
Apple’s rotten appeal - mpweiher
http://www.politico.eu/article/opinion-apples-rotten-appeal/
======
jholman
Half the comments here refer to Ireland offering Apple some special deal. To
the best of my ability to determine (IANAL), there is NO special deal. Apple
is simply using a bog-standard Double Irish arrangement. It's a very common
income-structuring arrangement for transnational corporations.

Every comment that says "this'd be fine if Ireland let every company do it"?
Guess what, Ireland lets any company do it. No signup required. It's just how
corporate income tax law works in Ireland.

I agree that tax havens are bad for civilization, and it seems to me that the
EU's ruling is in a generally pro-civilization direction (whether or not it
is, in fact, legal, under current EU law).

Also, when people say "why is the EU allowed to rule on this", the answer to
such questions is always "because the member state (in this case Ireland)
first agreed to a treaty, and then ratified that treaty by creating an Irish
law saying that Ireland had to obey the rulings". That's how treaties work.
I'm not saying that's a good thing (I have serious concerns about the
interaction between international treaty processes and what's left of
democracy, but repairing it isn't helped by misunderstanding the mechanism).
Again, the EU high court has jurisdiction because _Irish law says it does_ ,
backed up by the probability that if Ireland flouts it hard enough, long
enough, other member states are likely to jointly retaliate.

~~~
wavefunction
I believe Ireland is failing to even charge Apple its statutory tax rate,
which is why the the whole kerfluffle over Europe claiming back taxes are owed
to Ireland, Apple claiming they don't, and Ireland claiming they don't want
the taxes because they fear it will trigger a move by Apple from its shores.

I assume offering deals like that runs afoul of international trade
agreements.

~~~
Retric
What deal? Ireland has tax laws on the books and Apple is following them.
Ireland also has a law on the books saying it must comply with the EU.

Nothing about this has anything directly to do with Apple. The real question
is which of Ireland laws 'win'.

~~~
akvadrako
This is not about Irish law, but EU law. Ireland has to follow EU laws because
the EU says so, not Irish laws.

~~~
zigzigzag
The actual problem here is that no, it's not EU law.

The EU has a fixed set of "competencies", i.e. areas of law it controls.
Taxation is _very very explicitly_ not one of them. Member states did not ever
sign up to letting the EU Commission control their local tax rates.

The EU is now trying to work around the treaty-defined limits on its own power
by redefining low tax rates as "aid". Beyond the Orwellian doublethink
required to define taxation as aid, this is a problem because if it's allowed
to define tax rates France and Germany don't like as "state aid" then the EU
has effectively increased its own powers far beyond what the treaties were
written to allow, without any kind of democratic process or even consent of
the national leaders.

~~~
ThePhysicist
It is simply not true that there is no legislative basis for the EU
prosecuting Ireland. The relevant document is the "Treaty on the Functioning
of the European Union", especially article 107 ([http://eur-
lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A1...](http://eur-
lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A12008E107)), which is quite
explicit about what is allowed and what is not in terms of government
subsidies:

"Save as otherwise provided in the Treaties, 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 internal market."

Taxation is explicitly mentioned in the text as a form of subsidy, hence the
EU does not overreach when it tries to enforce the regulations that the member
states have agreed upon. It is of course debatable when a taxation is too low,
but an effective tax rate of 0.005 percent provides enough evidence of a
hidden subsidy to justify the punishment (IMHO).

~~~
zigzigzag
Thanks for the link. Like a lot of EU law, that text is so vague as to be
meaningless.

Perhaps this counts:

 _3\. The following may be considered to be compatible with the internal
market: aid to promote the economic development of areas where the standard of
living is abnormally low or where there is serious underemployment ... aid to
facilitate the development of certain economic activities or of certain
economic areas, where such aid does not adversely affect trading conditions to
an extent contrary to the common interest;_

Or perhaps it doesn't, given that this is stated as "may be incompatible" not
"shall be incompatible".

