
A Tax Expert Takes Tim Cook's EU Letter Apart Point by Point - markdown
https://www.fastcompany.com/3063340/a-tax-expert-rips-tim-cooks-eu-letter-apart-point-by-point
======
dagaci
We often accuse authorities of going after the small, while leaving the big
offenders free.

The average individual working person has no negotiation when it comes to what
taxes they pay. The average business has to be very careful, fully aware that
they are at an extra competitive disadvantage compared to the international
mega-corporations who are effectively given huge financial subsidies by entire
nation states.

It’s not personal. Tim Cook knows that what's happening is right, but
nevertheless he is required to defend the tax advantage, same as the Ireland,
as with the US where mega-business and corporations have a strangle-hold on
government and law.

Every individual should support the EU. If the EU is defeated here it will be
a loss to the small man and small business. If defeated it will enshrine by
default the creeping imbalance of power that corporations have over the
individual nation and people.

~~~
blub
It boggles my mind that there are people supporting Apple in this. There are
so many of us that like to cheerfully screw themselves over to protect rich
corporations.

As an Apple customer I am not sure what to do in the future, if I should
continue to support them by buying their products. I hope they lose in any
case.

~~~
ramblerman
> It boggles my mind that there are people supporting Apple in this.

Boiling the argument down to "who" do you support is the 2 line news-byte
version of it.

This is about the law, and has some pretty big implications.

1) The EU is essentially attacking a law made in 2003 in 2016. To do this
retroactively for 13 years is far too long (imo).

2) If the EU wins the case, the money flows back to Ireland, in essence
rewarding the country who was out of line to begin with.

~~~
sangnoir
> 1) The EU is essentially attacking a law made in 2003 in 2016. To do this
> retroactively for 13 years is far too long (imo).

I'm seeing a lot of comments saying EU's action is "retroactive" or
"retrospective" \- it is not. The EU law was always there, and Apple _and_
Ireland were both in contravention for all the 13 years. Apple was in
compliance with Irish laws, while contravening EU law.

If the IRS audits you and finds that you underpaying taxes for 13 years - you
are going to pay all the taxes "retrospectively"! There isn't a 5-year statute
of limitations on illegal EU subsidies (or IRS tax evasion).

~~~
marktheknife
You're wrong, Sangnoir. The IRS has a 3 year statute of limitations on most
audits (beginning from date of filing return or date filing was due), 6 years
if essentially the numbers on the tax return are way off, and unlimited if
there is tax fraud. There was no fraud here.

~~~
sangnoir
_mea culpa_ on IRS statute of limitations - I am not a tax lawyer/accountant -
let alone an _international_ tax accountant. In addition, the Apple/Ireland/EU
issue is not directly a "tax" issue, but an _illegal subsidy_ issue by way of
taxes - and even that has a 10 year 'statute' from the time of enquiry by the
EU. Since the EU made the enquiries in 2013, the period covered became
2003-2015. Whilst there was no fraud in this case, EU law _was_ broken.

The rest of my point remains though - this is not a new law, but a decades-old
one.

------
zmmmmm
For years Cook and others have been taking the stance that they are just
following the laws and if people want them to pay more tax then they should
get the law changed, and then Apple will happily comply. Now we see the
hypocrisy: when faced with actual law saying they should pay tax do they
_actually_ happily agree to pay the tax? No, they turn around and say that
they object to the law and argue the law is invalid. So what we have here is
not a good corporate citizen just happily paying what taxes it is due. What we
have is just like any corporation: an entity that will cynically seek to avoid
and minimize its tax using any argument available and they have absolutely no
interest in paying their "fair share" or contributing back to society under
any tax system. So we have to just remember this next time they say "Well if
you want more tax, change the law" because that is a completely insincere lie
on their part.

~~~
Angostura
I think there is a difference between saying 'we comply with the law' and
being happy when someone retrospectively changes the law and then demands n
years payments under the new rules.

~~~
walkingolof
Nothing is changed retrospectively, in the EU you cant give one company a tax
break. Ireland knew this, but went ahead and did it anyway, Apple knew this
too, and took a chance.

~~~
d_theorist
It appears that this is the crux of the disagreement. Does the loophole that
Apple used constitute "giving one company a tax break"? There seem to be
reasonable arguments on both sides.

~~~
walkingolof
Yes, simplest way to validate this is to go to Ireland and try the same thing,
I pretty sure you will end up paying 12.5% tax no matter what.

~~~
marktheknife
You would now that they've changed their law. You would not have even a few
years back.

Apple's structures are a correct reading of international tax rules. The rules
should be changed; Apple should not be punished for following the law.

