Apple, Ireland, EU, Tax Avoidance, Margrethe Vestager, CCCTB

**Decided to create a new thread on Apple’s EU-IRL-US Tax scheme, to split from Vulture Fund Section 110 SPV Tax Avoidance thread. Both come to c €20bn in Irish taxes avoided. There are similarities (created by same Dublin IFSC tax firms, aided by Irish Revenue under State direction). EU may rule Section 110 SPV avoidance was also illegal State aid (probably is).

Irish Section 110 SPV, Vultures, Tax Haven, Orphaning Scam:

Standard of Irish reporting on Apple’s Tax Avoidance is better than Section 110. This is because there is a lot of international analysis on Apple’s Irish tax avoidance schemes to draw on (Dublin professional firms won’t break ranks on Section 110 SPVs).

Still, contrast the “spin” articles in weeks pre EU Apple report (“most likely couple of hundred million”, “will reveal nothing we don’t know”, “will confirm no collusion between State and Apple” etc.), vs. the reality presented so far by EU (130 page report to come), and the less-biased commentary from international commentators on what our State was doing.

IRISH TIMES: Joseph Stiglitz says Ireland should not appeal Apple ruling
US Nobel Prize Winner says: “You got jobs at the cost of stealing revenues from other EU countries”

IRISH TIMES: Joseph Stiglitz: ‘Cheating’ Ireland, muddled Europe
“That 26 per cent growth rate sent a strong message about the magnitude of the corruption going on [in Ireland]”

BLOOMBERG: Americans Are Paying Apple Millions to Shelter Overseas Profits

This is the same for Section 110 SPV scandal, but we have no Margrethe Vestager report into the Vulture Funds tax avoidance schemes in Ireland. We get “Revenue investigations” (despite Revenue being shown to explicitly help the Vultures avoid all Irish taxes) and Noonan’s Section 110 Amendment (written by Big 4 firm with enough new “loopholes” to be toothless).

(And Section 110 is even more of a no brainer to prosecute, as it doesn’t involve Irish jobs or MNCs etc.).

The key to understanding Apple’s EU tax scheme (why MNCs are in Ireland), is EU Transfer Pricing (TP) System for IP.

**Once you take a moment to understand EU TP for IP (not complex), you will be able to separate “spin” articles (“our tax affairs are our own business”, “the EU is ripping off US taxpayer”, “it is US money”, “Apple only followed rules”, “our future is with MNCs / US, not Europe”) and their error strewn conclusions, from what is likely to happen.

You will also see, that while the EU is asking nicely now (not fining us, or forcing us to offset the €19bn against our debt, and supporting our 12.5% rate), they can do this another way (now the powerful UK tax veto is gone), which, even if our tax rate was 0% (or less than 0%), would make us useless to MNCs (in fact, worse than useless; as shown below).

However, for the impatient, the quick answer is that Margrethe Vestager is forcing Apple to choose between:

(a) Irish Taxation (€13bn + €6bn fines) = Apple Ireland (“ASI”), was always really Irish, and owes 12.5% Irish back tax.
(b) US Taxation (c €40bn + no fines) = ignore Apple Ireland, was always going back to US, will pay the 35%+5% US tax.
(c) EU taxation (c. €40bn + €20bn fines) = Apple Ireland is “stateless”, used EU TP system illegally, owes range of EU taxes.

As we will see, Apple have decided to lock in (a) (when they moved Apple Ireland “onshore” as part of the “Leprechaun Economics” moment a few weeks ago). This is Apple “blinking” to avoid any further accrual of bigger liability under (c). Apple also announced a commitment to (b) in paying more US taxes (against which, they will get a credit for any Irish taxes paid under (a); hence why (a) is an immediate no-brainier). Apple have also decided to invest in global data-centres in Ireland (allows them to permanently avoid (b), so another no-brainer). Apple are not going to spend the next 6 years appealing (a), they are going to accept (a) soon (no-brainer), to protect against (c), which they will be fighting for years.**


WALL STREET JOURNAL: Why do so many US multi-nationals share the same Dublin postal address, Oct 2013

1. Secret Ingredient: Making Intellectual Property (IP). Let’s say Apple US spent $200m (generic number) developing iOS (it’s iPhone operating system). Apple US sells a not fully completed non-US version of iOS, with ALL attached non-US patents (a.k.a the “knowledge box”), to an Apple Ireland entity (generic name for “ASI”), for c $500m. Apple US will then pay full US taxes on this gain of $300m and send a cheque to the US IRS. Easy so far. While Apple Inc. (parent) still owns everything (this is an “internal” sale), in terms of the US tax code, this $500m asset has now left the US IRS “net” until the fruits of it’s labors are repatriated home to the US (see step 6. below). The US IRS are already starting to probe these “internal” sales.

THE GUARDIAN: Facebook could face extra $5bn tax bill after US investigation on Irish asset transfers

2. Inflating the IP Value (when “magic” happens). Specialist IP corporate financiers (why Dublin accountancy firms have big corporate finance practices) make two discoveries. First, if the Apple device has no iOS software, it can’t function? iOS is therefore “secret sauce” (like a drug patent). iOS is the “IP”. Then they show Apple Ireland it has done an amazing deal with, Apple US. They show if the non-US version of iOS is converted into 200 languages (and local formats), then Apple Ireland can sell Apple devices all over the world (fancy that). Silly Apple US. The global commercial value is estimated at +€100bns (why so many MNC jobs in Ireland are low grade “localisation”, or language translation). As Apple Ireland bought the non-US iOS “knowledge box”, the Dublin IP financiers estimate the iOS “IP” to be worth c €50bn (yes, iOS could be replicated by a competitor, but it would take years to avoid hitting Apple Ireland’s patents). This “bloated” IP is the key to Apple’s tax Alchemy.

3. Avoiding tax on the IP step-up. A €50bn gain in Apple Ireland will attract tax (both Irish, and even US), and would distort Ireland’s National Accounts (our 2014 GDP was c €200bn). Apple, and the Irish State, worked a scheme to have Apple Ireland both resident in Ireland (so Apple Ireland can avail of EU TP system; you can’t do EU TP from Cayman, or much worse, “stateless” locations*), and non-resident in Ireland (to avoid all Irish tax). The EU’s Apple Summary, proves most of recent 26% increase in Irish GDP (“leprechaun economics”) was mostly Apple, forced to unwind it’s “dual” status (as EU report drew near). Apple paid a once-off Irish tax on transfer (€500m vs. €50bn gain), increasing Irish EU GDP levies by up to 380m per annum.

(*) note: Apple can access the EU TP System direct from the US (there is a massive US-EU tax treaty), but if Apple Ireland was still in the US (i.e. Step 1. never happened), then it’s 35% Federal + c 5% State US Taxes on all EU profits (vs. 0.005%)

**RTE: Revised GDP figures will increase our EU levies but that is offset by other benefits, advises Noonan **

SEAMUS COFFEY: Some take-outs from the Apple Ruling
(in hindsight, we didn’t need to wait for the EU briefing / Seamus Coffey, to know “leprechaun economics” was Apple, as Aircraft Leasing (due to its offsetting financing) is a net minor GDP driver, no matter how big the transactions are).

4. Using the IP to re-route EU profits to Ireland. Before step 3., if Apple Ireland sold an iPhone in Germany for €500, Apple Germany would offset valid incurred cash costs (Apple China / Foxconn manufacturing costs of c €150, and Apple Germany marketing costs of about €50) giving a German profit of €300 on that iPhone. German Revenue would take €100 of this in German taxes, and €200 can go back to Ireland(*). EU TP rules allow EU resident companies, like Apple Ireland, to charge Apple Germany a share of their €50bn IP value, expressed as a royalty charge. Charging this royalty to Apple Germany wipes out all Apple’s German profits. Apple Germany pays no German taxes, and the full €300 goes back to Apple Ireland tax-free.

(*) note: again per 3. above, Apple could just sell into Germany direct from the US (via the EU-US tax treaties). The €300 would go direct to Apple in the US, however, per 3. above, this would leave Apple exposed to full US taxes of 35% Federal + c 5% State. The Apple Ireland “IP” is thus an elaborate US-EU tax avoidance tool, to get the German Revenue to allow Apple’s German profits be re-routed to Ireland (under the EU TP System). Without this “IP”, Ireland has a minimal role in Apple’s taxable “value chain” (as per the EU-US Tax Treaties), and thus Apple must either pay mostly US tax and/or some German tax, on it’s German profits. Without the “IP” (and the EU TP System to apply it), Apple can’t get its German profits to Ireland.