Though I did get a laugh out of the explicit exception for Germany that can
only be removed if the Commission allows.

Like I said - as written this text could be seen as forbidding even very basic
things like VAT, as it doesn't apply to all types of goods or applies at
different rates and thus "favours certain undertakings".

~~~
ThePhysicist
The exception for Germany is to account for subsidies that are given to East
Germany, which had to be "pulled" to the level of the West after the
reunification, but which still lags behind even to this day. BTW the
commission is currently pursuing Germany for being too lax with Volkswagen
after Dieselgate (and I'm happy they do this). So, for me the fact the EU
commission can do this is one of the positive sides of the European Union.

------
IBM
It's pretty obvious why Apple's appeal is based on procedural grounds and
that's because the EC decision is against Ireland and not Apple.

[http://www.finance.gov.ie/sites/default/files/161219%20Summa...](http://www.finance.gov.ie/sites/default/files/161219%20Summary%20of%20Appeal%20Grounds%20Publised%20under%20Embargo.pdf)

Ireland's appeal gets into the meat of it. I've been reading about this case
as well as others against Luxembourg and Netherlands and I suspect it's very
likely these decisions by the EC will not survive appeal. The use of state aid
laws in this way is novel and the precedent it would set if they somehow
prevailed would be a massive shift in sovereignty from member states to the
EU.

Low tax member states like Ireland have been under political assault for
decades and this is the latest attempt to redress something the EU has no
power over. If the EU wanted a unified tax regime across all members it should
have been designed that way from the outset, but then the EU project may not
have ever taken off if it required ceding so much sovereignty.

Politically it seems like these cases can backfire massively. I suspect that
when the EC began these investigations they didn't expect Brexit could happen.
The implicit gamble they're making is popular support for combatting tax
avoiders will be greater than rising Euroscepticism.

EDIT: Just to be clear because it seems my comment is being misunderstood by
several people, my second paragraph is my comment specifically about this
case. The third paragraph is my explanation of the political context in which
these cases have been brought. It's obvious these cases aren't about tax rates
(it is indirectly, which was my point) because the EU pretty clearly has no
authority over that.

~~~
Hermel
Apple might be able to get away here for now, but laws will continue to be
adjusted in order to make it harder and harder to arbitrarily move profits
around. This is an ongoing process that has started years ago. These legal
adjustments are all aimed towards making sure that profits are taxed in the
country in which they are actually generated. In the worst case, this will end
up as a cat-and-mouse game between governments and corporations and lead to a
bureaucratic nightmare, which would be entirely avoidable if companies like
Apple were more honest to begin with. And don't tell me that companies have a
"fiduciary duty" to avoid as much taxes as possible in order to maximize
profits. That's a myth. Shareholders are completely free to define the purpose
of a company in its articles. And in fact, the articles usually don't say
"maximize profits at all cost", but are kept general enough to allow for
paying taxes as it was intended by the law.

~~~
lambdasquirrel
When an iPad is sold in Germany, does Apple pay VAT in Germany or in Ireland?
(Serious question. I don't live in the EU.)

~~~
doikor
Apple doesn't pay the VAT the consumer does. That is why Apple products costs
roughly 30% (24% VAT + some extra due to fucking up the dollar to euro
conversion) more in Finland when compared to US even though they ship directly
from a factory in China.

~~~
jdmichal
Yes, the consumer technically pays the tax. However, Apple acts as the
collector of the tax from the consumer, and is responsible for "passing it on"
to the appropriate tax authority. So, the reform the asked question: What tax
authority does Apple report and pay the taxes to?

And the answer is that the EU regulations state that VAT taxes are to be paid
in the country in which the transaction takes place. If the transaction is
online (and potentially therefore spanning multiple countries), the _customer
's_ location is used as the place of transaction.

------
throwayawnotime
Where do I sign to pay 0.005 percent tax on my income?