------
jeremysmyth
The article is trying to address a legal situation but uses terms like "that
doesn’t mean they’re paying anything resembling their fair share" and
"everyone is correctly saying Apple did wrong".

The moral/ethical viewpoint is being addressed here, not the legal one. If the
law is out of step with the moral viewpoint (as it so often is), then folks on
the moral side apply pressure to change the law. The law is supreme in our
part of the world, and arguments that ignore it are simply beside the point.

An appeal is exactly the right way to test the law, so we'll see at the end of
this process if the EU is actually challenging Ireland's tax law and its
legality in the context of the EU, or if there was, in fact, some illegal
activity on the part of Apple and the Irish government (as is suggested by the
extant ruling).

~~~
dghf
> The article is trying to address a legal situation

No, it's addressing a _letter,_ which makes moral and ethical (as well as
legal) arguments: e.g., one of the reasons why the EU's judgement is unfair is
that Apple already pays lots of tax.

The article is responding in kind.

------
blub
Disappointed in Apple and Tim Cook, this is the typical amoral behavior one
can by now expect from corporations and their CEOs.

It's always about the money.

What can we as EU citizens do to encourage these corps to behave? I'm thinking
an e-mail to Tim Cook wouldn't have much effect.

~~~
gambiting
Advocate for unification of tax laws across EU - then corporations lose
incentive to register in countries which offer them the largest tax discounts.

~~~
happy_tentacles
Tax unification - would in fact start with Fiscal Harmonisation.. That is to
say - tax rates can be different, but the underlying calculations how to
calculate income and expenses would be harmonised across the Member States of
EU.

We are generations away from Tax Unification, if it ever happens...

Fiscal Harmonisation - more like it, though save some global seismic event -
still a generation into the future.

~~~
danmaz74
Fiscal Harmonisation -> would be a good starting point.

~~~
blowski
I believe this is the political calculation the EU is making. Further EU
integration is unpopular right now, but not as unpopular as large corporate
tax dodgers.

This is partly about showing how only a big powerful EU can stand up to
companies like Apple, whereas small countries like Ireland have to beg for
tax.

------
jmulvi
It seems hard to defend Apple's position. The pushed their tax avoidance
strategies as hard as they could in Ireland until they were paying 0.005
percent in 2015. It would be wonderful if tech companies took this moment to
push for clear and transparent international taxation laws. Some of the tax
avoidance measures currently practiced can seem particularly unfair from a
layperson's perspective.

------
jmmcd
> Cook: [...] Apple has long supported international tax reform with the
> objectives of simplicity and clarity.

> Gardner: That bit made me laugh out loud. When the Senate’s permanent
> subcommittee was describing the elaborate tax-avoidance techniques used by
> Apple, they had to use flowcharts to explain it. The incredible complexity
> and creativity in the Apple tax-avoidance scheme is almost admirable. But to
> say that they are interested in simplicity and clarity is laughable.

This is a failure of reading comprehension by Gardner, which could only be
brought about by bias. Cook is not saying Apple's current arrangements are
simple. He's saying that he would like to see reform so that using simple
arrangements instead would not be detrimental to Apple.

~~~
pawadu
You comment makes zero sense. Apple themselves created an extremely complex
chain of operations to avoid paying taxes, nobody forced them to do it.

~~~
pas
They basically have an obligation to their shareholders, so the market forced
them to do it.

------
CamperBob2
As usual for headlines that contain phrases like "takes apart," "utterly
debunks," or "totally destroys," the tax expert's response does absolutely
none of the above. Not a single factual assertion in Cook's letter is
contradicted.

There should be an axiom comparable to Betteridge's Law for this sort of
headline.

~~~
blub
I think it's quite clear that Apple has a tax rate of 0.005% instead of the
normal 12%.

Can I also get such a discount? What about if I start a company, can I get it
then?

It's true that I don't hire thousands of employees, but I'm not rich to the
tune of hundreds of billions either.

It's all about proportions really. Let's all pay 0.005% tax and see everything
turn to crap around us. But we'll be rich!

~~~
rimantas
Is it really clear?

~~~
Arnt
I didn't quite get it... 0.005% of what? Profit on sales in Ireland? Profit on
sales in other parts of the world?

~~~
Wilya
Apple considers that all sales across Europe actually happen in Ireland, so
taxes on profit on sales in the whole EU are paid in Ireland. That part is
perfectly legal within the EU.

The issue is that the normal tax rate in Ireland is around 12%, and Apple uses
accounting tricks and tax exceptions to lower their effective tax rate there
to 0.005%. That is the part that the the European Commission ruled illegal.

