Apple's iRich problem under Eire

'No special deal...'

apples irich problem under eire

The days of some tax breaks for the world's wealthiest corporations appear limited, at least in Europe, as regulators appear to be acting to close taxation loopholes in a case concerning Apple and Ireland.

'No special deal'

There's no need to go into too much detail -- the original decision is here, and this is a good primer. Briefly, Europe thinks a tax deal between Apple and the Irish government is illegal. Apple meanwhile says it "pays the tax" it should and has done nothing wrong. Intriguingly, U2 front man, Bono, has used similar arguments regarding Irish taxation.

"It's very important that people understand that there was no special deal that we cut with Ireland," said Apple CFO, Luca Maestri.

He is probably right.

Apple reached a deal with a relevant tax authority and kept to that deal. Fair enough.

Apple's deal with the Irish government allegedly save it billions of dollars in taxes -- you just don't get to make such deals if you're a smaller enterprise, even if you do employ people.

Occupy the argument

The fact such deals exist underlines the gigantic disconnect between the lives of ordinary taxpayers and those of big corporations. This economic disconnection fuels the growing international Occupy movement.

Many big corporations claim they employ people, arguing that that is all they need to contribute to a nation state. Critics point out those corporations build their business using logistical and educational foundations paid for by taxpayers of the country they are in. Truth probably sits between the two positions.

The new EU investigation suggests government is minded to agree that corporations in future should make larger contributions to the public purse.

Within the current system, Apple has done nothing wrong, it has simply used all the tricks of Google, Fiat, Starbucks and every other corporation that seeks to limit its tax burden for shareholder gain.

Flexible, friendly tax law

Apple will defend itself by saying it worked within the law in Ireland, and did so in tandem with state tax authorities. Should the EU demand more tax be paid, I anticipate Apple will negotiate some kind of deal, mitigated by its belief of having been working within the law.

"If countries change the tax laws, we will abide by the new laws and we will pay taxes according to those laws," says the Apple CFO.

"We simply followed the laws in the country over the 35 years that we have been in Ireland. If the question is, was there ever a 'quid pro quo' that we were trying to strike with the Irish Government -- that was never the case. We've always been very transparent with the Irish Government," he added.

One more thing

There is a "one more thing", of course:

Apple has previously avoided transferring its huge pile of non-US assets into the US because of the punitive taxes it would then be forced to pay in US taxation, despite that the money wasn't actually earned in the US.

The company will now be looking at the cost of repatriation in comparison to the potential cost of an extended legal campaign in Europe and the likely cost of any unpaid tax EU lawmakers may determine should be paid.

Within this context it might be amusing if Apple were to decide to transfer its hoard to the US, paying US taxes, and then leave EU and US regulators to argue over the cash between themselves.

Despite the big money that is at stake the way this case progresses will probably seem a dull affair, but its repercussions could help save some economies.

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