~~~
taf2
First you have to promise you'll provide at least a 4% employment boost in my
town. e.g. (total jobs 5,500 and total population 119,230 or 4.6% in the case
of Cork Ireland)

Then assuming you agree to keep those jobs in my town for the next 10 years
and considering the average salary of the employee you hire is a bit more than
most in the area. There income tax combined with the increase in aggregate
sales on goods and services it might be a good deal for the area. At least
this is the typical rational for tax incentives. The issue with tax incentives
is IMO is they create the perception of corruption (and in many cases maybe
real corruption) - favoring one business over another etc...

~~~
jbob2000
You need a bit of context around Ireland, too. Ireland has been suffering from
a mass exodus of young workers over the last few years. At its height, 10,000
young adults a week were leaving the country. Nobody wants to live in cold,
rainy mountains working as a miner or fisherman. The thought was that if they
could attract some swanky tech companies, the next generation of workers would
be more enthused about staying in the country.

~~~
matt4077
I believe "the last few years" is the wrong context. These tax deals began in
the late 70ies, at a time where Potato and Fish were the dominant industries
of Ireland. It's easy to forget that they've experienced massive economic
improvements since joining the European Union.

------
rem1313
The tax haven system is deeply flawed and I hope this gets the ball rolling in
making these types of deals less prevalent.

~~~
geodel
I think it is about as flawed as negotiated salaries by well qualified
software engineers. I do not see clamoring for standard salary rate for $73K
or some such in silicon valley because it is much more accessible to everyone.
Instead we will negotiate and settle for 2-5x of that amount. Companies or
people negotiate to get much better deal for themselves.

------
randyrand
>0.005 percent

C'mon Politico writers. Do you really not know the difference between and
0.005 percent and 0.005? You are off by a factor of 100! Apple is allegedly
taxed at half a percent! Not 0.005 percent!

I guess there's a reason journalists are known for their writing and not basic
math skills.

Moreover, Bloomberg reports this alleged tax rate is entirely made up (funny
given Politico is all about fact checking) and there's no primary source
affirmation of it:
[https://www.bloomberg.com/news/articles/2016-09-01/pinning-d...](https://www.bloomberg.com/news/articles/2016-09-01/pinning-
down-apple-s-alleged-0-005-tax-rate-mission-impossible)

~~~
scott_karana
Oh lord, it's this all over again:

[http://verizonmath.blogspot.ca/2006/12/verizon-doesnt-
know-d...](http://verizonmath.blogspot.ca/2006/12/verizon-doesnt-know-dollars-
from-cents.html)

------
ebbv
I hope the EU wins. Tax havens need to be illegal. In the US they have created
a race to the bottom between economically struggling states. States compete
with each other to offer the most incentives and the only ones who win out of
this are the corporations.

~~~
ams6110
Well, the citizens of those states, who find employment with those
corporations, also win, do they not?

~~~
ebbv
Nope because the state is subsidizing the companies and who pays for the state
to run? They do. So they end up with infrastructure and education budget
shortfalls.

------
bardworx
My wife is a CPA and works for one of the "Big Four" AND her engagement
currently involves auditing an investment firm in Ireland, and the EU.

After speaking with her, and getting her opinion, it seems most comments about
this situation are rooted in too many arbitrary feelings without an
understanding of how the tax law actually works.

The crux of this issue is that US has a global tax code while EU has a
localized tax code. What EU is proposing is really interesting because, if
they win, Apple would be taxed twice, once on the money that their holding
company has in Ireland and again once that money is brought over to the US.

EU doesn't seem to care what other tax codes there are as their tax code is
upheld by each conuntry in the EU and then there are EU panels that test for
anti-competitive practices, etc.

This raises issues in soveirnty of Nations if EU can supersede their tax code.
It also raises a bunch of ethical issues within the EU when a company
(investment institution) is based in one country while investing in another.

