Apple tax dodging, Irish government crisis?

This video from Ireland says about itself:

Apple Tax protest at Fine Gael HQ

1 September 2016

Sinn Féin Republican Youth protest outside offices of Fine Gael party over decision by government to appeal European ruling that it is owed €13billion in back taxes to the state.

By Robert Stevens:

Irish government crisis over Apple’s €13 billion tax dodge

1 September 2016

The European Union’s decision to fine US tech giant Apple up to €13 billion (US$14.5 billion) for failing to pay taxes at its European corporate headquarters in Ireland, has prompted a major crisis in Irish ruling circles that could lead to the collapse of the government.

The total amount due to the Irish government is around £19 billion, when interest is taken into account.

Shortly after Tuesday’s announcement directing the Irish government to collect legally due taxes from Apple, the right-wing Fine Gael party, which is in a coalition with the Independent Alliance, announced it would appeal the decision. In doing so, it fell into line with Apple, which immediately announced it was appealing. However, Independent Alliance ministers, fearful of mounting public anger, are delaying backing an appeal and are seeking the recall of parliament to discuss the issue.

In a statement summing up the role of governments as servants of big business, Fine Gael Finance Minister Michael Noonan said an appeal would be made “to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.” He added that to collect the taxes owed by Apple would be “destroying the future for short-term advantage.”

Noonan’s comments were a refined version of the apoplectic response from Irish business leaders. Ryanair CEO, Michael O’Leary, declared the ruling “bizarre,” adding, “Frankly the Irish government should turn around—they shouldn’t even appeal the decision—they should just write a letter to Europe and tell them politely to f**k off.”

Following a three-year investigation, the European Commission (EC)—the EU’s executive arm—concluded that Apple had effectively paid a maximum of just 1 percent tax on its European profits in 2003, which had diminished to about 0.005 percent by 2014. Over that entire period, Apple paid just €50 million in tax.

Due to lucrative tax deals granted to it by successive Irish governments, Apple was able to avoid tax on almost all the profit generated from its multi-billion euro sales of iPhones and other products across the EU’s single market.

The EC investigated the activity of two of Apple Inc.’s subsidiaries—Apple Operations Europe (AOE) and Apple Sales International (ASI), both of which were incorporated in Ireland and therefore permitted to record profits in the country. Both subsidiaries had a “Head Office” and an Irish branch, which were known as “Double Irish” schemes. In 2011, ASI made a profit of €16 billion, yet only €50 million of this was allocated to the Irish branch—equivalent to a tax rate of just 0.05 per cent.

“To put that in perspective,” European Commissioner for Violation of EU Treaties, Margrethe Vestager, declared, “it means that for every million euros in profit, it paid just €500 in tax.”

According to Vestager, the vast remaining amount of profit was allocated to what was in reality a fictitious Head Office with “no employees, no premises and no real activities” where it remained untaxed. If the profit had been taxed under Ireland’s corporate rate, the figure of € 13 billion plus interest would have been payable.

Apple first set up operations in Ireland in 1980 after the then government offered the company a deal allowing it to operate virtually tax-free in exchange for locating its European headquarters in the country. Some £7 million was invested and 700 jobs created.

Even though Ireland’s membership of the European Economic Community, (the EU’s predecessor) meant it had to levy taxes on companies operating on its territory, Apple continued to be offered preferential treatment.

The EC’s ruling points out that the selective treatment given to Apple by Ireland through two tax rulings in 1991 and 2007 were illegal under EU guidelines.

The first of these “sweetheart deals” in 1991 resulted in Apple only being taxed on a certain bracket of its earnings. In 2007, the year that Apple first launched the iPhone, the previous deal was renewed giving the corporation access to further tax loopholes.

The courting of Apple was part and parcel of the whole system of subsidies and tax breaks handed out by Irish governments to attract transnational entities and global investment that made Ireland into the so-called “Celtic Tiger.” The country functioned as an offshore financial centre and tax haven. At the same time, Ireland’s membership of the EEC in 1973 was utilized by firms globally to access to the Single European Market and a base from which to avoid and evade taxation.

As of 2016, Ireland hosted over half of the world’s top 50 banks and half of the top 20 insurance companies. In 2013 it hosted nearly 14,000 funds (6,000 of these were Irish-domiciled) administering an estimated €3.7 trillion—up from $840 billion a decade earlier. Today, corporate tax rates are 12.5 percent, compared to 50 percent in 1988 and the top rate of income tax is just 40 percent, compared to 65 percent.

The “Double Irish” strategy and other deals have enabled Apple to dodge US taxes on an estimated $181 billion in profits, contributing to the company amassing a cash hoard of over $230 billion. The €13 billion owed in Ireland equates to just 27 percent of the profit Apple made just in 2015.