~~~
pjc50
Effectively they argue that, in EU countries and India and Africa, the profit
happens in Ireland. This is done through transfer pricing.

In Ireland, they argue that the profits happen at a "head office" which was
not based in any country and did not have any employees or own premises.

(The ruling:
[http://ec.europa.eu/competition/state_aid/cases/253200/25320...](http://ec.europa.eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf)
linked from
[http://ec.europa.eu/competition/elojade/isef/case_details.cf...](http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_38373))
- search for "AOI"

------
atanasb
Let's summarise:

1\. Apple, like every other big corporation, uses a complex corporate
structure in order to reduce taxes legally.

2\. Irish government issues preferential rates and also advises Apple on how
to do it, directly breaking EU law.

3\. Five years later - Apple has to pay for the Ireland's preferential tax
rates.

So let me get this straight - according to EU law if I get told today that
Irish tax rate is 20% for example, 5 years down the line I can just expect
someone to send me a letter stating that actually - I got preferential tax and
I should repay another 20% on everything. Not to mention negative PR.

Can someone explain why people are angry at Apple when clearly they were
allowed to do it?

It is interesting watching how emotionally invested people get in scorning
corporations about legally reducing their taxes. Every small company owner I
have talked to has tried a few ways of legally reducing taxes - I can't see
why people hate on other people for doing the same thing.

~~~
snovv_crash
If somebody says they don't mind if you pay them below minimum wage, it
doesn't mean that it is legal. At some point in the future a lot of hurt might
end up coming your way, and you could be forced to pay them the remainder,
even if they say they don't want it because they might lose their job as a
result.

Similarly, just because Ireland told Apple that they could get low taxes,
doesn't mean that they were legally entitled to do so.

~~~
atanasb
I don't mean to provoke people to get downvoted to hell - I mean to understand
why people are hating on Apple.

Your example is not applicable here since below minimum wages are illegal to
begin with.

> Similarly, just because Ireland told Apple that they could get low taxes,
> doesn't mean that they were legally entitled to do so.

You are talking about the government here - not Apple. My point being - the
Irish government was at fault when they broke EU law. Why should Apple be the
one to compensate their error?

~~~
snovv_crash
Ireland agreed to the Treaty of Rome, in which they agreed to not provide
state aid to corporations. The EU commission's ruling is that the effective
tax rate of ~0% amounts to state aid via a tax break. In order to reverse the
state aid, Apple needs to pay Ireland the money that it was illegally allowed
to keep. That is why it is Apple's responsibility to pay back the money,
because that is the only way to ensure that the incentive of this tax-
favouritism is removed.

~~~
easytiger
> Ireland agreed to the Treaty of Rome, in which they agreed to not provide
> state aid to corporations.

Ireland do not agree they provided any such exemption. Do you have evidence of
a specific Exemption for apple?

~~~
snovv_crash
"Save as otherwise provided in this Treaty, any aid granted by a Member State
or through State resources in any form whatsoever which distorts or threatens
to distort competition by favouring certain undertakings or the production of
certain goods shall, in so far as it affects trade between Member States, be
incompatible with the common market."[1]

1\.
[http://www.hri.org/docs/Rome57/Part3Title05.html#Pt3TitVCha1...](http://www.hri.org/docs/Rome57/Part3Title05.html#Pt3TitVCha1Sec3)

~~~
easytiger
Again, please provide evidence that a specific deal was done for this specific
company, or even group of companies. I have looked and cannot find any such
thing.

------
ChartsNGraffs
Seems like they found a place that cost less to operate, so they did. That's
just good business and they'd be dumb for not doing so. If the EU wants to
change things, I support that going forward, but retroactively sounds fishy.

------
codecamper
I can't see how setting up an Irish company will allow me to skip paying the
30% app store tax.

Maybe Ireland should up it's game & slap Apple with a 30% charge! If Apple
wants to complain, they can hunt for an email address, not find it, and be
forced to fill out a little form, from which they will never hear back.

~~~
draw_down
...what?

------
jbmorgado
My only issue here is that Ireland get's to be the big beneficiary of this.

Ireland was in the wrong trying to strip the other EU countries of their due
taxes as much as Apple. This money should go to EU to apply a they see fit,
instead Ireland profits from it exclusively.

~~~
abraae
Yep. They've played a blinder.

------
uptown
Sure many companies won't incorporate in Ireland, but about half the United
States' corporations call Delaware or Nevada their "home" despite operating
elsewhere.

------
throw2016
There is a difference between legal and ethical and there is a dimension of
Apple's reputation that draws from ethical behavior.