To minimize the words written, from what I gather is this:

Apple's situation is difficult because their argument is that they did not
create (IP) in Ireland so they do not owe full corp tax on holding their money
there. However, they pay all sales, (current) corp, etc. tax for all of their
products where the item is sold or employees are working. Hence, this tax
isn't a sales but a different classification of corp tax. They are being asked
to pay taxes as if they are an Irish company that creates or manufactures
their product in Ireland. Not as a holding company that pays their standard
tax rate. There a lot of semantics in that statement and it's difficult to
reiterate the explanation without a full blown essay.

For the rest of EU, their tax code is a clusterfuck (for lack of a better
term). Companies have to pay taxes in the country they do business + country
that's their "Home". So an investment firm will have separate tax
rates/brackets as the money moves acoss borders. This gets really complicated
when countries are doing business outside of the EU but have their base there.
There is also an issue with which currency the taxes have to be paid in (seems
trivial except the exchange rate isn't stable).

By all accounts, this looks like a pissing contest between EU and US firms and
their stance can have global ramifications that are not foreseeable. One
interesting perspective my wife raised is that because taxes are paid in "home
county" currency, manipulation of the market becomes a viable option for
multi-national EU/US/Workd orgs to lower/raise their taxes paid. This seems
far fetched but a tiny change becomes big money on something like 14B (I doubt
Apple will resort to such tactics because of money involved).

TL;DR Apple pays taxes they are suppose to pay per Irish tax code. The money
held there would be taxed if they move to US or if they invest/purchase items
in Ireland/EU. Currently proposal is using a loophole within a loophole to
attempt to double tax Apple (or any other company they choose to go after).

~~~
pawadu
> TL;DR Apple pays taxes they are suppose to pay per Irish tax code

small addition: the Irish tax code was found to be illegal.

~~~
bardworx
> small addition: the Irish tax code was found to be illegal.

By Whom? If the Irish found their tax code to be illegal, that makes no sense.

If the EU found Irish tax code to be illegal then the word "illegal" becomes
ambiguous as it involved Sovereignty of a National tax code vs EU guidelines.

EU doesn't have a standardized tax code so finding something illegal would
imply there are rules and unifications, which there aren't.

Here [0] is a 10 page summary of every tax code that is in the EU. By 10 page
summary I mean 10 pages of actual tax code that then leads to the actual code
that is per country.

EU's system isn't unified...

[0]: [https://www.scribd.com/doc/234210334/Oracle-
EBS-R12-European...](https://www.scribd.com/doc/234210334/Oracle-
EBS-R12-European-Localization)

~~~
pawadu
> If the EU found Irish tax code to be illegal then the word "illegal" becomes
> ambiguous as it involved Sovereignty of a National tax code vs EU
> guidelines.

translation: I choose to accept the court that agrees with me and bluntly
question the higher ones that don't

> EU doesn't have a standardized tax code so finding something illegal would
> imply there are rules and unifications, which there aren't.

I just leave this here for your amusement: [http://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELE...](http://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:12008E107&from=EN)

~~~
bardworx
> translation: I choose to accept the court that agrees with me and bluntly
> question the higher ones that don't

> I just leave this here for your amusement: [http://eur-lex.europa.eu/legal-
> content/EN/TXT/HTML/?uri=CELE...](http://eur-lex.europa.eu/legal-
> content/EN/TXT/HTML/?uri=CELE..).

Point #1 is my favorite: "1\. Save as otherwise provided in the Treaties, any
aid granted by a Member State or through State resources in any form
whatsoever which distorts or threatens to distort competition by favoring
certain undertakings or the production of certain goods shall, in so far as it
affects trade between Member States, be incompatible with the internal
market."

What they're basically saying is that if I don't agree, it's wrong. Tax code
is complex precisely because of statements from Article 107.

#3.e "(e) such other categories of aid as may be specified by decision of the
Council on a proposal from the Commission."