5. Cherry on Top: Avoiding Irish Tax. EU challenged step 4. in 2011 (we will get to CCCTB), but UK Veto stopped it (Osborne was turning Britain into an even bigger EU tax-haven than Ireland). Despite Ireland having the “golden ticket” of being INSIDE the EU’s TP system (why Apple Ireland had to be legally resident in Ireland), AND having the lowest EU corporate tax rate, that was not enough, they wanted 0%. The Irish Revenue (seemingly independent of Government) agreed that while legally in Ireland (to access EU TP; and shield from the US IRS, see 6. next), it was in practice offshore, and therefore no Irish taxes applied. In 2010, Apple Ireland’s tax rate fell to c 0%. Apple Ireland’s profits then quadrupled (doubled every year after). The Irish Revenue had perfected a “straw” for Apple, stuck into the EU, allowing Apple to suck all its EU profits (from Germany, France, Italy etc.), to Ireland, and on to offshore locations, free of EU, Irish and (see next) US tax.

6. Locking it away from US IRS. US tax law requires US MNCs to remit non-US profits back to the US for final taxing at US tax rates of 35% Federal + c 5% State. The Double Tax Treaty system allows US MNCs to get a federal tax credit for taxes paid in EU countries in which profits were made. If Apple pays 35% on French profits, no further Federal US taxes apply. If Apple pays 12.5% in Ireland, then only 22.5% of Federal US taxes apply. The US IRS allows MNCs leave EU profits outside of the US IF these EU profits are going to be re-invested in the EU location (another reason why Apple can’t do all of this legally from the Cayman, or other offshore hub etc. as it would fail this US IRS re-investment test). Apple claimed this right in their US 10K Returns. Margrethe claims Apple violates this by LENDING (instead of remitting), cash back to US (50% of all Apple US R&D). That is how Apple built the largest offshore cash hoard in history. Profits from the EU, that never paid EU, Irish or US taxes. Apple Ireland’s “IP” is an elaborate tool to perpetually defer remittance of Apple’s EU profits, back to US for taxing.


1. Without access to EU TP System, to re-charge ‘bloated’ IPs, Ireland is worthless to MNCs. If EU TP rules are amended, then even if Ireland’s tax rate is 0%, we are useless to MNCs. In fact we are worse then useless, we are toxic. Without EU TP rules, MNCs would re-locate their Irish jobs into Europe’s highest tax countries(*), so as to maximize the tax relief on these costs (Theresa May take note). Under CCCTB, Ireland would go from being the “Celtic Tiger” to something between Scotland (worst), or the Isle of Man (at best).

(*) Per 3. & 4. earlier above, it could also do direct via US (but outcome is same - Irish jobs get re-located to the US)

i.e. Take following example (repeated from above):

Sell iPhone in Germany for €500
Take away €150 (Apple China manufacturing) and €50 (German marketing).
You are left with German profit of €300.

Option A (current system in a reformed EU TP world):
Subtract German tax of €100 (33%) and send €200 Ireland.
Subtract Irish Costs of €100 and send €100 remainder to the US.

Option B (more likely system in a reformed EU TP world):
Move all Irish jobs to Germany.
Subtract another €100 (Irish costs moved) from earlier German profit.
You are now left with German profit of €200m.
Subtract Geman tax of €66 (33%) and send €137 to the US.

Which option will Apple take post a reform of EU TP rules as they apply to IP?

In fact this toxic loop is amplified when you consider a key reason for the MNC having the jobs in Ireland in the first place, is to give an “economic justification” for it’s IP calculation. i.e. €50bn in IP came as a result of 5,500 Irish workers reworking iOS for over 200 global markets (i.e. translating the language etc.). If Ireland lost it’s access to re-charge this IP via the EU TP system (i.e. due to CCCTB or BEPs), then the rationale for the 5,500 jobs in Ireland is gone - and the inability to offset their costs against say, German taxes (or US taxes), means it is better to move them to Germany (or US) etc. (per above example).

** Big countries (US, Germany, France, Italy etc.) are high tax countries. It is dawning on them that allowing high-tech IP TP scams, is costing them not only taxes, but also jobs. If Ireland was stopped from re-charging “inflated” IPs via EU TP, then jobs move to higher tax countries to maximise tax relief. There goes Irish jobs. There goes Dublin Office (and Irish Banks, again, with it). The Isle of Man (or Cayman) is not a “Celtic Tiger” for a reason (not in EU TP).**

2. Without the UK Veto, our days of abusing the EU TP system may still be ending. In 2011, the EU Commission launched its proposal to kill aggressive EU TP of IP assets. It was called the CCCTB (a way of cancelling all inter-group IP re-charging, like Apple does). While 8 countries voted against it, several were voting as favors to the UK (Eastern Europeans, in return for sw payments), it was the UK who effectively killed it (with Ireland).

CCCTB Wikipedia Page

IRISH INDEPENDENT: EU CCCTB Scheme could slash Ireland’s tax base in half, Seamus Coffey

Post BREXIT, the beneficiaries of EU TP are Lux, Ireland and Holland (lesser). Dutch ex. EU Competition Commissioner Neelie Kroes (sits on the Board of several large US IT MNCs in Holland, also paying c 0% EU tax), lambasted Margrethe Vestager for her Apple fine (it is a strange “rule of law” Neelie, that allows a US MNC suck German profits to Cayman, gross).

IRISH INDEPENDENT: Tax ruling will harm rules of law, warns former EU watchdog, Neelie Kroes

The EU has many routes to pressurizing us on CCCTB. One of which would be to involve the ECB and discretely limit Ireland’s access to the sovereign bond repo program (will send Irish yields upwards), call in the Irish Central Bank’s on-demand financing carry deal on the Prom Note (major hit to GDP, and send yields higher again), and/or demand faster wind-up of NAMA (again, not good). Like what Sean Fitzpatrick did with Anglo borrowers, most ECB support for Ireland (still considerable), is on a rolling / on-demand basis. They could send us back to 2012, as they have done with Greeks, and did to Italians in 2013.

BLOOMBERG 2013: Did the ECB Just Warn Italian Voters Against Berlusconi?

WSJ 2015: ECB Turns the Screw on Greece

In fact, if the big EU countries, ex. Nellie’s Holland, (who will make up the vast bulk of Apple’s EU taxes avoided), decide to enact CCCTB (or other EU TP System changes) under “enhanced corporation” rules (9 EU countries agree to a common approach), then that could produce most of the effect. Apple would either go back to selling direct from US (paying 35%+5% US tax) or accept the higher rates of tax under CCCTB. Both options will be a re-location of Irish jobs.

3. The US IRS has been made a fool of by Washington. Apple claim on their US 10K (you can end up in serious hot water lying on a 10K), that EU profits are going to be perpetually re-invested in EU (and will not be remitted back to the US, and suffer US taxes). Margrethe Vestager claims that Apple LENDS these EU off-shored profits back to the US for US R&D (claims 50% all US R&D is EU cash) - thus illegally avoiding US taxes. That is not “political crap”, but a violation of US tax law (really serious).

Margrethe’s claim implies the US IRS was probably giving Apple “sweetheart” deals (or is very stupid ). We have the hilarity of Tim C(r)ook stating today that Apple - as a first - are going to remit their 2014 EU profits back to the US and pay “billions” of US taxes. If Washington was not so supportive of Apple Ireland (the irony of Tim’s “political crap” statement) then Apple executives would be facing a criminal investigation from the US IRS for what Margrethe claims (if proven true). At minimum, a lot of big New York law firms are going to be pouring over Apple’s 10Ks and the eventual EU report, for possible shareholder law suits (nothing like a shareholder law suit against a firm with +€150bn in cash + does such stupid things as trying to fool major EU tax authorities their IP was inside the EU TP system, when Ireland’s Revenue Commissioners say it was “stateless”).

IRISH TIMES: Apple to pay further ‘billions’ of tax on 2014 European profits next year

Margrethe Vestager’s report shows not only is Tim C(r)ook scamming the US IRS; he is also scamming the US economy. If the US IRS did the same work Margrethe Vestager did (showing Apple lends offshore money back to US), then not only would Apple have to pay US taxes, but it would move Irish jobs back to US, to optimise US tax relief against them.

Yet we still have the US Treasury (and Fine Gael) complaining that if Apple have to pay Irish taxes on their EU profits (even just 12.5%), it would be a travesty, as it would reduce their US tax contribution. They are effectively claiming that Apple should entitled to get 100% of their EU profits fully free of any taxes (try doing that in reverse from the US - you could end in jail / under FBI investigation). Contrast US Treasury’s approach on Apple, with what the US Treasury did when Pfizer & Allergan wanted to do an Irish tax inversion, to relocate Allergen’s US profits, gross, to Ireland (i.e. reverse of Apple). Clearly, Big Pharma is not a friend of the Democrats (Hillary attacks regularly), while Big Tech is (and have been very supportive of Hillary).

