costs nothing to make since it’s all profit for you?

  • Lee Moore

    No, I’m just trying to keep my explanation to under 200 pages. The cost of making the widget in my example is 10 – the Head office costs – which will presumably be paid to some other Apple subsidiary on a contract manufacturing basis. But if you prefer you can make it 100 or 200 or 300, the principle is still the same. The sale price is much much much bigger than the costs. The costs include design, manufacturing, sales and admin.

    The trick is who owns the IP. Presumably long ago, Apple US sold the IP to its TaxHavenCo subsidiary for X. The IRS may wish to argue (and no doubt has been arguing for years) that it should have been 2X. But that doesn’t really matter because now it’s worth 25X (see the Apple share price graph.)
    There’s a huge profit, even after taking account of all costs. The question for the tax authorities is – who is actually making the profits ? My illustration is designed to show that this is what the real argument is about.

  • Johnathan Pearce

    One of the ironies of all this is that parts of the left in the US, for example, wants – arguably with some justice – to grant an amnesty to illegal immigrants (or at least in certain cases) but are the first to rant and rave about amnesties that governments around the world give to those who have been evading taxes for years via offshore accounts. (Of course, in the case of Apple, its actions amount to avoidance, not evasion, although far too many people conflate the two.)

    I thought Cook’s item in the WSJ was terrific. He has gone up in my estimation. More CEOs need to stop the politics of pull, of playing nice to Brussels and Washington.

    Is Apple “shrugging”? (in-joke for fellow Ayn Rand fans.)

  • Andrew Duffin

    “This would strike a devastating blow to the sovereignty of EU member states over their own tax matters…”

    Does Mr. Cook not realise that the entire point of the EU is to strike a whole series of devastating blows to the sovereignty of EU member states, and to go on doing so until they have none left?

    If he doesn’t, he soon will.

  • Alisa

    BTW, my first comment here was made in ignorance of the preceding comments – sorry about that

  • Lee Moore’s replies pretty much said what I was going to so… wot he said! 😀

  • bobby b

    “Tax evasion pure and simple.”

    Tax evasion would be the evasion of lawfully-imposed taxes. Apple looked to the proper taxing authority in Ireland for guidance, and paid everything that authority said was due. That authority continues to hold that Apple has paid all taxes due. Apple didn’t evade any tax.

    If other EU-member jurisdictions seek to claim that Apple owes more taxes to them than it has paid, they can pursue that claim in their own courts. But this EU ruling has nothing to do with other EU members. This has nothing to do with whether or not Apple paid some “proper and just” amount of taxes given its income. This is the EU claiming that Ireland violated its treaty promises to the EU, but billing Apple for the damages.

  • jmc

    @Lee Moore

    Actually I’m a Brit who has lived in the US for thirty years, and fully conversant with both UK and US business tax law. Plus tax law in Ireland, France and more than a passing knowledge of Italy. We are a very multi-national family. Just in the process of setting up a (legit) high tech company in Ireland mainly for tax / regulatory reasons as in the last twenty years it has become impossible in CA without selling out first to VC’s.

    Apple is a CA corp (actually Del, but whatever..). All IP is created in Cupertino. US is a world income tax regime. Its a utterly different tax world from UK, EU land. I know my way around a balance sheet. Terry Smiths Accounting for Growth is still by far the best book on creative accounting. And once for amusement I read the revised 1986 Federal Tax code from cover to cover. Quite an interesting read. But all the meatiest stories about high tech companies tax fraud are not in the public domain. Although MS’s two set of books did slip out during the anti-trust case.

    Under US law what Apple did is a nice big felony. No matter where it happened in the world. The US claims world jurisdiction on finance and tax even for non-US companies. Just ask the guys from HSBC.

  • There is a slightly different perspective on all of this from Ireland:


  • Very interesting article, John, cheers!