In your assumption, you are correct: I am questioning a higher court that over
rules a lower sovereign court based on an elastic clause without limits.

~~~
pawadu
The "lower sovereign court" has absolutely no meaning when the whole operation
was set up to make use of the EU joint market.

Do you claim EU should shut up and accept one of its members is stealing
everyones tax income? Does that sound logical to you?

~~~
bardworx
> The "lower sovereign court" has absolutely no meaning when the whole
> operation was set up to make use of the EU joint market.

So why not have a joint EU tax code to simplify life? That's the issue what
all corporations face at the moment. Read the white paper that was linked in a
previous comment, it's not too dense and makes the correct points. G20 have
been working on a unified world accounting system but EU has t accepted it.
Instead, they'll use arbitrary rules that only govern EU and apply to multi-
national corporations.

In my opinion the discussion is focused on Apple (clearly because of the
articles the comments are on) with strong opinions rooted in some kind of
thievery that they're participating in. However, the root analysis is that the
tax system is just FUBAR and the 14B levy won't fix it. Once that ruling was
filed, the money goes into escrow so Apple is already out. They're fighting
for a regulatory change that all companies (regardless if they're in the EU/US
or elsewhere) will benefit from.

Setting emotions aside, the issue is a change in tax system is required.
Otherwise, all they're doing is putting lipstick on a pig.

~~~
mpweiher
> So why not have a joint EU tax code to simplify life?

Subsidiarity.

[http://www.europarl.europa.eu/ftu/pdf/en/FTU_1.2.2.pdf](http://www.europarl.europa.eu/ftu/pdf/en/FTU_1.2.2.pdf)

It's really bizarre: if the EU creates the rules directly, it is "overreach"
that interferes with "sovereignty" (despite the fact that these powers were
ceded willingly, never mind...), if, on the other hand, the EU leaves things
to member states and just imposes principles for those rules, it's "too
complicated".

------
jondubois
I don't think there are very strong legal foundations for the case against
Apple, but I think that in terms of public opinion, Apple is in a very weak
position.

People are sick of these corporate tax schemes; we need someone's head on a
stick (at whatever cost). Brexit and Donald Trump have shown us that people
care less and less about doing the right thing "by the book" anymore; people
just want to do the right thing for the majority - Even if that is politically
incorrect and will mess up the world order.

I think that just like Brexit and Trump, this is just a continuation of the
same rebellious movement against globalization and the elite establishment.

~~~
binthere
Majority: Brexit yes, Trump no.

------
bryanrasmussen
Damn, is Vestager in the running for Dane of the year?!?! I'm going to have to
vote.

~~~
madmoose
Too late, she won already:
[http://www.b.dk/aaretsdansker](http://www.b.dk/aaretsdansker)

~~~
bryanrasmussen
see this is what happens when one just gets Hacker news and foregoes the
politiken subscription!

------
rallycarre
Why is the EU going after Apple now? They knew of this tax haven for years.
It's the EU's fault for letting one of its members do this. The fact that they
are trying to change the tax code in Ireland AND retroactively apply those
laws is bananas.

If I take advantage of a tax loophole and the government closes that loophole,
can they throw me in jail? Obviously people aren't companies but it sets
dangerous precedent.

------
fsaneq2
How is it Apple's problem to pay for Ireland's mistake?

------
runn1ng
> _The key point rests on language in Article 107 of the 2007 Treaty on the
> Functioning of the European Union, which provides that “any aid granted by a
> member state or through state resources in any form whatsoever which
> distorts or threatens to distort competition by favoring certain
> undertakings or the production of certain goods shall … be incompatible with
> the internal market.”_

I don't get this, to be honest.

Doesn't _every_ financial aid distort the competition, _by design_? What am I
missing.

edit:

OK there is the whole article. It makes slightly more sense, but I would argue
it's still hard to guess which aid falls where.