WALL STREET JOURNAL: Treasury move, which was far more aggressive than anticipated, sent Allergan’s shares tumbling

No other firm has achieved such a mass and complete avoidance of taxes, from multiple major OECD / G7 countries, in modern economic history. The bizarre US Treasury arguments show how complicit they have been in helping Apple making a fool of the US IRS (and compliant US corporations). That is not “political crap”, that is a flat (maybe criminal) violation of US tax codes. It seems Tim C(r)ook has inherited Hillary’s Clinton shield from all US laws (tax and otherwise).


Now that you have shown the patience to get this far, some insights (and effect on Property).

1. Distorted Irish GDP (and GNP). There has always been a question on Ireland’s GDP (and GNP) being “artificially inflated” by MNC tax and IP structuring. A statistic that captures (crudely) this “distortion”, is GNI / GDP. As you can see from a 2011 Eurostat table of this, Ireland and Luxembourg are the two most distorted GDPs in the EU (on a “crude” level, Ireland’s GDP is c. 20% “inflated” vs. other EU countries). Net of Apple moving it’s IP back to Ireland in 2015 (driver of “Leprechaun Economics”), Ireland’s GDP is probably now the most distorted in the EU, and to a far greater extent than the 20% in 2011.

SEAMUS COFFEY: GDP and International Comparisons, 2011

2. Distorted Understanding of Irish Indebtedness. This means that Irish Debt to GDP figures can give a very mis-leading picture of Ireland’s solvency (even before “Leprechaun”). The Irish Times article below on just Government Debt from 2014, stumbles into this point (without fully understanding why). However, tables that look at combined Government + Consumer Debt, highlight Ireland as looking worse then even Greece (who have high Government but low Consumer Debt), on a per capita basis (can’t find a good link for this). The reason for Ireland’s high indebtedness, is from 3. and 4. next.

IRISH TIMES: Who owes more money - the Irish or the Greeks?

3. Rich in GDP but not in GNI. Irish people are well used to articles showing that Ireland ranks very highly on GDP per capita (one of the richest in Europe). However Irish people don’t feel like they are living in Geneva or London. Again, that is because our GDP (and GNP) contains a component of “fresh air”. In the property boom (2000-2007), Ireland “squared-this-circle”, by increasing Irish consumer indebtedness (Ireland’s “Celtic Tiger” GDP growth encouraged EU banks to lend aggressively to Irish Banks), thus giving a temporary “feeling” of greater wealth, in line with our “inflated” GDP per capita (until it didn’t).

IRISH INDEPENDENT: Dublin recorded 2nd highest level of GDP per person employed among EU capitals, Sept 2016

4. Distorted Property Markets. Irish Wages, Irish Cost of Build (c €175 sq ft ex. VAT) and Irish Mortgage Lending Multiples (c 3.5 x Income) are all close to EU-18 Averages. But, unlike other EU countries, few want to use land / capital / resources to build Irish houses? The reason is a badly structured, MNC-driven, office market. Dublin capitalised prime office values (now at +€1,100 per sq ft, or 4-5x core cost of build), are the most expensive in the 57 City CBRE EMEA Survey (after Geneva, Zurich, Paris & London). US MNCs, saving $bns in EU-US taxes with dodgy “stateless” IP schemes in Dublin, don’t haggle or walk away over asking rents (Dublin rents are close to City of London). Traditionally, Ireland (again) “squared-this-circle”, by increasing Private Mortgage Lending Multiples (PMLMs) to bring residential capitalised values closer to €1,000 per sq ft (incentivise house building vs. office building). You need PMLMs at +5.5-6x for this. The GFC showed this works for a period, and then crashes. Office is highly leveraged to cycle, and paying +4x cost of build (outside Geneva, Zurich, Paris and London) is not sustainable.



All of this is discussed in more detail on this thread:

Dublin Office Bubble, FG Landlord Nirvana, IREF QIAIFs REITs**

Common mis-conceptions repeated in re Apple’s EU Tax Ruling Case:

0. “Screw Apple and take the €19bn”. No. We are probably getting the €19bn anyway (as I will show in this thread; Apple will beg us to take it; it is value for money vs. the €60bn EU tax authorities will sue for, or the €40bn US IRS will want). We don’t need to ram it to them (other MNCs in Ireland are watching). We also need to also preserve our image as great Europeans (tone down anti-EU rhetoric please). We built up brownie points bailing out the EU banks from Ireland’s GFC; let’s keep it.

How Apple’s EU fine could end up topping almost €60bn, if Apple doesn’t play ball on the €19bn fine?

Why I am 90% sure that Apple will drop their appeal and we will get the €19bn

1. “We should side with Apple + US Treasury against EU (David McWilliams “Atlantic Ireland” article).” Abusing EU’s TP system is why US MNCs are in Ireland (and the reason why MNCs don’t operate from Cayman etc(*). where their money ends up). If the EU ram through CCCTB (or a version of it via “Enhanced Corporation”), we are finished. MNCs will move Irish jobs to higher taxed EU countries, or the US (per our first post), and Tim C(r)ook will stop returning Enda’s calls. Visit the Isle of Man to see how big an economy you get when your “tax-haven” sits outside EU TP system (i.e. there is no “IOM Tiger”).

INDEPENDENT: David McWilliams: The EU is a thing of the past - our future is with an Atlantic Ireland

(*) note: Without EU IP (or “knowledge box”), Ireland’s % of Apple’s tax “global value chain” is tiny (Cork is minor) and minimal EU profits could be re-routed to Ireland. The EU TP System enabled Apple Ireland to use the IP to re-route all EU profits to Ireland. Once these EU profits hit Ireland they were treated as if they were “offshore” from an Irish tax perspective (i.e. 0% tax), but still “legally” in Ireland; which was important to “shield” the EU profits from the US IRS (if they were “fully legally” sent to the Cayman direct from Ireland, then the US IRS would have forced their repatriation).

2. “We need to protect our tax sovereignty / stop EU meddling in our tax affairs.” Without EU support for TP of “IP type” assets (now that the UK veto is gone), we will have nothing to tax except ourselves - and as the Vulture Fund Section 110 scandal shows, we can’t even do that properly (or seem to even want to, as evidenced by Noonan’s amendment).

Section 110, Irish Charities, Vultures, NAMA, Tax Avoidance.

3. “We should consider an IREXIT (Micheal O’Leary article).” The UK is still in a BREXIT honeymoon because Mark Carney rammed the FTSE / FTSE 250 back to pre-BREXIT levels (more surreal central banking activity). Margrethe’s ruling shows the EU are finished with “tax schemes”. The UK’s dream of still passporting EU profits (via smaller EU subsidiaries) to an (even) lower-tax Britain are toast. Per 1. above, visit the Isle of Man to understand life “outside” the EU TP system.

IRISH INDEPENDENT: Michael O’Leary, Ireland should just threaten to leave the EU over Apple Tax

Why Margrethe Vestager’s report was felt in Whitehall - BREXIT just took an interesting turn … down

4. “We have no choice but to appeal the ruling” Logically, it is a no-brainer to support Apple (as I show later, Apple will most likely drop the appeal). No doubt the Irish AG has frightened the life out of the IAs about historic assurances we gave Apple (and law suits that may result), however MNCs are only here for one thing (EU TP system), which many not last forever post BREXIT. We need to play both sides of the fence and be smart and build EU friends to lobby against CCCTB.

5. “Revenue don’t have to add interest penalties to the €13bn” They do (as confirmed by our own Revenue on RTE radio). In cases of confirmed EU State Aid, the interest penalty is statutory rate of 8% p.a. €19bn is the number, not €13bn (also from Revenue). The math is easy - it is close to 12.5% x ASI Profits for €13bn + 8% penalty of €6bn.

SEAMUS COFFEY: Does the arithmetic behind the €13bn stack-up?

MSN Money: Irish Revenue confirm that Apple will in fact have to pay Ireland close to €19bn

6. “Selling the seed potatoes” Apple will take +30 years to plough €19bn in cash back into Irish economy (and possibly +40 years). Probability of Apple being alive then is small. Probably of Apple still earning +50% net margins is almost nil. When you include the extra €380m we have in annual EU levies for taking Apple’s IP onto our balance sheet in 2015, it gets worse.

The €7bn additional Apple cost to Ireland, that Margrethe Vestager uncovered, without even knowing it

7. “IDA backed firms generated billions in wages” If Apple owe €19bn, then Microsoft and IBM (bigger for longer than Apple, very profitable, advised by same IFSC tax firms), together will also owe €19bn, Pharma’s another €19bn, and Google, GE, others, c €10bn That is c €70bn vs. defending an EU tax avoidance scheme that CCCTB could kill / limit in the next few years anyway. Calculator Needed. The point is valid, however our unique “golden ticket” of being INSIDE the EU TP system AND having lowest tax (by a mile) is being left to rot in the hands of ex. school teachers. None of the other big EU countries can lower their rates (they are too addicted to to the current tax streams). We should be rich from this. Not a Pariah

If Apple is €19bn, what State-Aid fines could the other US MNCs incur that are operating out of Ireland?