  • Johnathan Pearce (London)

    jmc, the US does indeed tax its citizens on a worldwide basis (one of the main reasons, in fact, why relatively few Americans work abroad to avail themselves of lower tax rates, whereas we Brits often go to places such as Singapore, Dubai and Hong Kong for that very purpose). The key issue is residence, however. If a US corp. such as Apple creates an overseas tax residency status, and registers an overseas HQ for tax purposes, as Apple appears to have done in Ireland and the EU, then it is unclear in my view if the worldwide tax-grabbing powers of the IRS apply to Apple’s non-US revenues. It is, I admit, frickin complicated but then again, this proves that US tax laws are insane, and that US corporate tax (up to 40 per cent and almost double the OECD average) are draconian.

    It may come as a shock to some people (not Samizdata readers) but companies, like individuals, are driven by incentives. And there are perverse effects: Apple and others spend money on lawyers, accountants and others to finagle the global tax system, when in fact their own shareholders might prefer as many of these profits as possible to be repatriated. High taxes paradoxically also encourage firms to spend money on fancy headquarters and all the rest, because it is actually better for the firm to do that than pay tax. It is nuts. Heck, it isn’t even good if you take an egalitarian, tax-the-rich point of view.

  • Johnathan Pearce (London)

    FYI, here is an excellent summary of the argument over at EconLog about the matter, which among other things, applauds Cook for taking a principled stance, a refreshing contrast to how so many CEOs try and play the game with guff about “sustainability” and so on.

  • Laird

    “Under US law what Apple did is a nice big felony.”

    I don’t have any knowledge of how Apple structures its IP holdings, but I very much doubt that is a true statement (and it makes me question whether jmc really understands what a “felony” is). If I understand his argument, it’s that Apple transferred some of its IP assets to a foreign jurisdiction at less than (what he believes to be) their fair market value, thus improperly reducing its US tax. And that may indeed be true; valuation of such assets is notoriously difficult. If that is the contention, the IRS would line up its experts and Apple would line up its own, and ultimately a US court would decide. (Frankly, I would be surprised if that hasn’t already occurred; there are big dollars at stake and the IRS doesn’t abandon such lightly.) But unless Apple has absolutely no rational justification for its valuation (which I seriously doubt) such a difference of opinion is a routine tax court issue, not a criminal matter (and hence not a felony).

    Intercompany cost allocation is a contentious issue, probably the most common of all in international tax disputes. But (in this particular case) it’s an issue among Ireland, the US and Apple; the EU has no business meddling in it. If Ireland believed that the allocation was wrong (under its agreement with Apple) it would say so, but instead it is saying precisely the opposite. That should be the end of the matter.

  • Jordan

    The fact that jmc invoked RICO is a dead giveaway that he is clueless. RICO has recently become the idiots’ shorthand for “super duper illegal.”

  • Lee Moore

    Laird : the EU has no business meddling in it

    Unless the agreement between Apple and Ireland constituted state aid under EU laws which Ireland has signed up to abide by. And which Apple Ireland is legally obliged to repay as it is subject to Irish, and thus EU, laws. EU members are not sovereign as far as their tax law is concerned (another good reason not to be an EU member.) If you want a US analogy, California is allowed to organise its state taxes as it pleases. But if it charges a 10% income tax surcharge on men – to try to rectify the “earnings gap” it perceives in male and female wages – it will fall foul of equal protection rules derived from federal law. (Though the 9th circuit would probably find a reason to allow it.)

    If you follow JP’s Econlog link above, there’s another link to a paper by Massimiliano Trovato, which explains the state aid issue quite well. (It is alas written in the sort of English that appears to be a word for word translation from Latin and so is not that easy to follow, but it’s good stuff all the same.) Trovato explains that special tax deals can be state aid under EU law, if and to the extent that they stifle competition by benefitting one competitor. He doubts, reasonably, that such deals have any adverse effect on competition. But that is the legal peg on which the EU is forced to hang its hat, because state aid is only illegal if it is anti-competitive.

    I think it’s worth noting, on this libertarian inclined blog, that getting on a high horse about tax sovereignty is just fine. But state aid, for whatever reason, is not a good thing. It’s a very short step from you scratch my back tax deals to the Clinton Foundation.