[http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELE...](http://eur-
lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E107&from=EN)

\----------------------

Article 107

(ex Article 87 TEC)

1\. Save as otherwise provided in the Treaties, 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 internal market.

2\. The following shall be compatible with the internal market:

(a) aid having a social character, granted to individual consumers, provided
that such aid is granted without discrimination related to the origin of the
products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional
occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of
Germany affected by the division of Germany, in so far as such aid is required
in order to compensate for the economic disadvantages caused by that division.
Five years after the entry into force of the Treaty of Lisbon, the Council,
acting on a proposal from the Commission, may adopt a decision repealing this
point.

3\. The following may be considered to be compatible with the internal market:

(a) aid to promote the economic development of areas where the standard of
living is abnormally low or where there is serious underemployment, and of the
regions referred to in Article 349, in view of their structural, economic and
social situation;

(b) aid to promote the execution of an important project of common European
interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of
certain economic areas, where such aid does not adversely affect trading
conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not
affect trading conditions and competition in the Union to an extent that is
contrary to the common interest;

(e) such other categories of aid as may be specified by decision of the
Council on a proposal from the Commission.

\---------------

~~~
Oletros
> Doesn't every financial aid distort the competition, by design? What am I
> missing.

If the financial aid is given to every company in the country there is no
distortion.

------
ianai
That website crashed twice in a row on my iPad.

------
epx
Apple _is_ being singled out. Politicians create this kind of loophole for
their friends (giant industries like oil, defense, etc. - that are "invisible"
to the public eye - and sometimes to benefit politicians themselves to put
their dirty money in tax shelters) and then complain when a very visible
business like Google or Apple uses it.

~~~
robert_foss
The Irish politicians clearly have different incentives than the EU ones.

------
grabcocque
Apple here is making threats, but they're threats the commission should listen
to carefully.

I mean, if the Commission wants to drive US tech companies out of the EU on
the specious grounds that it might help the moribund EU startup scene, go
ahead. But let's just say I have no doubt the UK government is quietly
watching.

I doubt it would be enormously difficult for Apple to relocate from Dublin to
London.

~~~
gutnor
> I doubt it would be enormously difficult for Apple to relocate from Dublin
> to London.

Obviously it is not. Tax sheltering does not require much physical presence at
all. It probably requires no more than changing a few contract between
subsidiaries to initiate the cash movement to their fiscal haven of choice.

The real problem for Apple is for the money that is already there.

More generally this generation of tax avoidance is probably coming to an end:
both the EU and the US are looking at it those days, and Ireland is one
regulation away to have to find another way to print money.

Not quite sure what's the big deal. Tax avoidance scheme are rarely stable
long term. Extracting tax money is a global competitive market between state
and large companies/rich individual. You should sleep peacefully knowing that
in all the possible resolution of this affair, Apple will always have to
effectively pay less tax than possible to your little startup stuck in a
single country tax system.

~~~
dandare
You don't understand, they would gain nothing by moving to London. Either
London stays in the EU market in which case it must not give Apple unfair
advantage or London does not stay in the EU market in which case Apple must
pay tax for EU sales in EU.

~~~
gutnor
Yes and no, maybe. You are right that this current flavour of tax avoidance is
not going to work anymore and moving to London now or in the future will not
change the outcome for the money mentioned here, only future money.

However about London, once outside the EU they will have the opportunity to
position themselves as a tax haven with clever new tax avoidance scheme for
large companies.

Now you probably automatically dismissed the idea because that's a crazy idea.
Setting up yourself as a tax haven does not scale to the size of the UK
economy, and the UK would need to do it at a time of intense scrutiny by the
global community and the EU will certainly see that as a aggressive
negotiation tactic which is not going to help the Brexit negotiation. But
well, there were better arguments for not leaving the EU in the first place,
and yet the UK seems to merely go for the hardest Brexit possible. So who
knows ? McDonald (fiscal) move to London is worrying. Nissan and others are a
bit too happy after their secret chat with the PM.

