You may have woken up today to the big news of the day and not just in tech but mainstream news that the European Commission has now ordered Apple to pay €13b/$14.5b/5.7tr Naira in back taxes that it believes Apple received illegally over several years. Now the country in question is Ireland which plays host to big tech companies like Microsoft and Facebook.
The EU claim
The two incorporated companies Apple Sales International and Apple Operations Europe according to the EU sells Apple products internationally through its offices and sales are recorded in Ireland instead of countries where these products were sold originally which means it pays lower taxes because of the tax deal it has with the Irish government which has since said it will appeal the EU ruling. To justify the EU claim, they said Apple Sales International for example recorded a $22b profit in 2011 alone but paid $56m in taxes. If you support the EU position, then you would consider this unfair considering that Apple competitors in the EU area who don’t make as much as Apple pay more in taxes. So that’s the EU side of it.
The Ireland and Apple stand
Apple CEO said in a letter today that the claim had no basis in fact and law since it didn’t technically decide not to pay the taxes. The country in question was very much aware the whole time and like I said earlier has decided to appeal the ruling. Tim Cook also expressed confidence that the ruling will eventually be reversed.
“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid…… Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company’s profits should be taxed in the country where the value is created. Apple, Ireland and the United States all agree on this principle.”
So this means Apple claims it pays big taxes in countries where they’re registered to do business and that’s the United States and Ireland primarily and other international destinations.
The Irish Finance Minister Michael Noonan said in a statement that Apple paid its taxes in full and did not receive special treatment. “It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment.”
Ireland is obviously not happy because Apple employs over 6,000 people across the European nation and this could see its citizens lose job in an economy that may have recovered but still has a high inequality rate. Ireland prefers long term employment of thousands of its citizens over $14b and this is understandable because frankly speaking, who wouldn’t? The theory is simple here if you’re on the Irish government’s side. Citizens get good and well-paying jobs and pay taxes over the years. These taxes are then used to fund government programs. When the Irish office opened 36 years ago, it had just about 60 employees but 36 years later, that number now stands at 6000 and who knows what will happen in the next 36 years and that’s the theory here people.
Could Apple be moving to the United Kingdom soon?
So what if Ireland were to lose the appeal and now Apple has to pay for something that was caused by the Irish government in the first place? Could we see Apple eventually move to a country that’s not under EU single market rules like Britain? Well that’s left to be seen even though it’s unlikely at this time because it might actually cost Apple so much to eventually relocate its Europe headquarters after such a long time not to talk the politics of it.
EU vs. American firms?
The EU is also probing the tax arrangements of Amazon and McDonald’s and Google is under investigation over its taxes in France and a couple of other European countries. These are all big American companies which are also now some of the biggest companies in the world by market value. Could the EU just be taking in American companies to protect its own rival companies? Again depending on what side you’re on, you may be right or wrong but one just wonders what the EU stands to gain by taking on companies from its closest rival, the US. The US partners with the EU in various ways from military to economic and since the Second World War, they have both become the biggest economic and military bloc the world has ever known but that hasn’t stopped the US from placing tens of billions of dollars in fines on European firms like BP and Volkswagen whether its oil spill or violation of emission laws. So while both governments may corporate politically, they don’t mind punishing each other’s’ businesses to send a strong message.
All parties involved stand to lose big time. Let’s start with the EU, they could see a big number of its citizens lose jobs at a time when many of the member states are struggling economically and frankly speaking politically. They just lost a big member in the United Kingdom and losing jobs is not something they might want. The EU unemployment rate stands at about 10 percent and this is still high when compared to America’s 4.9 percent. It’s not a good time to be losing jobs.
The Irish government stands to lose greatly too and two obvious ways are money and jobs. Imagine how much Apple has say in Irish banks and while you may be thinking, its actually big liquidity in a system. 6,000 jobs could be at stake as well so you understand by why they have to appeal this ruling.
The United States could see a dent in its Federal budget as well. As Samuel Burke (CNN’s tech correspondent) explained on air, the government apparently comes to the rescue of American companies by paying them back in scenarios like this and frankly speaking, $14b can go a long way in social programs even for the US. This could be why the American Treasury Secretary Jacob Lew condemned the EU ruling by saying in a statement that “We believe that retroactive tax assessments by the Commission are unfair, contrary to well-established legal principles, and call into question the tax rules of individual Member States…”
Everyone will lose and for Apple whose revenue from iPhone sales have been taking a hit lately, this is not good. It needs all the money it can keep and that’s why all parties may eventually come to the negotiating table.
Will they negotiate?
As appeals and counter appeals ensue in the coming months or probably years, parties are likely to negotiate which may see Apple and other tech companies paying something less than the original figure. We’ll see
Tech companies now hold $500b in cash and could authorities be eyeing this huge pile of cash? Maybe, maybe not.
As a customer, you don’t have to worry about all this even as Apple doesn’t expect this to affect its operations for the foreseeable future.
Image: CNN Money