8. “Designed in California, manufactured in China, how could profits accrue to Ireland…” Bizarre statement from Noonan (even more so when you think that he took on €380m p.a. of levies when Apple came “onshore” in 2015). Shows how weak his position is (and how fragile his mind). Unlike domestic Irish scandals (i.e. Section 110), where he can just lie, this is more of an Irish Water situation - the EU will just ignore him. Read this for comic relief instead.

Now we know (for sure) why Dublin is the only European capital city without an APPLE STORE

9. “Not to appeal would damage our reputation.” We damaged our reputation when we conspired to help a dodgy scheme live in a “stateless” world while picking the pockets of our EU partners (and the US) via EU TP. Again, we need to be careful here, and not ride the horse over the cliff just because retired school teacher(s) put us on it. While our Irish media will present “all sides of the argument”, world opinion is less biased, and are calling us frauds. We should appeal, but with a small “a”.

IRISH INDEPENDENT: Ireland appears on tax havens ‘blacklist’ with Panama, Monaco

10. “We are picking the pockets of the US” Washington is taking the p**s out of the EU (and its own US IRS) by claiming, via a dodgy Irish postbox “stateless” scheme in a Dublin lawyers office, that Apple can validly escape all global taxes on hundreds of billions in EU sales (that is not how the US-EU tax treaties work). The EU does not have a tax treaty with “Stateless-Land”. It has it with the US. Contrast with what US Treasury Secretary Jack Lew did when Allergen wanted to do an Irish tax inversion with Pfizer, and re-locate US profits, gross, to Ireland (ans. killed it). Stiglitz has the last word on this.

WSJ: US Treasury block Pfizer Allergan Irish Tax Inversion

HUFFINGTON POST: Apple’s Profit Reporting A ‘Fraud,’ Nobel Laureate Joseph Stiglitz Says

11. “The EU cannot go back to 1991” They are not. The tax table on EU report (re-produced on table in link below) shows that up until 2009, Apple’s EU tax avoidance was modest (an irritant to the EU). Over 90% of the €19bn fine relates to taxes avoided from 2010 to date. From 2010 onwards, Apple avoidance of EU (and US) taxes grew on an industrial scale.

SEAMUS COFFEY: Does the arithmetic behind the €13bn stack-up?

12. “It is all political, and the ECJ will overturn on appeal.” Don’t bet on it. It is political (there was a reason why the EU Commission delayed this report until after BREXIT). However, the ECJ is also very political, and is the enforcer of the EU Commission’s ideology. It also holds primacy over Irish laws (a fundamental rule of the EU treaties) , and uses Civil Law (i.e. a judge can interpret if the “spirit” of the law was violated, even if the letter of the law was followed) vs. the Irish/UK Common Law (i.e. judge must follow the specific law wording). This is a huge case for the EU which they spent years on.

IRISH TIMES: EU Apple ruling is based on evidence and the Government must address the facts

We often hold the contradiction that we (Ireland) are all politics (i.e. tribunals / investigations with no convictions etc), but the EU (ultimately) is more logical. Read this article from Telegraphs star writer, AEP on a different view re ECJ.

UK TELEGRAPH: Apple travesty is a reminder why Britain must leave the lawless EU

13a. “The EU is trying to re-write Irish Tax Law” No it is not. It is trying to get us to apply our own tax laws. If someone is going abuse the EU TP system to shelter from US taxes, then the EU at least want some EU entity to get a tax benefit before it goes to Cayman. EU will not tolerate US MNCs sucking EU wealth to Cayman, untaxed (even by US). The EU is (ironically) forcing the ex school teachers who Govern Ireland, to actually make some real money on our 12.5% “Golden Ticket”. Future Irish generations will thank Margrethe Vestager for this.

13b. “The EU is asking Ireland to be a Global Tax Collector (IDA “spin”)”. No it is not. Margrethe Vestager is forcing Apple to choose either Irish taxation (€19bn fine), or “Stateless” taxation (up to €60bn fine, per above links), or US Taxation (+3x €13bn, or €40bn, given 35%+5% US taxes). By moving their IP to Ireland in 2015 (“Leprechaun Economics”), Apple has effectively blinked, and made that choice going forward (mix of Irish and/or US). Now it has to fight to avoid the €60bn.

14. “Noonan could have handled the PR better” Maybe. The UK (our partner in EU tax-havens) is gone. We have been taking the p**s out of our EU partners with Apple (and others). It is clear from the shock of the size of the figure (and Noonan sticking to his pre-agreed automatic “appeal” mantra), there was little heads up (even qualitative). We need to make new friends in the EU. Even Phil Hogan is taking a swipe against us. We need to be careful about how we handle this.

IRISH INDEPENDENT: Blow for Kenny as ally Phil Hogan backs EU in Apple tax row

15. "We are fcked"** I don’t think so. Apple exploited our weakness in the GFC (and that we are Governed by ex. school teachers) to take the p**s out of the EU and the US. The EU are going to hurt them. However, it is clear from the EU’s report that they do not want to punish us (no fine on us, don’t have to pay off debt, fully support Ireland 12.5% rate). They just want us to stop screwing them with these 0% platforms on an industrial sale. When the dust settles, likely course is:

a. We will “support” Apple’s appeal (otherwise Apple will sue us claiming they were mis-led), but with a small “s”.
b. When Apple start getting better tax advice, will likely drop appeal (once fines from other EU tax authorities roll in)
(b1. If b. doesn’t kill it, politically driven ECJ, will rule for the EU (now UK is gone), and go after MSFT & IBM next.)
c. Apple will beg us to accept the €19bn to shield from €60bn our EU partners will be looking for (as Apple’s IP was “stateless”).
d. Not only we will get the €19bn, but Apple will pay closer to 12.5% from now on - +€6bn p.a. (c 3% of 2014 GDP).
(d1. Although, as we saw with Section 110, our Gov may have a new way for Apple to avoid all Irish taxes).
e. Wall Street will discount other MNCs with ultra low tax rates, so the rest will pay the 12.5% to get legitimized.
f. We will (finally) end up richer for a period (tiny country + huge MNCs paying closer to 12.5% + re-investing in Ireland).
(note: to more permanently shield from US IRS, Apple need to re-invest the cash in Ireland).
g. However, that may stoke a revival of the EU Commission’s CCCTB initiative, which would bring us back to this …
(g1. Or, same result if the US IRS start to crack-down on US MNCs abuse of IP schemes to avoid US taxes)


16. “Apple is a major employer, not just an empty shell (Michael Martin article)” Yes, but pity that the Apple boxes that have the Irish employees pay smaller Irish corporate tax (< 10m p.a), while the Apple boxes with all the assets + profits, pay 0% Irish tax. A country rich in “artificially inflated” GDP but poorer in real GNI. The contrast could not be more stark in Michael Martin’s (Fianna Fail leader), own constituency of Cork (MNCs like Apple are big Cork employers).

INDEPENDENT: The county that generates the most revenue per capita in the state, Cork

NEW YORK TIMES: Ireland Doesn’t Want Apple’s Back Taxes, but the Irish in Cork Aren’t So Sure

17. “We must oppose the linking of this matter with an agenda for harmonizing tax policies” Yes. CCCTB could send Ireland back to the early 1990s (or where Scotland is now). However, we are not going to have a constructive discussion with EU partners (now UK veto is gone), if we are “lashing out” at them to defend the largest case of tax avoidance in economic history.

18. “We have fought against EU interference before and have won” Yes, but the amounts were very modest pre the GFC. As Seamus Coffey’s table shows (see earlier link), in about 2010, we stepped up Apple’s EU tax avoidance dramatically (and grew it dramatically every year since). This is no longer about “principles” or “fair play”, we are really f**king with the EU and they are mad. The trick was to screw the EU softly and steadily, not rub their faces so dramatically (Apple Ireland is now the largest case of tax avoidance in world economic history). We are part of it, and two Noble prize winners, are calling use frauds for it.

19. “The Leprechauns are in Luxembourg, not Ireland (Colm McCarthy article)” No, unfortunately Krugman was right. The table of GNI/GDP (albeit a crude proxy), when compared to our EU partners (the ones we screw for tax), show that Ireland and Luxembourg have the greatest distortion of GDP (i.e. mostly due to artificial inflation by “IP”). I have Seamus Coffey’s 2013 GNI/GDP table (see link below), however post the 2015 “leprechaun economics” GDP rise, Ireland must have the biggest distortion of GNI/GDP in the EU, which is a decent proxy for a “tax-haven”.

