Alleged Apple tax avoidance deal with Ireland under investigation by the European Commission

By Harish Jonnalagadda
last updated

The European Commission is getting set to launch a formal investigation into whether Apple's tax arrangements in Ireland are legal, or whether they qualify as illegal state aid.

The focus of the investigation centres around two Apple subsidiaries that are based out of Ireland: Apple Sales International and Apple Operations Europe. Ireland is seen as a tax haven for various multinational corporations around the globe, which establish subsidiaries in the country to take advantage of the lower tax margins (12.5 percent) when compared to other EU member states.

However, a U.S. Senate committee found last year that Apple was paying less than 2 percent tax by channelling money through its Irish subsidiaries. While Apple vehemently denied these findings, its annual report showed that it paid a tax of 3.7 percent in Ireland, way below the 12.5 percent that is considered to be the norm.

The EU commission is looking to determine whether the Irish tax arrangements Apple had in place allowed the manufacturer to unfairly benefit from the tax breaks, in which case they will be considered illegal state aid. Ireland's "tax rulings" with Apple allowed the manufacturer to carry out transfer pricing schemes, which refers to the "prices charged for commercial transactions between various parts of the same group of companies, in particular prices set for goods sold or services provided by one subsidiary of a corporate group to another subsidiary of the same group."

Transfer pricing schemes influence how the company declares the total amount of taxable profit it has accumulated between various subsidiaries around the world.

"If tax authorities, when accepting the calculation of the taxable basis proposed by a company, insist on a remuneration of a subsidiary or a branch on market terms, reflecting normal conditions of competition, this would exclude the presence of state aid. However, if the calculation is not based on remuneration on market terms, it could imply a more favourable treatment of the company compared to the treatment other taxpayers would normally receive under the Member States' tax rules. This may constitute state aid."

While this investigation will not have an immediate impact on Apple's share prices, it will likely bring forth new policies that change the way multinational organisations operate within the EU.

Source: Europa

Harish Jonnalagadda
Harish Jonnalagadda

The clumsiest man in tech.

9 Comments
  • Very good. I love Apple, but I hate tax dodgers; and Apple is not alone in this, by far, as other huge companies do the same thing. They are paramount to the reason why America has lost its soul. Make them pay.
  • I don’t have a problem with this per se, but there are two things that annoy me;
    1. The government is just as corrupt as all of these big corporations but who is going to police the police?
    2. Even in the instances where the money derived from taxes is spent in a legitimate manner, and I have experience of this, the waste is tremendous. You end up with a situation where a local council contracts out some work and that work is then sub contracted out three or four times over. This means that the public purse is emptied very quickly as that originally £100 job is marked up a number of times by a number of businesses/people to £750!!!
  • Agreed. If this investigation is focused on Apple with proof of wrong doing by Apple, fine. Apple should correct the issue and pay any fines. However, if this is just a case of going after (one of) the biggest public names? Where Apple is acting within the law 100%, then the government is best served changing it's laws, not witch-hunting.
  • I have a different view. I say good for them if they managed to dodge some taxes. I don't have a problem with people that take advantage of loopholes, I have a problem with how my tax money is being spent. As for tax dodging, do you cut your state a check whenever you make an out-of-state purchase and have it shipped in? Want to fix the system? Have a flat tax so that everyone pays the exact same percentage. I mean, that would be fair right? Have there be no loopholes at all and just charge a flat rate. Either that or do sales tax and stop income tax.
  • 1. No a flat tax rate is not fair. It doesn't take into account the ability of the wealthy to exploit the system for their benefit at the expense of the poor (case in point, most CEO's aren't really worth their increasing multi-million dollar salaries while their lowest paid workers get by on less than cost of living wages). 2. This is about international finances. Who's going to enforce a flat tax rate across all countries?
  • > I hate tax dodgers I get the impression that you mean tax fraud, not paying the taxes you rightfully have to pay under the rules. That is not what this is about. We all try to minimise (dodge) the amount of tax we have to pay, and there are rules for that. Large companies do it just like we ourselves do, it's just a matter of scale. It's perfectly legal. If states want to collect more taxes, they should simply change the rules. But that is not how this works in politics. Ireland has a sweet deal with Apple (and no doubt other companies) and other EU memberstates by now want in on the action. They all know the deals are legal, so they have to create an excuse to "investigate" by an institution that is as democratic as a communist party. So they let someone say that Apple "dodges" taxes, declaring in fact that Apple is operating legally while at the same time creating with the public the impression that Apple commits tax fraud. Rinse, repeat, and after a while you have the political support for an "investigation" that will likely lead to a "tightening" of whatever rules and probably not to persecution in court. We're being played all the way to the bank, or you might say, taken to the cleaners. It's not rocket science.
  • It may be legal, but that doesn't mean it's right. Jurisdictions have a right to legislate for fairer taxes.
  • The only thing I am saying on this is: There are two ways of doing things: 1) A shell corporation (It is just a name and nothing is really done there but money funding) 2) What Apple is doing via Tax-Margins in other countries.
  • The worst offenders are the officials of local government. In our country (USA) Senators, Govenors etc., many of these politicians are paying less than the middle class family. I say if there are legal lupos in the law by all means use it. Any company who doesn't use these legal lupos are not doing right for their shareholoders.