Well, that’s me wrong then

€13 billion?

How in buggery have they managed to calculate that?

Yes, that’s me completely wrong.

Think I’ll keep quiet on this one until we see how it goes.

42 thoughts on “Well, that’s me wrong then”

  1. To my totally untrained eye, it looks like the panjandrums in Brussels are saying that there was a fictional corporate structure which didn’t have any economic basis. (A sales “head office” was credited with income from apple sales international and apple equipment international, but said head office was only a board that met a few times a year).
    So, because the head office was a fiction, all the income from 2005-2015 from the sales and equipment subsidiaries needs to be taxed at full Irish corporation tax rate.

    So not a simple transfer pricing haggle after all.

  2. Golly, if having a bogus office in Ireland is going to be treated like that, the Irish economy will collapse all over again.

    Why don’t we reduce our Corporation tax rate to 10% and scoop up all the refugee companies?

  3. As I pointed out in my comment on your original post: its not the tax rate that is the real issue, it’s the transfer pricing methodology. The EU is arguing that Apple can’t use a cost plus model to price the IP supply to its Irish subs. The EU has just ripped up the OECD rules on transfer pricing.

  4. Yeah, for the moment Tim. But at least you admit it. Will be interesting to see how it goes, so don’t shut up totally.

  5. BBC R4 news is saying that Apple sales in the EU outside Ireland are booked to a head office that doesn’t physically exist in any jurisdiction and hence no tax is paid.

    This seems so bonkers to me that I urgently seek reassurance that this can’t be right.

  6. From the IRS statement from your Forbes article;

    “If so, the companies’ U.S. tax liability would be reduced
    dollar for dollar by these recoveries when their offshore earnings are repatriated or
    treated as repatriated as part of possible U.S. tax reform.”

    Probably gives the game away, as far as I can see. The EU have decided to stake their claim to a chunk of MNC cash piles, effectively by blaming the Irish, as opposed to, say, the French, before the US gets their ducks in a row and sticks their oar in.

  7. Ducky

    The EU have decided to stake their claim to a chunk of MNC cash piles, effectively by blaming the Irish, as opposed to, say, the French

    isn’t the EU’s intention that the Irish (rather than the EU) take the money from Apple?

  8. PF, yes. So there seems to be fair bit of conflating going on on reports, and in the Commission statements for that matter.

  9. PF, yes entirely. But consider that if the tax is paid to the Irish, then surely there must have been economic activity in Ireland; presumably there will be some effect on Irish GNI over the period (that €13b is 12.5% corporation tax so notional profit about €104b?), so the Commission can adjust Irish contributions/receipts accordingly and retrospectively. Much easier for the Commission to shake down the Irish than the French.

    (If the Commission were to attempt to take the cash directly from Apple, you’ve got a very odd situation indeed. A supranational treaty based organisation, not itself party to any taxation treaties as an entity in itself, attempting to recover tax apparently due to a national government, against the publicly stated position of said national government. Very peculiar. Everyone probably gets extremely pissed off extremely quickly)

    Having then established that the Commission has the power to make these sorts of determinations about tax law over national governments, it would then be able to harmonise (probably capriciously) tax across member states (assuming that the Irish appeal to the ECJ, who eventually side with the Commission), without any member having explicitly signed up to it via treaty. (On the assumption that there’s nothing in Lisbon that’s clear and explicit). In this scenario, something that looks like fiscal union is achieved via the ECJ, and the Eurozone can be saved (or those bits that deserve it, obviously). Plus they get to stick one over the vulgar Americans, before they get all supranational again.

    Quite where this would leave the internal constitutional arrangements of the member states is up for debate, probably in a somewhat robust fashion.

  10. How in buggery have they managed to calculate that?

    Throw two dice. Put a ‘bn’ after the two numbers you see. Hey presto! Your tax liability.

  11. Am I the only one who laments Tim’s previous regular and plaintive posts on the EU (now no longer made it seems since the referendum) and which said:

    “Can we leave yet?”

  12. What does the EU think this will do for business investor confidence? You operate in a country for years and years under one set of rules, and then the EU comes along and says, no, sorry, you need to pay 20 billion euro?

    Thereare apparently 1,000 foreign owned corporations in Ireland operating under similar rules. They appear to be trying to create Greece 2.0.

  13. I think the claim is that as the transfer pricing agreement amounts are ‘incorrect’ the agreements don’t exist, so all profits are with the Irish company and taxable in full.

    This gets a good headline.

    Apple and Ireland will agree new transfer pricing and actually pay a few million in additional taxes. They will hope this doesn’t get any headlines.

  14. How in buggery have they managed to calculate that?

    It looks like they took 2% of the market capitalization and ran with it. As 2% is the just noticeable limit for most human activities any more would have made what they did obvious to everyone.

  15. JerryC – a couple of d10 dice would do. 10 sided.

    2d10 rolled in gamer parlance
    Can achieve similar (except with number 1) on a d20.

  16. “How in buggery have they managed to calculate that?”

    Simple. Worked out the shortfall in EU income after Brexit for one year and charged it to Apple.

  17. Well, let’s work backwards. Irish CorpTax is 12.5%, for nice round figures assume Apple have been in Ireland for 25 years, and it’s E12.5bn unpaid tax.
    So, that E12.5bn is 12.5% of Apple’s profits, so Apple’s profits were E100bn, that’s over 25 years so E4bn profit per year.
    The sums make sense, does the size of the annual profit make sense? What’s Apple’s profit margin? A completely random ballpark figure of 50% profit margin would mean E8bn of turnover per year, just in Europe.

  18. Justin – that would be d6. As ordinary as a d4, d10, d20 etc.
    d6 would be quite limiting in working out tax. Perhaps they secretly had a d100.

  19. Maritime Barbarian

    The BBC said Apple can easily pay up, as they made $50bn last year.
    Justice, and the law, trumped by greed.

  20. I like the comments of Michael Noonan today:
    “The Commission has stated that:
    •The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period.
    •The amount of unpaid taxes to be recovered by the Irish authorities would also be reduced if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts.

    This illustrates the contradiction at the heart of the European Commission’s decision. While requiring Ireland to recover the tax sums, the Commission is also acknowledging that the sums may in fact be taxable in other jurisdictions.”

    I can’t fault his reasoning. If there are agreed rules as to where economic activity is subject to corporation tax ( where the value is added, economic reality, that sort of thing ), then why has the Commission effectively conceded that it really doesn’t know where the tax is rightly due.

  21. I can’t say I’ve been following this much.

    Won’t Apple have been paying CT elsewhere on the amount not charged by the Irish government? Or has the “bonus” been sitting offshore somewhere?

  22. Still, you have to giggle a bit as Apple are total shits.

    I must admit to a little tingling of Schadenfreude, indeed.

    The BBC said Apple can easily pay up

    So that’s the BBC’s position, then? Willie Sutton tax policy? So much for the law, I guess.

  23. This is not going to end well. Or it ends in the 1930s.
    The US already has a law saying they can retaliate at three times the rate of corporation tax.
    That would be 105% of profits.
    Makes BP getting into bed with the Russians sound a smart move.

  24. As an appeal basis would Ireland have to prove that other multinational consumer electronics firms were offered, or would have been offered the same deal? This was about competition after all

  25. Still, the US is fond of shake-downs of banks and other non-US corporations, its a bit rich to moan about it now.

  26. Anyone know properly how it was meant to work?

    “Under the agreed method, most profits were internally allocated away from Ireland to a “head office” within Apple Sales International.”

    Apple Sales International must have been non-resident in Ireland. It was incorporated there, but I think the Irish allowed Irish-incorporated companies to be non-resident so long as the Board-level control was outside Ireland (as the UK used to, although I think we stopped that in the 1980s).

    So if it’s non-resident, it’s only taxable in Ireland on its Irish-source income, so anything that comes from the Irish branch is taxable in Ireland, anything else isn’t. You have to treat the different branches as if they’re separate companies, and allocate profits between them on an arms’ length basis.

    In which case I’m with Tim; you can challenge the transfer price between the different branches (i.e. the amount of profit allocated to the non-Irish branch), but they’ve not done that. They’ve said that the company’s entire profits should be taxable in Ireland just because part of its operations are there and the other part don’t seem to be anywhere in particular. That leaves the taxation of international companies a bit shaky.

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