SEAMUS COFFEY: GDP and International Comparisons, 2013

IRISH INDEPDENDENT: The Leprechauns are in Luxembourg, not in Ireland, Colm McCarthy.**

20. "If MNCs are only here for low tax, why aren’t they in Cayman (Mary Mitchell O’Connor article) " Two reasons. You can’t TP IP from Cayman into the EU. And, the US IRS would force MNCs to remit money “legally” held in Cayman, back to US (note: Apple Ireland’s money might “physically” be in Bermuda, but it is “legally” in Ireland; thus shielded from US IRS).

IRISH INDEPDENT: ‘Tax haven’ tag is as bad as ‘leprechaun economics’ for insults to our reputation, Mary Mitchell O’Connor

21. "Our Tax Veto will save us, tell the EU to fk off"** Possibly, but re-read Coffey’s GNI / GNP table again. Ireland and Lux. are the big IP re-charging hubs via EU TP system. Holland is used for different purposes (more specific tax arbitrage plays). Ireland and Lux. share a criteria that few other match - low proportional “domestic” corporate tax stream (in fact, now our Financials have large tax assets, is more extreme). Other EU countries struggle to lower core “domestic” corporate tax rates (without themselves risking a visit from Margrethe Vestager’s team). Lux. is next on Margrethe’s list.

22. “Successive Irish Governments have made a mess of this” Kind of, but the real culprits here are the few Dublin IFSC law firms who dominate all of this Apple “structuring”. The write the Irish IFSC tax leglislation and the Irish State (largely) rubber stamps it. Their actions in the Section 110 scandal (owning their own “Charities”), Partners using Mossack Fonseca, show they are untouchable in Irish society. Tax lawyers in control of a country’s tax leglislation, is another proxy for a “tax-haven”

WALL STREET JOURNAL: Why do so many US multi-nationals share the same postal address with Matheson

IRISH TIMES: State scrutinising Matheson’s use of tax loopholes for Vulture Funds.

IRISH TIMES: Law firm Matheson defends use of Irish charities to help hedge funds cut Irish tax bills

IRISH TIMES: Senior Matheson figure set up Cyprus firm to reduce tax bill with Mossack Fonseca

23. “The new “knowledge box” (KB) leglislation will solve this” The goal of the “bloated” IP scheme is to dramatically increase low-tax Ireland’s % of the Apple tax value chain (otherwise, it all goes back to US). The problem with IP schemes is that they are - by definition - “sweetheart” deals (and thus open to illegal state aid prosecution). KB is is a way to fix this by giving 0% tax to all KB qualifiers (thus no state aid). However, KB is still a con, and will likely hasten CCCTB (or if the MNC strangle hold on Washington is broken, a stronger US IRS crack down on MNC remittance of non-US profits).

24. “Revenue kept Apple tax deal from Cabinet (Bertie Ahern article)” Most Irish people almost coughed up their breakfast reading this article (although, few read the ST in Ireland). Even the Irish media would not carry such an article. We have the legions of Irish politicians / donors etc. who have violated almost every section of the Irish tax code (exposed in multiple costly public decade-long enquirers), and the amount who have been prosecuted by Irish Revenue is …

SUNDAY TIMES: Revenue ‘kept Apple tax deal from cabinet’ Bertie Ahearn

25. “Any Company could have gotten same deal [plus other statements] (John Bruton article)” There were so many claims (and errors) in John Bruton’s article, that it needed its own post to address them all (click then link below for the post).

26. “Apple should not have been so greedy and paid at least some of the 12.5% Irish Tax” It is a conundrum why Apple, the world’s largest corporation, choose to be so aggressive. Ultimately, any Irish tax it would have paid, would have been offset against US taxes if the US IRS forced remittance. The only explanation (imho) is that Apple believed it was powerful enough with Washington, that it was never going to have to pay any US taxes, ever.

27. “The EU is “out to get us” (Irish Government line)” Actually, the opposite. If US MNCs are going to abuse the EU TP System with dodgy IP schemes, to avoid US IRS taxes, then the EU want someone in the EU to get the benefit. Not only will we get the €19bn, but higher ongoing taxes as US MNCs come “onshore” in Ireland. Margrethe Vestager will do what our ex. school teachers could not - to use our 12.5% “Golden Ticket” properly, and charge properly for it.

100. “[regarding this thread] It is a mix of facts, quasi facts, and complete bollox, incoherent gibberish, Owen Callan” Funny when a regular PropertyPIN poster Owen Callan (of Investec, Cantor Fitzgerald & Danske) outs themselves. Another tweet from “mysterious” Goban Saor (12.52am, from PIN archives), backing up Callan’s tweet, is another oops.

Suffice it to say I had a long exchange with Owen on this blog. I knew he had some capital markets skills (not pure economist focus), but still showed unusual gaps (clearly never traded at scale with CBs in post GFC world) and high defensiveness / dismissiveness on concepts that i-bank bond traders deal with daily. Now it makes sense. When you earn your crust by selling Irish bonds to US mutual funds from the smaller Dublin bond desk circuit, you tend to get very defensive on anybody pointing out how fragile (and continually reliant on the ECB), our “recovery” is (as the PermanentTSB IPO investors recently discovered), and how it would get very serious if the Left took power in Ireland, and had war with the ECB (they would lose, but would burn the house down in the process). Certainly not good for Owen Callan’s business.

I will leave it to one of Charlie Munger’s favorite phrases to reply to Owen Callan’s tweet:


Some Section 110 Vulture Fund scandal implications from Margrethe Vestager’s Apple briefings

Based on summary briefings, the EU’s 130 pages (when released) will bury arguments used re the Section 110 Scandal

1. Revenue would not conspire with a foreign entity to avoid Irish taxes. The notion that Revenue changed their own anti-avoidance tax rules to make the Vultures Section 110 schemes work in the domestic Irish economy is considered “conspiracy theory” (despite facts presented in the S110 thread). I think this is now conspiracy fact (see hilarious article below, in contrast with articles from Michael Martin, John Bruton and Bertie Ahern that they knew nothing).

IRISH TIMES: Expert Group warned Government about Apple Tax Avoidance in 1998

2. Irish State are in control of their tax laws. The EU claims that Apple’s Dublin advisors would calculate Apple’s tax return and send it to Revenue for rubber stamping. If new laws / rulings were needed to copper-fasten Apple’s return, Revenue would promptly supply them. As we saw in Section 110, Dublin IFSC law firms make their own “loopholes” to exploit.

EXAMPLE: How Noonan’s Section 110 “Loophole Closure” Amendment is designed to fail

EXAMPLE: How Noonan got the Irish Taxpayer to pay for Cerberus’ €1.6bn acquisition of Project Eagle

3. Irish State can maximise Ireland’s unique position as Europe’s lowest tax rate. An effective Apple Irish tax rate of 1% in 2003 that went to 0.005% in 2014 tells you all you need to know here. We have a “golden ticket” and can’t use it. We have posted evidence of NAMA presenting to Vultures in London on using Section 110 to avoid all Irish taxes on NAMA deals.

4. Irish State balances tax breaks with other benefits back to us. Apple’s €19bn fine (€13bn tax + €6bn interest) will exceed the total economic return of Apple to Ireland (whether via taxes, salaries or other) for the rest of Apple’s life. The probability of Apple lasting (and at current 50% gross margins) for 35 years is close to zero. Calculator needed.

5. Irish State are capable of rational action in this area. As per responses to Stephen Donnelly’s Section 110 Dail questions, Michael Noonan’s comments yesterday on the EU Apple ruling, were a mix of lies, mis-Information and the surreal. The Limerick ex. school teacher is out of his depth here (and as we now know with the 26% GDP rise, doing private deals).

5.1 Lies. Yes Michael, the EU do have a say in our taxation policy. How do you think Apple got the +€100bns from Germany, France, Italy etc. into Ireland in the first place (the EU TP System). We posted similar flat-out lies from Michael Noonan denying NAMA had any knowledge of bidders use of Section 110s (when everybody knows otherwise).

5.2 Mis-Information. Yes Michael, €19bn is a “windfall” (+more again from other MNCs and more again from Section 110 Vultures). Just because it gets offset against Irish debt does not make it any less of a euro then getting it up front. Any Mars Capital borrower who is about to be evicted from their home will attest to that.

5.3 Surreal. Noonan’s comments on “selling the seed potatoes” without any reflection on scale of the €19bn (plus cheques from other MNCs) is just surreal. Where else are Apple going to go? Without Ireland, Apple will have to pay c 35% EU tax rates. Period. We don’t have “seed potatoes” - we have the “Golden Goose”, but in the hands of a retired schoolteacher.

and of course, the most important one (which most Irish media struggle with) …

6. If it’s legal (in law) it can’t be tax evasion, it must be a “loophole”. Irish media repeat the Fine Gael press office briefing note on Section 110, that while Vultures Irish tax avoidance is distasteful, it is (probably, subject to conflicted Revenue investigation), legal. Repeated in almost in every Irish Section 110 article. The EU show otherwise. This is how anti-avoidance works. Having legally constituted structures (which Apple had), doesn’t make it legal. We have plenty of our own Irish anti-avoidance rules (i.e. why every shop doesn’t convert to Section 110 status), but won’t use it.

