Apple’s profits, tax and transfer pricing

So, Apple has had to pay more tax in the UK:

Apple has paid £137million in backdated taxes after a probe by UK authorities.

The iPhone maker handed over the cash after an investigation into how much it paid the taxman from 2011 to 2015.
….

Inquiries centred on London-based Apple Europe Ltd, which has nearly 800 UK staff and provides business support and marketing services to Apple’s other companies. HMRC argued it was not paid enough commission for these services, meaning its profits ended up being lower than they should have been.

Apple Europe reported sales of £644.7million and profits of £51.1million for the years 2011 to 2015 but paid no UK corporation tax. It was instead due a £7.3million tax credit.

No, this isn’t as a result of campaigners. It’s not a result of new rules. It’s simply the application of the old rules.

The key here is “transfer pricing.” All a bit complex but essentially, subsidiaries of the same company should price transactions between them as if they’re not subsidiaries of the same company. The “arms’ length” principle. What’s the price a truly independent business would charge for this? That’s what the price should be.

HMRC has the current right to, and has for some time, challenge the prices which people do charge themselves internally. A few years back Starbucks changed the royalty rate it charged itself for example. HMRC was looking cock-eyed at the one they were using (from memory, 6%) and “suggested” that a lower rate was a good idea (4% again from memory) in the sense that nice business here, be shame if something happened form of “suggestion.”

This is what has happened here. HMRC has suggested that Apple Inc (or some part of it) isn’t paying Apple Europe Ltd enough for the services it provides and that a true market price would be a little higher. Thus leading to more profits in the UK and a higher tax bill.

No, this is nothing about selling from Ireland, scooping the money off to Bermuda or anything like that. This is straight transfer pricing stuff, all entirely and wholly already in HMRC’s power.

As shown, obviously, by the fact that they’ve just won, eh?

£30 million a year too. We can pay for a lot of Corbyn with that, right?

6 comments on “Apple’s profits, tax and transfer pricing

  1. And this article on transfer pricing appeared in the Daily Mail eh. No wonder Richard Branson is banning it from his trains!

  2. A few thoughhts:

    1. Yes, this shows HMRC has the powers in its possession. And the resources if applied properly. Richard Murphy’s counter narrative is the nonsense of the ignorant.
    2. HMRC didn’t ‘win’; the parties reached agreement.
    3. Sorry Tim, but the only thing thing HMRC can ‘suggest’ is “Well, if we can’t agree, how about we go to Court and see what the law actually is?” If any inspector has ever suggested anything more to you then i) he was bullshitting and ii) your tax advisor was a bit shit not to tell him where to go.

  3. Looking at the issue fom the other side, presumably there is another country which has lost around £137 million in tax as “profits have been shifted offshore” to the UK……

  4. Ironman

    Re 3), I don’t disagree with you – and clearly this isn’t relevant to the Apples of this world – but the reality of “going to court” for a small business (putting all of its efforts into doing what it does and with few legal / financial resources) might not be so far different from the implication of Tim’s “rhetoric”!

  5. Further to Nautical Nick’s point, my involvement (although it dates back twenty years or so) in transfer pricing (chemicals, between US, Canada, EU, and a couple of others) was that the transfer pricing discussions were as often as not arguments between the two (or more) taxing authorities, with the company serving to facilitate and coordinate between them, and sometimes try to conform the arguments made by each of the authorities.

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