Tim Cooks argument is I am successfull and am producing n number of jobs and
without my success the state would lose taxes from these x economic activity
so I should basically not pay taxes and be rewarded for my success with a tax
cut.

While this Somalia argument completely ignoring government services can be
made, its not part of the current economic and political system and social
contract in which Apple has grown, exists and benefits from in higly educated
employees and a rich stable ecosystem and marketplace.

We may not agree with laws but we hardly have a choice to comply because of
difference of opinion. The fact that one may have resources to game the system
does not make it right. No one is stopping Apple from having this discussion
but this does not give them any special privileges to avoid paying their fair
share or justifying the act post.

The bigger problem is the intentionally placed loopholes in the global
financial system to aid creativity in tax avoidance. This is not an accident,
these loopholes have been lobbied for and inserted by vested interests and
must be removed to retain credibility and trust in the global financial
system.

Or loopholes should be placed for everyone. As in individuals outsourcing
their labour to a holding entity in a low tax zone, being paid in this low tax
zone and importing funds as required by paying a small percentage than they
would be otherwise liable.

This race to the bottom will drive all individuals to these low-tax states as
it is driving crafty companies and the average state then won't have any
revenue to offer any services. This simply won't be be acceptable for
individuals and won't be accepted by any country, so why is it acceptable for
billion dollar entities.

------
beyondcompute
I am glad about my decision to switch away from the Apple smartphone. Now I'm
also thinking that I shouldn't wait for their laptops lineup update as well.
There's our little way of fighting for justice and for society's interests
against money-making paperclip maximizers. :)

~~~
Havoc
>I am glad about my decision to switch away from the Apple smartphone.

All the big corporates do this, not just Apple.

~~~
sveme
Serious question: How are asian companies set up when targeting the EU? Does
Samsung follow the same approach as Apple and other US companies?

~~~
Havoc
South Korea gives big tax breaks to its chaebol (form of conglomerate). So
effectively they don't need to funnel anything to Ireland/wherever because
their home country works just fine.

------
circlefavshape
One bizarre thing about this whole affair is the reactions on social media.
The EU has made a ruling based on the idea that markets must be free from
government interference, and facebook is full of lefties arguing in favour of
the ruling and right-wingers arguing against it

~~~
markdown
It's almost as if people want to be free to break out of the artificial
'lefties' and 'right-wingers' boxes into which others thrust them.

------
bryanrasmussen
IF Apple pays a fair share of their taxes right now, it has very little impact
on their position in the industry or their profitability.

I wonder how many of Apple's competitors could really say the same.

Fairness across the board, if it could be enforced, might be of strategic
benefit to Apple. Maybe they should analyze that before fighting against it.

------
zacharytelschow
"It’s clear as day—and this was one of the findings of the 2013 Senate
subcommittee—that there was no sensible business reason to set up those
subsidiaries except to avoid paying taxes."

The avoidance of paying taxes, the lowering of costs, does not qualify as a
"sensible business reason" to take an action?

~~~
NetStrikeForce
No one's core business is "avoid taxes". Apple's business is to sell computers
and entertainment.

Opening an office for the sole purpose of avoiding taxes is not a core
business, it's tax evasion, legal or not.

~~~
alphadevx
Apple's business is to make profit, same as anyone else. Revenue - Costs =
Profit, still holds true.

~~~
pjc50
Tax is computed _after_ the profit is made. What we're discussing is the
question of where the profit was made and which country's tax system it falls
under. If any.

~~~
alphadevx
Yes I am aware that profits are taxed and not revenue. Parent mentioned
reduction of costs as a compelling reason of locating in Ireland, as well as
low taxes. Corporations are legally obligated to maximize profit for share
holders.

~~~
pjc50
Well .. firstly, that's an over-reaching reading of Ford v. Dodge, and
secondly, the specific company that's located in Ireland (Apple Sales
International) doesn't actually have any costs if I've understood correctly -
it's a shell with no premises and no employees.

(In a corporate structure, _which_ company do you think is legally obligated
to maximise profit? The one at the top of the pyramid, or every individual
registered company?)

------
nateabele
"[T]hey’re using an arcane legal structure that is simply not available to the
many smaller businesses Apple competes with."

Either it's illegal or it's not. If it's not, then shut the fuck up.

The shame isn't that Apple is doing this. The shame is that more people can't.

------
njloof
For Tim Cook _not_ to write this letter would be a breach of his fiduciary
duties to Apple.

That said, this tax liability is a rounding error on Apple's balance sheet,
and I hope they pay it.

------
jsmthrowaway
I'm most interested that multiple commenters in this thread are so egregiously
conflating legality and morality, particularly when discussing a corporation
in a capitalist system. I'm as liberal as it gets and I probably wouldn't link
corporate taxes under capitalism and morality, for a few distinct reasons.