Of course, the reason for the above mess is the same system that brought us Irish Water (a screw up at almost every turn). The reality is that the State has no capacity / ability to manage the IFSC Dublin law firms that have turned Ireland into a full blown offshore “tax-haven”, and have taken a great idea (12.5% rate), and destroyed it for their own personal fees.

Dublin IFSC law firms have destroyed Ireland’s reputation. They have gotten us to take ps out of our EU partners, by helping Apple (and others), extract gross profits out of EU countries, to export offshore, via Ireland, at 0.005% effective tax rates. Our EU partners now understand this. Margrethe Vestager’s work shows they are furious with it.**

Stronger political leadership in Ireland would have told the Dublin IFSC law firms that 0.005% was not going to happen. We could try to get Apple to single digits, but we are going to bite the hand that feeds us and made the “Celtic Tiger”. Now we are on the back foot, and with the powerful UK tax veto gone, we will be fighting for our very existence in the EU TP System.

If 9 of the big EU states (whose pockets Apple has picked most, via its Irish tax avoidance scheme) come together via “Enhanced Coporation” rules, that could kill Ireland’s abuse of the EU TP System.

Please God the EU will also take up the same illegal State subsidy case against the State’s support for Vultures avoiding all taxes in Ireland (forget the 0.005%), which will also amount to c €20bn.

Recouping of Vulture Section 110 taxes is even more of a no brainier than Apple as (1) there is no offsetting jobs / other contribution, and (2) we have sold all of IBRC and most of NAMA.

And of course, thank you Margrethe Vestager for a brief relief from the political cronyism we endure in Ireland (have a read of the Section 110 thread Margrethe if you want to find another €20bn). I wept when Enda Kenny proclaimed “we have won our economic sovereignty back”. It is nice to know the EU has not forgotten us in our little “Animal Tax-Haven Farm”. The lack of any fine was a nice touch and appreciated by all the animals who live on the farm. Otherwise the pigs, would have taxed us even harder to make it all back.

Get ready for the inevitable wall of b**s and mis-information that will emanate from the Irish media against you shortly. We are going to be reading attacks / second opinions articles from “experts”, on why you are wrong / evil / anti-Irish etc. (google the term “green jersey” Margrethe, we have a lot of them). But don’t worry, we animals in our sheds know what happened. We have been down that road many times (“night of the bank guarantee”). We are just too apathetic (a uniquely Irish quality, captured by Beckett in Godot) to do anything, but we appreciate you standing up for us.

Your actions will not only get us €19bn (thanks), but make us even richer in the future by forcing US MNCs to come “onshore” in Ireland and pay our 12.5% (still lowest in Europe). Don’t be confused by our Government’s hostile reaction to this. The are mostly ex. School Teachers with no understanding of global finance. They are fixated with the doctrine that foreign companies won’t come to Ireland if taxed. They are the worst “pimps” in the world.

However, in the words of the (Irish) Bard, we must go on … and on … and on.

Now we know why Dublin is the only European capital city without an APPLE STORE

Of course one of the funniest things not mentioned in the EU statements (that I could see), is that despite all the dodgy deals, Schrodinger Cat interpretations of Irish residency (thank you Colm McCarthy), side+comfort letters and excel “goal-seeked” transfer pricing calculations between Apple + Apple’s Dublin Advisers and the Irish State + Revenue, there was one rule that Apple ruthlessly observed - not to have a formal Apple Retail Store in Ireland.

The answer is of course tax driven (Apple even have a store in Belfast, and every main city in the EU, not just capitals).

**The prospect of making Ireland both a major IP platform (for sucking EU revenues gross and un-taxed from Germany, France, Italy etc. and re-routing to Cayman / BVI at 0.005% tax rates via Ireland), and a source of Irish Retail Income from a Official Apple Store(s), would actually (don’t laugh), potentially trip Apple into some Irish domestic anti-avoidance tax laws. In the wonderful Colm McCarthy analogy (despite his incorrect conclusions), having an Apple Retail store in Dublin could have been the tax equivalent of opening Apple’s Schrodinger’s Box (and finding the cat wearing a “green jersey”).

Having an Apple Retail store in ROI could damage the subtle dance Apple and Irish Revenue were trying to manage, in keeping Apple Ireland’s enormous IP off the Irish National Accounts and 12.5% taxation (why it was Irish non-resident), but yet operate Apple Ireland as an Irish resident company to access the EU TP system (why it was also Irish resident). This was obviously a con. However now that Apple Ireland moved its IP onto Ireland’s National Accounts (Irish GDP rose 26% in 2015, but increased our annual EU levy by €380m), the fear of having an Irish Retail Apple store in Dublin (+Cork) may subside for Apple.**

Another outcome of Margrethe Vestager’s work is that we do finally get an Apple store(s) in Ireland (although I would rather have passed up on it, and not incurred the permanent €380m annual increase in our EU GDP contribution levy.)

Again Margrethe, the animals thank you.

If Apple is €19bn, what State-Aid fines could the other US MNCs incur that are operating out of Ireland?

Apple is a “freak” in IT terms. A hardware company on+50% net margins that Louis Vuitton would be envious of. This is in contrast to SAMSUNG who (almost) make no money / margin at all (an even more dodgy enterprise then Tim C(r)ook’s firm) or DELL / HP that don’t even break into double digits (on a true GAAP basis).

Where as Apple is pulling in tens of billions in cash each year in Europe alone (all tax free), the entire European car industry (BMW, Mercedes, Volkswagen, Peugeot, Renault) combined, would barely produce €10bn in free cash in a good year (and €0bn in a bad one). This is why Volkswagen’s shares collapsed on their scandal, while Apple’s hardly budged.

Apple is one of a few global MNCs that can take particular material advantage of the current EU TP System + Washington’s Protection of MNCs from US IRS, and who have been really undermining the integrity of the global tax system:

  • massive (with enough political clout to get States to bend rules; the irony of Tim’s “political crap” comment is that he is the biggest player of Washington).
  • growing (this gives them the key olive branch of offering large new jobs to any State)
  • very profitable (which means their taxes so big, that it is worth doing things to avoid them)
  • capital light(*) (allows the advisors to justify big IP valuations, relative to market cap, on balance sheet)

(*) note: this is an easily mis-understood part of the MNCs tax avoidance. The global tax treaties crudely require that tax is realised in the places in which the work is done. Apple does R&D (all the US - smartest), Manufacturing (all China - cheapest) and Marketing (mix of US and Local Markets). Because Apple’s margins are so high, net of these activities, there is still €billions of cash left unallocated to any activity, which normally falls into US taxable profit (under US IRS rules). Apple’s IP scam (or “knowledge box” scam), is a device to be inserted into Apple’s value chain, to allocate activity to 0% tax locations like Ireland (and leave no spare cash). This is why capital intensive MNCs like BMW can’t make much use of IP. Net of allocating their design, manufacturing, marketing costs etc. there is little cash left for BMW. Why BMW can’t be much bothered with IP scams (BMWs activities in Ireland are for Securitization).

There are only few other such firms, and all are powerhouses in Ireland’s IFSC economy.

Their “signature”, from spending at least a decade in Ireland’s EU+US tax-killing machine, is a massive offshore cash hoard - a large % of which are EU+US avoided taxes on non-US profits

1. Microsoft and IBM’s cash hoard combined equals that of Apple. They are both long-standing IFSC Dublin firms. Microsoft and IBM have been earning very high margins for a lot longer than Apple (who was almost dead 15 years ago). Their combined cash hoard (bulk of which is from the EU), would imply that their combined EU fine would probably match Apple’s €19bn fine.

2. Pharmas (Pfizer, J&J and Merck) cash hoard combined also equals that of Apple. Again, same logic except Pharmas have been even more profitable for even longer than the IT guys, and big Pharma’s probably engage in the most advanced use of financial engineering outside of the investment banks. Very likely that a Margrethe Vestager investigation here would not also yield a €19bn fine.

**3. And we still haven’t even gotten to other big IFSC firms like … **Google (more profitable than Apple, and generating same cash now as Microsoft), Amazon (high gross margin, and thus taxable profits), GE (almost impossible to decode due to its complexity, and a big Section 110 user), not to mention the big IFSC financials (Citibank, HSBC, StateStreet, BNY etc.).

There could be well over €50bn and probably closer to €60-70bn in additional fines on other IFSC MNC firms, exploiting the EU TP rules (and Irish Revenue rules) to get zero-taxed EU profits (and also taking piss out of US IRS to pay zero US tax either).