The world’s major conglomerates and super-rich are up to their necks in similar financial swindles. Another “Double Irish” scheme saw an Irish subsidiary of Facebook shift profits of €1.75 billion in 2012 to another subsidiary in the Cayman Islands and post a pre-tax loss of €626,000 instead. Google dodged $2 billion a year in taxes using a “Double Irish” scheme via the Netherlands and Bermuda.

The cost to the Irish working class and society is staggering. It is estimated that the €13 billion tax withheld from the public purse by the Apple deal equates to €2,500 for every man, woman and child. It would cover the cost of Ireland’s annual healthcare budget, used by 4.5 million people, two-thirds of the social welfare budget or 20 new hospitals.

This pillaging of vast public resources must be understood in the context of the even larger bailout of the banks and super-rich that took place in Ireland following the 2008 global financial crash.

The EU, International Monetary Fund and European Central Bank arranged an €85 billion bailout in 2010 for the Irish financial elite to avoid the collapse of the major banks. The borrowing undertaken as part of the bailout has already cost the Irish state almost €9 billion to service.

The Irish population was made to pay for this, plunging millions into poverty. … Eight austerity budgets were passed between 2008 and 2014 involving €18.5 billion in public-spending cuts. Nearly 40,000 public sector jobs were lost and health spending cut by 27 percent. On top of this €17 billion of Ireland’s national pension reserve was seized to pay off the bailout.

Sinn Féin Seanad Leader Rose Conway-Walsh has submitted a formal request for a recall of the Seanad to discuss the EU Commission ruling on Apple’s Irish tax arrangements: here.

From daily The Morning Star in Britain:

Apple’s slap on the wrist

Thursday 1st Septermber 2016

THE European Commission’s ruling that Apple must pay €13 billion in back taxes to the Republic of Ireland should mislead no-one into believing that the EU is now the defender of working people against rapacious transnational corporations.

Far from it. The first of the “four pillars” of the EU single market guarantees the “free movement of goods, persons, services and capital between member states” — ie corporations and banks can move money around anywhere they like, to maximise their profits.

The “race to the bottom” by EU member states over corporation tax rates causes no problem for the European Commission.

Nor is it concerned that Ireland has, with Cyprus, the second-lowest such rate — 12.5 per cent, behind Bulgaria’s 10 per cent.

What really annoys the Commission is that Apple seems to have had some sort of preferential treatment, which amounted to a form of state aid — a violation of the “third pillar” of the single market.

Ireland’s arrangements with Apple between 1991 and 2015 had allowed the US company to split profits from sales in Europe, India, Africa and the Middle East between an Irish branch company and a so-called international headquarters, which existed only on paper.

The Irish branch was subject to the 12.5 per cent corporation tax, while the headquarters paid nothing.

By 2014, Apple was paying only €50 on each €1 million of profit, a rate of 0.005 per cent.

Apple is not the only transnational corporation in the EU to avoid taxes by such “sweetheart deals.”

The Commission has ruled that Fiat was involved in a wheeze with Luxembourg, and Starbucks with the Netherlands, while Amazon is under investigation too.

However, Apple’s arrangement has been the most lucrative by far, so the Commission had to be seen to be acting, if only to prevent the anarchy of other EU member states adopting the same approach as Ireland.

Of course, so far this is only a ruling and both Apple and the Irish government intend to appeal — ironically in the latter case, given the enormous price in austerity measures that the Irish people had to pay to bail out their banks after the 2007-9 crisis.

It was Ireland’s accession to the euro which fuelled property speculation, as European Central Bank interest rates were lower than domestic rates would have been; and it was the free movement of capital under EU rules which allowed the Irish banks to borrow so heavily abroad to sustain that property bubble.

Apple can easily afford to pay, as it is sitting on assets in cash and securities equivalent to more than €200bn.

But by imposing this €13bn tax payment, the Commission is allowing Apple to avoid the higher corporation tax rates where it makes the sales — ie it is a slap on the wrist, warning the company that it risks upsetting the whole (apple) cart if it doesn’t play by the rules.

Meanwhile, rumours circulating about Theresa May’s “brainstorm” session on Brexit at Chequers yesterday suggest that the Tories are set to cut Britain’s corporation tax from the current level of 20 per cent, and indeed this could start as early as Chancellor Philip Hammond’s Autumn Statement.

The lesson for Britain’s labour movement is that there has to be a different way forward.

Staying in the EU means austerity, privatisation and a ban on state aid for industry, but freedom for transnational corporations — providing they stick within the rules.

Brexit on the Tories’ terms will mean much the same. We should not be dependent on the largesse of transnational corporations seeking a cheap place to invest.

We need EU exit on working-class terms, including democratic control of our economy, so that it can be run in the interests of people, not private profit.

Irish government to appeal European Commission ruling on Apple’s tax bill: here.

Irish government defends tax dodging by Apple: here.

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