Apple's Taxes

WSJ, July 15, 2020: Apple Wins Major Tax Battle Against EU

A central issue in the Apple case was whether two Irish tax rulings granted to Apple in 1991 and 2007 gave a form of special treatment to the company, or whether they just reiterated an interpretation of Irish tax law as it was applied more generally.

Those rulings allowed two Irish-registered Apple units to attribute only a small sliver of some $130 billion in profit to Ireland in an 11-year period. The commission said all that revenue should be attributed to Ireland, but the Irish government and Apple say they split the profit reasonably, given that almost all of Apple’s intellectual property is developed in the U.S., not Ireland.

In Wednesday’s ruling, the General Court said that, despite the gaps in the contested tax rulings, the commission hadn’t proven the Irish government granted a special advantage to Apple that was unavailable to other companies in Ireland.

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The case stems from a 2016 decision by the European Commission, the bloc’s top antitrust enforcer, which said that Ireland must recoup €13 billion in allegedly unpaid taxes between 2003 and 2014, money the commission said constituted an illegal subsidy under the bloc’s strict state-aid rules.

The General Court swept aside that reasoning, saying it annulled the decision because the commission had failed to meet the legal standards in showing that Apple was illegally given special treatment.

The 2016 decision against Apple was one of Ms. Vestager’s first big broadsides against tech companies in her role running the EU’s competition enforcement, earning her the nickname “tax lady” from President Trump. She later issued Google three fines totaling $9.4 billion, and launched formal antitrust probes into Amazon and Apple. She is now also responsible for tech regulation and is considering imposing a digital tax on tech giants.

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One could (should) make this same case in the US about tax breaks and subsidies at the state and local level.

And at the international level, there should be an effort to redesign international tax agreements to prevent race-to-the-bottom tax policies.

After Wednesday’s decision, Ms. Vestager said she would “carefully study the judgment and reflect on possible next steps” and vowed to continue investigations into national tax deals with corporations to establish whether they constitute illegal subsidies.

“The Commission stands fully behind the objective that all companies should pay their fair share of tax,” she said, adding that if one EU government gives corporations tax benefits that aren’t available to their rivals, “this harms fair competition in the EU.”

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In a September hearing at the General Court, Apple’s lawyers said the commission’s decision to call for the payment “defied reality and common sense” and Apple’s CEO Tim Cook at the time slammed the decision as “total political crap.”

WSJ, September 1, 2016: Tim Cook Says Apple Could Send Cash Back to U.S. Next Year

Apple Chief Executive Tim Cook said the company may repatriate at least some of the billions of dollars of cash it holds offshore as early as next year, in comments made in the wake of a €13 billion ($14.5 billion) tax clawback decision by European authorities.

Mr. Cook, who has aggressively challenged that ruling, took his case to Ireland on Thursday, blasting the decision as “political crap” and saying anti-competition authorities in Brussels miscalculated how much tax the company paid in Ireland.

“They just picked a number from I don’t know where,” Mr. Cook told Ireland’s Independent newspaper. EU antitrust chief Margrethe Vestager responded Thursday by denying the decision was a political move, and she defended Brussels’ math. She said officials used figures Apple provided to them, as well as from a U.S. Senate hearing into the matter several years ago.

The European Union’s antitrust regulator demanded Tuesday that Ireland recoup the taxes from Apple, alleging that arrangements the government offered the company in 1991 and 2007 allowed it to pay around 1% to almost zero tax on its European profits between 2003 and 2014. Apple said it would appeal the decision. Ireland’s finance minister has also criticized the decision, but the government hasn’t officially blessed an appeal.

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Apple holds about $215 billion in cash and other liquid investments offshore. It has long provisioned for an eventual repatriation of some of the funds. But Apple has also long suggested it wasn’t considering moving any of that money back soon—until there was corporate tax code changes in the U.S. that would make such a move less costly. Mr. Cook told the Washington Post in August that the company wouldn’t bring the money back “until there’s a fair rate” but said he was optimistic of corporate tax changes next year.

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Obviously we shouldn't design our tax codes based on what CEOs consider to be a “reasonable” level of taxation.

We should be especially wary of the view of a CEO whose company returns billions of dollars to shareholders every year generated through monopolistic business practices.

If Tim Cook thinks a “reasonable” corporate tax rate is 26% of profits, why does Apple use its monopoly to levy a 30% tax on the revenue of other companies?

Apple provisions each year U.S. income taxes on about half of its foreign earnings to cover such a repatriation. Currently those provisions total about $30 billion, Apple said.

The company reported in 2014 an effective tax rate of 26.1% on its world-wide profit, including the foreign tax provisions that are unpaid, a level Mr. Cook described as “reasonable.”