Note, if you followed my logic on other posts, on why Apple’s EU fine could rise 3x if taxed by individual EU countries (vs. just Ireland), then this offshore cash hoard, could represent over a quarter of a trillion in avoided EU+US taxes by, US MNCs, operating from postbox companies in the IFSC offices of a handful of main Dublin tax law firms.

And remember, if the EU push for a version of CCCTB (now that the UK tax veto is gone), we may not see these MNCs much longer in Ireland.

The c €7bn extra Apple charge Margrethe Vestager uncovered without even knowing it

A few weeks ago we had the “Leprechaun Economics” moment when our 2015 GDP jumped 26% on the final revised figures.

Noonan was out that this was an Billion:1 unusual “point-in-time” mix of end of year inversions and aircraft leasing deals (despite the fact that asset financing deals hardly affects GDP, as its corresponding loans nets off against the assets; one of the largest aircraft leasing cos like AERCAP NV, fully inverting to Ireland (which it didn’t), would only increase Irish GDP by c 3.5%). When it was also pointed out that the increase in our GDP would increase our annual EU GDP Levy by €380m, Noonan said no problem. Net of a few things (Noonan never really explained), the net effect would be €280m. Noonan pointed to the c €500m jump in our Corporate Tax take as evidence that ultimately, when you add it up, we are still quids in.

We all accepted Noonan’s logic and endured being an International joke and our National Accounts being an increasing work of fiction (something Seamus Coffey started highlighting back in 2013 (see the table below). I would guess we are far worse than Luxembourg now - in fact I would guess that if Seamus Coffey updated this table net of 2015, Colm McCarthy would have to apologise to Paul Krugman, as our GNI/GDP ratio is well below Luxembourg.

IRISH INDEPENDENT: Krugman missed the target … the leprechauns are in Luxembourg, not here, writes Colm McCarthy

SEAMUS COFFEY: 2013 GNI / GDP International Comparisons

RTE: Revised GDP figures will result in higher EU contribution, Noonan confirms

IRISH INDEPENDENT: ‘Leprechaun economics’ - Ireland’s 26pc growth spurt laughed off as ‘farcical’

The small print of Margrethe Vestager’s report has a bombshell inside it with regard to (another) cover up our Limerick ex. school teacher has executed, which Irish National Accounts Expert, Seamus Coffey, pointed out on his Economic Incentives blog on Tuesday.

SEAMUS COFFEY: Some take outs from the Apple ruling

The scale of Ireland’s GDP jump in 2015, is awfully similar to est. +€40-50bn IP value on Apple Ireland’s balance sheet.

So, it appears Ireland’s 2015 “Leprechaun Economics” GDP rise, was mostly due to Apple re-locating it’s IP on the Irish National Balance Sheet (probably in anticipation of the EU ruling, and Apple being afraid that the EU would challenge that if Apple Ireland’s IP lied outside of the EU, then it was ineligible to use the EU’s TP system). The timing of this move was sometime in 2016 (when the 2015 GDP was being finalised). In return for this re-location of Apple’s IP to Ireland, Apple was taxed by Ireland at at a c 1% “special” Irish Revenue rate (why our Corporate Tax take rose c. €500m in 2015 as well), and of course we took another “bullet” for Apple by covering up the source of the GDP increase and being labelled “leprechauns” (thanks Tim). However, because of this IP re-location, we have also taken on a permanent increase in annual EU levies of €380m which now need to integrate into our Apple €19bn economic decisions.*

(*) I will come to this in another post as it shows why Margrethe Vestager highlighted that other EU countries may want to examine Apple’s €19bn fine, as if they can prove that Apple Ireland’s IP was outside the EU (Apple can’t have it both ways - and it is a clever trap by Margrethe which Apple can’t wiggle out of), then all past EU TP flows are void (you can’t TP IP from outside the EU, and especially from a “stateless” location with no EU tax treaty). In this case Apple’s fine could easily double or even treble (given higher corporate tax rates of EU countries, and higher penalty rates).

So lets take out the calculator here regarding this €380m liability:

  1. By housing Apple’s IP on our National Balance Sheet, we will incur a long-term increase of €380m in annual EU GDP levies. I think Apple will be gone within c 25 years so that is about €7bn in additional EU taxes Ireland incurs to take Apple’s IP onto our National Balance Sheet. In return for a c €500m once-off tax contribution in 2015 from Apple, we owe the EU €7bn.

  2. Just to calibrate this, Coffey re-produces the table that the EU used (supplied by Apple) showing the profits Apple ran through its Irish tax avoidance scheme vs. Irish corporate tax paid. So in 2012, Apple routed €35,877m of EU profits through Ireland, but paid Irish corporate tax of €7m (this is Apple Cork). You can see from the table, that Apple was paying a 0.02% Irish corporate tax rate in 2012.

SEAMUS COFFEY: Does the arithmetic behind the €13 billion stack up, Sept 1st 2016?

  1. It gets worse. Apple say they hire 5,500 people in Ireland (note: we know Google materially overstate their Irish workforce, but lets take this figure). Noonan’s IP deal with Apple (and given they pay c 0% Irish corporate tax), means that the first €69,000 in annual salary paid to each of the 5,500 Apple employees in Ireland, will go to covering the extra €380m EU GDP levy.

  2. So we can have €19bn now (fines + interest), or we can get the excess of what Apple pay in average salary over and above €69,000 to each of it’s 5,500 employees in Ireland. Each €10,000 in average sale that Apple pay - on average - to this 5,500 over an above this €69,000 salary level, is worth €55m to Ireland (in total). That is about 345 years to recoup the €19bn.

  3. I’m sure that another “deal” was done (i really hope so) that Apple would pay higher Irish corporation taxes going forward to make up for this €380m levy increase (if they aren’t, then this is another Section 110 scandal). The issue is that an ex. school teacher is doing private deals on massive scales, which we have no understanding of (and which, we are being deliberately misled on).

No wonder that Michael Noonan was so circumspect about the “leprechaun economics” GDP increase and its source.

Would Noonan, in return for a c €500m payment and a new Apple datacentre, sign us up to €7bn of additional EU levies.

Clearly, Apple must have agreed to a higher future Irish tax rate (to make up for this), but the Limerick school teacher is silent.

Do you still doubt what the EU is saying about us (or what we have written on the Vulture Fund Section 110 scandal) ?

These are the guys who brought us Irish Water. A major cock up (and scandal) at every turn. Where the water charges will only just cover the cost of replacing the water meters every 7 years; and ultimately our off-balance sheet Irish Water financing “scheme” was killed by the EU (despite our protests and deluge off media “spin”). We need to get an investigation in to this whole area.


An article from the Irish Examiner appeared noting that economists Karl Whelan and Seamus Coffey pointed out that Apple was most likely the source of the “Leprechaun Economics” rise in Ireland’s GDP.

IRISH EXAMINER: Apple tax affairs changes triggered surge in Irish economy

The Irish CSO responded, next day (a first !), to this Examiner article, with this reply:

IRISH INDEPENDENT: ‘Leprechaun Economics’ not all down to Apple move, insists CSO

Nobody doubts that the 2015 26% uplift contains a “mix of factors”, however what people are starting to realise is that c. 20% of the 26% (i.e. 77% of the uplift) is Apple.

The fact that the Government still wants to “cloud” the Apple impact on 2015 GDP is worrying. It hints that no offsetting deal was achieved for taking on Apple’s IP (and incurring EU levies).

However, as a purely “Irish Story”, this will get buried for a period (we saw the same Government phone calls go out to Irish media re the Section 110 scandal, until the evidence mounted).

It is very likely that the 130-page report and/or the Apple appeal process, will formally disclose the size of ASI’s balance sheet. Then it will clear as to what happened (and Michael Noonan will be long gone).


There is a wider issue that “Leprechaun Economics” bring up, around whether all of the “phantom GDP” that is housed on Ireland’s balance sheet, actually pays-its-way when the EU GDP levies are taken into account, as discussed in this post:

Excellent work Observer. Prior to reading your posts I was inclined to go along with Dan O’Brien’s analysis in today’s Indo, which amounts to “It’s complex - we have to wait and see”. (Btw, where do you get the time to analyse and write all this yourself??)

Thanks for taking the time with the detailed explanations. It’s GUBU, truly GUBU.

One thing to bear in mind is that Apple is a consumer electronics company. Their PC market share is exactly what it was in 1995. 3x units but same share. A trivial part of current revenue. Apples gross and net margins pre 1997 were a lot better than any other PC company but nowhere near Apples current stated gross and net margins. The gross and net margins of consumer electronics companies are nowhere near as good as niche, non generic, PC’s.

