Buddy, can you spare 13 billion?
This week’s topic is not totally connected to the world of contactless technology but after the silly season I felt it was important to start the second part of the year with something more akin to real news and not something that might appeal to the ‘wizarding community’ (remember my last few editorials?). This week we are looking at Apple.
Apple is caught up in the unenviable position of having a tax penalty levied at them for some 13 billion Euro ($14.5 billion) to cover back taxes in Ireland. The fine comes from EU competition officials after a three-year investigation and the bill is the biggest tax penalty ever levied in Europe. Investigators told Ireland two years ago they believed Apple's tax arrangements violated European law. According to various news reports, the EU says the tech giant has effectively enjoyed a one per cent tax rate in Ireland, far lower than the country's 12.5 per cent corporation tax. This amounts to illegal state aid to a company, says the EU, as rules prohibit governments from giving special treatment to any one firm.
Perhaps surprisingly, the Irish government doesn't want to be paid billions of euros by Apple. Admitting the US tech giant enjoyed special treatment would be more than embarrassing: it might limit future tax arrangements and discourage businesses from going to the country. Both Apple and Ireland are likely to appeal against the decision, says the BBC. Ireland says the EU "misunderstands the Irish tax system" while Apple argues it has received no selective treatment.
Delivering the ruling, lead investigator Margrethe Vestager said, ”Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules.The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years." However, by attacking Apple (or other corporations) the commission could well be creating uncertainty among businesses, undermining the sovereignty of Europe’s member states and breaking ranks with America at a time when big economies are meant to be co-ordinating their anti-avoidance rules.
The commission claims Apple’s arrangements with Ireland, which resulted in low-single-digit tax rates, amounted to preferential treatment, thereby violating the EU’s state-aid rules. Commentators have pointed out that making this case involved some creative thinking. The Economist wrote that, ’…the commission relied on an expansive interpretation of the “transfer-pricing” principle that governs the price at which a multinational’s units trade with each other. Having shifted the goalposts in this way, the commission then applied its new thinking to deals first struck 25 years ago. Back then, there was no reason for Apple to think it might one day fall foul of the state-aid rules.
‘The firm shook hands with a sovereign government, which continues to defend the arrangement to this day. Even if the plan had been legally suspect at the time, it makes as much sense for subsequent penalties to fall on the country that offered it as on the company that took it. Either way, firms that invest in Europe will be entitled to wonder what other deals reached with governments can be unwound retroactively. Ireland itself is bridling at interference in affairs that are typically the province of EU member states.’
Apple is set to reveal a heap of new products and software upgrades this week as an enthusiastic fan base looks on and drools over just about everything they are showed. And let’s not forget the little matter of the company’s $230 billion cash mountain. While the tax penalty is an irritant to the tech giant and will make barely a dent in their cash, at least in true Apple style, the company can boast that the penalty is the largest EVER awarded.
Once again, Apple is king of the hill!
Steve Atkins
Contactless Intelligence
