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

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

Independence Alliance and Zappone are some shower.

To save you all googling, the collective nouns for a group of weasels include boogle, gang, pack and confusion

I’m not surprised about anything that rag tag outfit could come out with…
Zappone…mileage claims and her recent vote against Wallace’s bill on Abortion
Ross…the ultimate populist and insider. Former stockbroker
McGrath…rights for smokers

On the Junior side…
Halligan…Per RTE website report on the Apple Cabinet decision “A decision on a possible upgrade of those services [cardiac services at Waterford Hospital] is expected in the coming days”
Boxer Moran…“Mr Moran hit out at the Opposition for suggesting there was “a crock of gold” which could be spent on health and education among other things. He said the longer-term objective of securing inward investment by multinationals creating jobs was far more important.
“Some of the opposition are stoking up false expectations. We may never see this so-called €13bn in Apple back-taxes, we don’t have it – we may never get it,” Mr Moran added.”

Pigs at the trough

You know the way the PDs had backed FF and Bertie on so many things there was no way they’d collapse anything ?

This crisis has actually strengthened FG’s position because Zappone and IA didn’t show any principle here. They’re now ‘all in’. They just need to not mess with services in the constituencies

IRISH INDEPENDENT: Cabinet agrees to appeal €13bn Apple ruling

It has a feel of the night of the bank guarantee with the Greens / FF deja vu again:

Greens keep FF in power to fully guarantee all Irish banking debts, in order to get a free bike scheme in Dublin City.

Similar double speak from the IAs as the Greens used “we want Apple to pay the fine, but we are going to appeal it.”

The list of “Tax Initiatives” are hilarious (we know that we live on Animal Tax-Haven Farm, you don’t have to humiliate us). We know that none of these “tax initiatives” are going to have any effect. We now know where the 26% GDP growth came from (thank you Margrethe) and that saving Apple, by taking its tax avoidance swindle into our GDP, will cost us another €7bn. We just hope that you at least clawed some of this €7bn back from Tim C(r)ook.

Time for us animals to get back to our work and let the cabinet celebrate their close call with confronting their electorate again.

However, comedy comparisons aside, I do believe the smart play is to support Apple (but with a small “s”). Apple are going to drop this appeal in the next year or so, and we will look better to the other MNCs standing beside them. We just have to make sure that we don’t do it so forcefully (or “emotively”) that the EU get p***ed with us, as this would have much more serious consequences.

There is a rumor that Apple’s Dublin tax advisors got written assurances from the State over the years (FF and FG), that it was happy with Apple’s Irish resident / non Irish resident tax scam. Buried in the small print of these written assurances (again from Apple’s Dublin tax advisor), were additional safeguards that make it legally impossible for the State to do anything other than support Apple’s EU appeal (otherwise, Apple would have a case to sue Ireland for their EU fine). In addition, all these agreements between Apple and the State are confidential, and nobody can say they saw them. That was why the AG had to spend so long with the IAs. And why the IAs have to support Apple (but can’t say why they are bound to support Apple).

Another victory for our Section 110 Vulture Fund tax avoidance schemes “organ grinders”:
Seperating out the “Organ Grinders” from the “Monkey”: