The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[Hound]

Apple claim they paid €400m in tax, in Ireland, in 2014.

This would be around 1% of their worldwide profits (I think it was £42bn). According to this http://www.zerohedge.com/news/2015-04-17/which-companies-paid-most-income-tax-2014 they paid $14bn to the US in taxes that year, or 33% of worldwide profits (though the article doesn't mention this so take this with a grain of salt).

The EU Commission seems to ignore the tax paid in the US and claims that Ireland were due that tax. Am I reading this right?

The EU Commission would be ignoring US profits as well as US tax. It's only international (being non-US) profits that would be run through the Ireland structure.

US would tax all US profits and any international profits that are repatriated to the US (the latter being very little, as Apple have something of the order of $200 billion cash offshore that built up as a result of non-US profits).

I think Apple's US tax rate could be of the order of 43% (35% federal and 8% California state tax).

So if your figure of $42bn is right for worldwide profit, then the split might be $24bn US and $18bn international (and that would be after international pays US something of the order of $2bn a year for R&D carried on in the US).

(Although accounting profits multiplied by tax rate doesn't equal tax paid because of various adjustments for non-deductible items, capital allowances and all kinds of other stuff!)

[muppet]

Apple claim they paid €400m in tax, in Ireland, in 2014.

This would be around 1% of their worldwide profits (I think it was £42bn). According to this http://www.zerohedge.com/news/2015-04-17/which-companies-paid-most-income-tax-2014 they paid $14bn to the US in taxes that year, or 33% of worldwide profits (though the article doesn't mention this so take this with a grain of salt).

The EU Commission seems to ignore the tax paid in the US and claims that Ireland were due that tax. Am I reading this right?

The EU Commission would be ignoring US profits as well as US tax. It's only international (being non-US) profits that would be run through the Ireland structure.

US would tax all US profits and any international profits that are repatriated to the US (the latter being very little, as Apple have something of the order of $20 billion cash offshore that built up as a result of non-US profits).

I think Apple's US tax rate could be of the order of 43% (35% federal and 8% California state tax).

So if your figure of $42bn is right for worldwide profit, then the split might be $24bn US and $18bn international (and that would be after international pays US something of the order of $2bn a year for R&D carried on in the US).

(Although accounting profits multiplied by tax rate doesn't equal tax paid because of various adjustments for non-deductible items, capital allowances and all kinds of other stuff!)

Intersting.

If the worldwide profit was $18bn then the effect tax rate would be 2.2%. The EU (from what I have read) are claiming the effective rate is 1% (neither appear to be allowing for adjustments). Is it possible that the EU are trumpeting an obviously incorrect figure?

[Hound]

Either way, Apple had their international technology and profits offshore and have paid no tax on it.

But Ireland's contention is that has nothing to do with Ireland. We collect tax on the Irish profits and aren't entitled to collect more based on OECD rules

[muppet]

Either way, Apple had their international technology and profits offshore and have paid no tax on it.

But Ireland's contention is that has nothing to do with Ireland. We collect tax on the Irish profits and aren't entitled to collect more based on OECD rules

So where does the competition issue arise? Are we taking tax from someone else for the same thing?

[seafoid]

If the competent authority is the Irish Revenue, why are they being told what they have to do by the EU Commission? And why would they have to follow the Commission's findings? Who has final jurisdiction?

This is an unfair competition ruling as far as I can see.

I would be interested to know if the basis of the investigation was a complaint from another company or country, or did the EU Commission just decide that there was unfair competition and investigate themselves.

The same Commissioner is after Google under the same law, but for different reasons. She thinks Google has too much access to info.

apple got prefenential treament. Paid 1% instead of 12.5%
Fg fully behind them. And will make cuts and tell people there is no choice

[seafoid]

German inflation close to zero.
Deflation next stop
http://www.ft.com/fastft/2016/08/30/german-inflation-falls-unexpectedly-in-august/

That is what happens when you bail out bondholders

[muppet]

http://www.bbc.com/news

BBC seem to think it is about the EU asserting its power over large corporations. That would be nice if a) it started with the banks and didn't shaft the Irish taxpayer and b) it didn't start by shafting Ireland first.

[seafoid]

http://www.bbc.com/news

BBC seem to think it is about the EU asserting its power over large corporations. That would be nice if a) it started with the banks and didn't shaft the Irish taxpayer and b) it didn't start by shafting Ireland first.

US corporate profits hit a record high as a percentage of GDP last year.
It is one of the main reasons the US is flirting with deflation.
http://www.forbes.com/sites/timworstall/2013/05/07/why-have-corporate-profits-been-rising-as-a-percentage-of-gdp-globalisation/#6771bef253f1

The Irish economic model was too good to be true for a long time. Ignore the local SME sector and plamas the FDI crowd who only employ something like 15% of workers. When TSHTF there was no help from FDI in terms of paying extra tax or lobbying.

[Hound]

Either way, Apple had their international technology and profits offshore and have paid no tax on it.

But Ireland's contention is that has nothing to do with Ireland. We collect tax on the Irish profits and aren't entitled to collect more based on OECD rules

So where does the competition issue arise? Are we taking tax from someone else for the same thing?

Sorry, but there's only a long answer to that!

Firstly you need to understand tax residence. While there have been rule changes in recent years, Ireland used to tax companies the same as individuals. i.e. it didnt matter where you were born, it only mattered where you lived. So for non-residents (no matter were born or incorporated) you are only taxable on your Irish income (whereas Irish residents are taxable on their worldwide income). The place of residence for a company is normally where that company is managed and controlled.

Most countries have a similar rule, with some exceptions, but the US is an outlier, in that it looks at companies in terms of where they are incorporated rather than where they are managed.

Back to Apple. Apple International (let's call it) is incorporated in Ireland. But it never had any Irish directors, and no board meetings were ever held in Ireland, so it was never managed from Ireland and never resident in Ireland. Apple US sold its international IP to Apple Intl. This amount would have been agreed with the IRS and tax paid in the US. But I guess the value was relatively low at the time as it was well before iPhones, etc. Apple Intl also pays an annual maintenance type fee to Apple US to make sure its technology is kept up to date - which in recent years has gone into the billions. Again, this would be reviewed by the IRS to make sure the US gets properly paid.

Apple Intl set up operations in Cork to do whatever it is they do in Cork and to act as the sales company for all of Europe (and Asia and Middle East I think too). This was an Irish branch for tax purposes. So the question then arises as to how much of Apple Intl overall profits should be allocated to its Irish branch, bearing in mind that the valuable IP is never located in Ireland. Apple presumably got some law firm or accounting firm to do a transfer pricing analysis to come up with what an appropriate return for the Irish branch should be. It's not necessary to get this approved by Irish Revenue, but best practice when big numbers are involved would be to get them to review and approve it, to avoid issues arising at a later date, and to get certainty.

So Apple and Irish Revenue came to an agreement on what a reasonable return for the Irish branch would be and those profits were taxed at 12.5% in Ireland. The balance of the profits are subject to tax wherever Head Office is resident, and as they are international profits of a US HQ group, they would also be subject to US tax when (if!) remitted to the US. But that's usually no concern of Irish Revenue, they are only concerned with what is taxable in Ireland.

Most companies with similar structures would have the Head Office resident in Cayman or Bermuda or some other 0% tax country. Apple went one step further by having Head Office as a "stateless" or "resident nowhere" company. They'd do this by moving around the directors meetings in different jursidictions, probably having most in the US where management/control isn't recognised. Personally I've never liked the nowhere resident concept, but from an Irish viewpoint all that really mattered was it wasn't resident in Ireland.

So what the EC have come up with is they say all the profits of Apple Intl should be taxed in Ireland. This goes against all OECD principles, given the IP was never in Ireland and the company was never Irish resident. They say it's state aid that Ireland agreed that only a portion of the profits should be taxed at 12.5% rather than taxing the full amount. Whereas Apple and Ireland will look to defend the position that this is a Foreign Company (for tax purposes) with an Irish branch and therefore only the profits arising from the Irish activities in Cork (and not from the valuable IP) can be taxed in Ireland. 

From a European perspective, each country that Apple has an office would be paid some kind of sales commission by Apple Intl, again based on OECD transfer pricing rules and I'm sure audited by most countries regularly. But Apple would remove all risk from those countries by guaranteeing a profit, albeit a small profit. So if Apple Intl has a bad year, Apple Intl makes a big loss and all the Apple Europe companies still make a small profit. But if things go well, Apple Intl gets the vast bulk of the profits. This element has not been part of the state aid investigation, but the EC has encouraged the European countries to re-look at the arrangements nonetheless. They basically said we know this part is none of our business but we're still going to stoke the fire. Which I think shows that at the end of the day this is very political.

[seafoid]

Ir is political because corporate profits have been increased by withholding payrises for years in the US to the point where the Fed can't generate economic growth. And Apple is the richest company in the US

"The challenge for Apple now is to ensure they manage consumer perception and avoid becoming the poster child for all things that are wrong with globalisation today," says Ben Wood, analyst at CCS Insight. Unlike Google and Amazon, which exist mainly in the virtual world, Apple – like Starbucks – has physical stores that protesters can picket. "This is something Apple need to avoid at all costs," he says.

[seafoid]

http://www.irishtimes.com/opinion/convincing-voters-to-forgo-apple-s-13bn-will-not-be-easy-1.2773489

If the Alliance cannot agree to the appeal at this morning's Cabinet meeting, then this Government is probably over, sooner rather than later. If they can't agree this, you wouldn't give them much chance of agreeing a budget, and a government that can't budget can't govern

[muppet]

Thanks Hound for taking the time to write that. I have read various pieces of the argument today in different publications, but that is the most succinct I've seen.

[muppet]

Thinking about this more, is the EU Commission demanding taxes be paid here that are arguably just as payable in the US? No matter how you look at it, wherever this tax is liable, this isn't really Ireland's money? Would that be fair to say??

Is it now the case that the unelected EU Commission has its own agenda with us on taxation and is happy to embarrass us on the world stage as it pursues its row with large corporations?

Bearing in mind the only time we had leverage during the banking crisis, we never used it, but I think we have massive leverage in Brexit. If ever there was a time to look the EU mandarins straight in the eye and tell them to shove it, surely it is now?

Another part of me does want to kick the large corporations. But I think the EU and the ECB are ahead of them as it is they who keep marching us to the firing line.

[Declan]

EU Commission: Spend €64bn on banks
Government: ok
EC: You can't abolish water charges
Gov: ok
EC: Accept €13bn from Apple
Gov: NO WAY!

[armaghniac]

EU Commission: Spend €64bn on banks
Government: ok
EC: You can't abolish water charges
Gov: ok
EC: Accept €13bn from Apple
Gov: NO WAY!

I think it is fair comment that it is a bit odd that the EU doesn't see any competition implications in bailing out Irish bondholders and not Cypriot bondholders.

In relation to water,  I wouldn't favour water charges being imposed retrospectively for 10 years. It has to questioned if this retrospective application is proper administration.