~~~
blub
Laws are finely-tuned reflections of morals - they are mostly about fairness
and enabling society to function in an orderly way.

How did laws evolve? Why do we punish theft anyway?

What Apple (and Google, Microsoft, probably others) is doing is certainly
immoral. It's likely also illegal.

~~~
jsmthrowaway
No. The entire point of law is to completely eliminate fairness, morals, and
other squishies as deciding factors involved in a judgment. We punish theft
because it is against a clearly defined set of laws, and because at some point
lawmakers determined that we should. We notably do not punish many immoral
things, and punish many moral things; introducing morality is dangerous and
undermines the whole thing.

To use your theft example, think about a Robin Hood type situation; should we
overlook sidestepping of the law when it fits with our morals and squishies?
No. The law is the law.

That edge cuts both ways. In some ways it supports your argument. In others it
does not. Introducing morality makes your argument totally different (and, in
this case, irrelevant until the United States and Ireland adopt socialism).
I'm a bloody liberal and I'm saying that; we can't expect capitalist entities
to operate in anything other than their own self interest or we actually don't
want capitalism. Can't have it both ways. How do you define fair for a
corporate person?

I'm very intentionally avoiding commenting upon the specific situation aside
from saying it's weird to come at this morally when discussing a paper entity
with clearly defined goals within a particular system of government.

~~~
blub
(I didn't downvote you, but...) I think you're ignoring the fact that laws and
morals can't be completely decoupled.

Yes, morals should not play a role when --applying-- the law. But the reason
the law exists is ultimately a moral one. When the punishment is flexible, the
judge will normally apply moral arguments to support a more lenient or harsh
sentence.

Why did we determine at one point that we should punish theft? Maybe we were
wrong and should repeal those laws.

I think you will have a very hard time doing this and most counterarguments
will be moral ones.

~~~
jsmthrowaway
We got into this with taxes which are pretty much the opposite of rooted in
morality. You successfully strawmanned theft and judges and sentences, I
stupidly rose to that challenge with perhaps an over literal interpretation of
law to make a point, HN encourages downvoting for disagreement, and here we
are, having a conversation where you have to be sympathetic to me for being
downvoted before you can make your point.

Ever ask yourself why?

Anyway, it's corporate tax law. The assumption that a corporation is being
unfair by using every legal remedy available to it disagrees with how
capitalism is supposed to work, or so they tell me, and I really don't care. I
literally ran out of steam on making this point while typing this comment
because it's 3:30am and matters approximately zero, so I have to ripcord on
this. Sorry.

~~~
blub
I said theft, because tax evasion is ultimately a form of theft. Theft from
us, because we pay our taxes and the government uses that to build
infrastructure which allows companies like Apple to function.

And then they take that and give us 0.005% of their profits in return. Thank
you for the generosity? No.

This form of aggressive, "everyone for himself" capitalism works, for a
definition of works equal to making certain people rich beyond their dreams.
Why should the common man support that? For a phone?

Good night :)

~~~
jsmthrowaway
Okay, but understand that your entire comment can be translated to "I don't
actually want capitalism." Do you understand my point now?

You can't have fair corporate expectations and capitalism. They are mutually
exclusive and every case of corporate leadership trading value for moral
causes can likely be successfully fought on fiduciary grounds. Capitalism is
not aggressive. It just is. The incentives are created in a certain way. This
is like saying you'd rather play chess if there was a third color; there's
nothing wrong with wanting to play that game instead, but let's not call it
chess any more. Dig it?

I don't even disagree with you entirely (again: liberal! Look at me typing
this conservative wet dream!), I'd just rather see you make the anticapitalist
case as opposed to appealing to morals.

If you ran a corporation in the United States and volunteered to pay more
taxes on moral grounds you'd very likely be in breach of fiduciary duty if
someone pressed the issue. That's what I'm saying. We have built a certain
house and we can debate whether it's a good house, but we also can't be
surprised and morally outraged when the incentives of the system are followed
to their extremes.

~~~
blub
I don't think that the system must be in a certain way. We should not be too
dogmatic about what capitalism is, but rather ask ourselves what is desirable
for a healthy society and work toward achieveing that.

Fair corporate expectations and capitalism are not mutually exclusive. If the
result will not be called "capitalism" is not so important for me.

I don't want to make an anti-capitalist case, because I am not opposed to it,
but rather certain aspects and behaviors. I think you're arguing that those
are intrinsic parts of capitalism.