Post '97 Apple traded effectively insolvent for a few years (because Jobs threw away all the high margin peripherals business) until saved by the ipod cash flow. The 10Q tricks, clearing out all manufacturing inventory at end of Q, selling off parts of the company (the ARM stake), emergency cash from MSFT, outright fraud, is the only thing that kept them out of a pre Chapter 11 sell off. The iphone was a pure fluke. The result of other peoples stupidity and luck not any positive action by Jobs. Just like with Pixar. It will not be repeated. Apple in its current form can only survive as long as the person in charge shows a complete criminal contempt for the law and the rule of law. Which Jobs did. All you need to know about Jobs is that very first thing he tried to do once it looked like the Apple I was going to sell was to try and defraud Woz out of his share of the company. Mike Markkula made him give it back. Jobs was an utter shit to his (self inflicted) dying day.

It is only through massive tax and other financial frauds that Apple can post the kind of net profit margins they do in their 10Q’s. These are MSFT style nets but for a business that does not have the 95% plus net margins of MSFT two core products. The only reason MSFT has such low total corp nets is because they need all the other products groups to lose lots of money to ward off another anti-trust case and be broken up. Plus I believe a lot of the MSFT “expenses” actually ends up in MSFT off balance sheet entities.

As I said, its reach for the popcorn time. The RICO angle will the most interesting one for Apple. It just needs one Fed DA planning a political career to kill them. Just ask Michael Milken how that plays out. The DA in question was some guy named Rudy Giuliani…

Not surprised - many people read the book about Milken and his junk finance over and over but never figured out quite what he did wrong except piss off some seriously big swinging dicks from Wall Street, Giuliani’s patch. They read Deep Capture too, but the jury is still out on that, why did it never blow up into mainstream radio or telly??

How Apple’s EU fine could end up topping almost €60bn, if it doesn’t play ball on the €19bn fine?

The critical “trick” of Apple’s EU-US tax avoidance scheme is that their Apple Ireland subsidiary (the one which has the c €50bn of IP) must be two things concurrently*:

1. Non-resident for Irish tax purposes. The Irish Revenue Commissioners have been at pains to publicly state on radio and in paper interviews, that they collected all Irish taxes from Apple in Cork (about €7m per annum on Apple’s figures in 2012), but have no remit to take further Irish taxes from any other part of Apple Ireland, as it is not resident in Ireland. Fair enough, how can the Irish Revenue tax a firm that doesn’t reside here? Therefore, no “sweetheart” deal. Case closed.

IRISH TIMES: Revenue insists it collected all taxes Apple owed

Apple’s sworn competitor, Google (android platform), decided to put a “Customer Letter” from Tim C(r)ook first in all google searches regarding Apple + Tax (Google realising they might be next on EU’s list), with photos of old Cork Apple plant. Nothing odd is going on here, this is like an “Old Jim Beam” plant in the Kentucky Mountains; a labor of love (not tax avoidance).

Apple Customer Letter from Tim C(r)ook

2. Resident for EU TP purposes. A stateless company (or even non-EU company), cannot use the EU TP system to re-charge IP royalties into Germany, France, Italy etc. (like Apple Ireland does). I don’t think Apple appreciated this (who were the Irish tax advisers used for this?). Apple must have panicked in 2016, and decided to move its Apple Ireland IP formally onto the Irish National Balance sheet for 2015 (when the 2015 GDP was going through final revision). As posted earlier, Apple paid Ireland a once-off €500m tax payment for taking this IP transfer, and we pay the EU €380m per annum in extra levies.

(*) note, tax experts out there will point out that there was more complexity to Apple’s Irish structure (and other equivalent MNC structures in Ireland), however, they will ALL boil down to the same above issue - where does the IP (thing that sucks EU profits to Ireland, via the EU TP System) reside? There are at least 2 other known equivalent IPs of Apple scale, that are “floating” put there “stateless”, but “residing” in post boxes of Dublin law firms.

Margrethe Vestager has seen the weakness of this attempt to ride two horses (bad tax advice), and is how she will trap them:

(A). Either Apple Ireland was always fully resident in Ireland (and therefore eligible to use the EU TP system to re-charge IP). If that is the case, then Apple misled the Irish Revenue (oops), and owes €13bn in back taxes and €6bn in penalties. This is how the Revenue will play it (“we didn’t know this”, which we know is untrue), however this is, ironically, the “best case” outcome for Apple. Remember, the €13bn is equivalent to the profits of Apple Ireland x 12.5% (it is that simple).

(B). Or, Apple Ireland was NOT always fully resident in Ireland (and therefore ineligible to use the EU TP system). If that is the case then the Irish Revenue is right, but Apple illegally re-charged its Apple Ireland IP to EU states (from a “stateless” residence with whom the EU has no tax treaty). Apple therefore will owe back taxes at much higher rates to all EU countries (their tax rates are 2-3x Ireland’s 12.5% rate). The EU fines will be more like €40-60bn in total.

Here is a small example (Irish Times below), from Italy where Apple re-routed €879m in Italian profits (2008-2013) to Ireland via the EU TP system. This €879m sum would have been c €109m of Margrethe’s €13bn back-tax figure (ex. interest + penalties) by applying 12.5% x €879m. The Italian corporate tax rate is +43% (3.4 x Ireland’s 12.5% rate). So now Italian Revenue realises the IP re-charge was invalid (to a “stateless” company with no EU tax treaty), they will not be looking for the €109m figure, they will be looking for €370m on just this small amount. That is how quickly Apple’s EU fines could escalate, and why they will end up begging Ireland to accept the €13bn (ex. interest + penalties) figure, to legitimze their IP was always fully Irish resident.

IRISH TIMES: Apple Italy accused of using Cork affiliate to avoid tax, March 2015

A major initial mis-understanding of the initial press release, is that the max fine is €13bn (ex. interest). When Margrethe Vestager is telling other EU nations that they might be entitled to a share of this €13bn EU fine, she has forgotten to say that where these other nations prove an entitlement, the back taxes will be 2-3x the Irish rate (i.e. €60bn). Obviously, any claim the other EU nations make will reduce the profits Ireland should have gotten, and thus the €13bn figure.

This is the wonderful bind that Margrethe Vestager has trapped Apple in.

There is simply no way to get out of this - you can’t be “stateless” and re-charging IP via the EU TP system.

Period. There is a reason why US MNCs don’t just locate in the Caymam, Bermuda, BVI, etc. where most of their EU + US tax-free money ends up anyway. Somebody please explain that to this person before she writes any more mis-informed copy.

IRISH INDEPENDENT: ‘Tax haven’ tag is as bad as ‘leprechaun economics’ for insults to our reputation, Sept 2016

There is a good follow-up here from Colm McCarthy claiming (incorrectly), that if any Apple tax is owed, it is for the account of the US Treasury. As I explained above, if its for the US = €40bn, for Ireland = €19bn or for EU = €60bn (what answer do you think Apple will get to). His imagery however re Schrodinger’s Cat is perfect (envy).

IRISH INDEPENDENT: US Treasury is owed the tax that Apple has avoided, Colm McCarthy

OK, so which one is Nelson, which one is Boxer, and which one is your English teacher??

AFAIAA even Google didn’t do the “stateless” company thingy.

Maybe Apple could generate a sympathy vote by being “the Kurds of the tech industry”.

Fascinating, Observer. A ripping good, if spine-chilling read.

Tim C(r)ook does share one common aspect with the Kurds - they both pay no taxes outside the US.

Yeah, yeah, whatever, Observer. But how will all this effect house prices?

A good choice of image to start your dissection. But the original Apple logo would have sufficed.

The Milken trial was a really really big story at the time. I followed the trial coverage closely, I lived in SoCal at the time, and talked to some people down in LA who had some background. I read the books that came out soon afterwards but as you said the RICO was a real stretch. But stock prices were manipulated and there was a pattern of (mostly technically) criminal behavior. Which is good enough for a RICO to stick.

I was not so much that Wall St had it in for him but that not being on Wall St meant that he did not have the connections that could offer protection against a Giuliani indictment. Giulianis office had a long list of people to indict, they had been bubbling up since the late 70’s, but Milken was the one targeted because he was very much an outsider and so the easiest really big fish to take out. There were a lot more sleazier operators on Wall St at the time but all could call in favors when needed. Whereas Milken ran his operation from Beverly Hills and was notoriously bad at strategic networking. He was basically a fiance wonk. Plus paying himself $550M in 1987 had really really bad optics. So when Giuliani was looking for a lone wilderbeast to peel off from the junk bond herd and take out Milken was the obvious choice after Boesky was found guilty of insider trading.

And it worked. The junk bond market pretty much disappeared and in the 1990’s all the most creative types moved into derivatives until the dot com scam was invented in 1997. Then it was 1920’s Florida real estate development companies style pump and dump all over again. Happy days…

BTW where was the eu when nama was distorting the property market and bulldozers were knocking down houses that had never been put up for sale