Don’t follow, the absence of a tax treaty would render the invoices from the stateless entity not tax deductible in the various EU states - is that what you mean?
Yes - and particularly so in the case of re-charging inter-group intangible items like IP.
If you are a German company, and in your tax return, you have a large intangible inter-group cost item with an Isle of Man entity, that is not to work unless the German Revenue grant you a particular exemption (which can happen). That is the big flaw of Apple’s Irish structure. Apple have been “implying” to the German Revenue that Apple Ireland was Irish resident (there are standard EU agreements that cover IP royalty charges within the EU). In reality, while Apple Ireland was located in Ireland (in the offices of Matheson) is was not Irish resident (according to Irish Revenue). It was not resident anywhere. That is a big (big) no no with the German Revenue (and all other EU Revenues), and there could be even greater financial consequences for Apple than the €19bn fine.
This is the reason why all the US MNCs need to be “resident” in Ireland.
This is material mistake that Apple made, but it was too greedy (or its tax advisors too stupid).
Apple wanted the EU TP system (to avoid EU taxes), but also wanted to avoid all Irish taxes.
That is what Margrethe Vestager shows (and why Apple are paranoid on report confidentiality).
When this gets digested, Apple are going to have a change of heart over the €19bn fine.
That’s an intriguing theory. But it could well be someone running interference.
In which jurisdiction would Apple sue ? How could they enforce ?
There’s a big difference between a lawyer (such as our lightweight AG) saying ‘there’s a risk we’ll be sued’ and ‘we will definitely lose when we are definitely sued’
Where is the EU when a certain German carmaker was gaining an unfair competitive advantage by being allowed to ignore emission laws.
While Apple are no saints, the 13 billion euro fine is awfully similar in amount at todays exchange rate that the above carmaker has to pay in US ($15 billion dollars)
Connected Fianna Fail-ers who are on a first name basis with the experienced lads in the Dáil… how do you feel about the Dáil being recalled so everyone can bite down on this collective sh1t sandwich together?
Mmmm… tastes like sadness.
This is a challenge for FF surely?
Why I am 90% sure that Apple will drop their appeal and we will get the €19bn
Unlike the Section 110 Vulture Fund scandal, we have no Margrethe Vestager to reveal what happens when you put ex. Irish school teachers in charge of multi-billion balance sheets (answer. Irish wealth destruction on an epic scale).
We will have to suck it when our “Revenue investigation” into Vulture Funds (who Revenue have been helping) find nothing inappropriate. €20bn of Irish Irish domestic taxes will just sail off to Cayman / Luxembourg. We will just have to get over it.
However, Margrethe Vestager’s report on Apple in Ireland is a different story. It is going to be a masterclass of analysis (if her press releases and presentations are anything to go by), and in spite of the best efforts of our ex. school teachers to avoid getting and Irish taxes again, Margrethe is going to get us our €19bn (and much more tax into the future).
Margrethe has thrown two grenades into Apple’s dodgy scheme which will kill it:
- Her report contains evidence that Apple was violating US tax codes by illegally lending its offshore cash hoard (from its EU tax avoidance schemes) back to the US, thus avoiding formally remitting the cash to the US, and incurring 35% + c. 5% in US taxes). So bad is this violation, that Apple was forced to immediately announce that it would be paying “billions of US taxes” soon. Apple has blinked. By doing this, Apple is going to incur 35% + c 5% US tax on a portion of its “offshore” (or “stateless”) cash hoard. To the extent is pays the Irish €13bn fine, it will get a tax credit for this payment, against these US taxes. As the €13bn fine is calculated on a 12.5% tax rate, it will be materially lower then the taxes if everything is sent home (over +3x €13bn = c €40bn)
IRISH TIMES: Apple to pay “billions in US” taxes, Tim Cook
RICHARD MURPHY: Tim Cook isn’t playing his cards very well
- However, while Margrethe’s first grenade was a “small stick”, to soften Apple’s defense against the €19bn Irish fine, her second grenade is a “big stick” that will have Apple running to beg Ireland to accept the €19bn fine (and lock-down that Apple Ireland was always fully Irish resident). As Margrethe points out, if Apple Ireland was “stateless” (as Irish Revenue claim), then Apple Ireland could not have used EU TP rules to recharge its IP out (the EU does not have a tax treaty with a “stateless” country) to Germany, France, Italy etc. Given our EU partners have tax rates 2-3x our own, they would be sueing Apple for 2-3x the €19bn.
Why Apple’s EU fine could top €60bn
Apple has been caught doing crooked things avoiding all EU taxes (and US taxes).
This is a retail “branded” goods company with one of the highest margins we have seen in IT hardware history (a fear of markets, and why Apple’s p/e multiple is 10x vs. say Google at 30x).
Given this, Apple has to put up a “cosmetic” fight against the EU ruling for a year or so (until this “political crap”, as Tim C(r)ook puts it, dies down) and they can claim a confidential EU “settlement” (which will be €19bn).
However, once other EU Revenues gets Margrethe’s report, and Irish Revenue’s statement Apple Ireland was “stateless”, their law suits will make the €19bn Irish fine seem like value for money.
Apple moved their IP into Ireland recently (to get into the 2015 final figs), boosting Irish GDP by 26% (we incur €380m in extra annual EU levies for that), so they have given up on 0% Irish tax going forward (which implies they will be paying some Irish taxes). In a way, Apple have blinked, and with the choice of:
(a) move all back to US (€40bn tax @ 35% + 5% rate).
(b) keep in Ireland and reinvest (€13bn + €6bn fine) (note, if you still have to go (a) route later, US IRS gives a credit).
(c) don’t do (a) or (b) and leave yourself exposed to EU Revenues suing for illegal transgers (c €60bn).
Apple have already chosen (b) as their core (moved all IP onshore in Ireland), and will still have to do some of (a) as they can’t justify that they will re-invest all the money in Ireland (hence Tim’s announcement of paying US taxes).
Why Margrethe Vestager accidentally uncovered another c €7bn in Apple costs to Ireland.
This is why the Government debate about whether to support Apple’s appeal is irrelevant. Apple is not going to carry on with the EU appeal. Apple is going to pay the €19bn fine to Ireland. Only question is whether Noonan will fk it up (again) by giving Apple a Section 110 type Vulture Fund structure, to find a new way to avoid all Irish taxes going forward.**
Its all against eu rules, happening in Ireland… Ireland is in the eu.
The eu don’t care they only care about getting multinationals out of Ireland
FG leadership have now decided on the most useful narrative for the sheeple - the 12.5% tax rate
Jealousy and envy
Buried in the TCA somewhere is a section which sets out that if something the revenue write to you is incorrect, the letter has no standing.
Revenue providing assurances to a specific company would be fairly unique in of itself.
More detailed than many an RTE article.
So what is to stop our politicians bringing corporate tax down to 6% (after all they are claiming corporate tax take doubled in last few years) and give all sorts of discounts that drop the rate to almost zero for “research and development” or “hiring unemployed” as they do in likes of France?
I think after this any goodwill between our gombeen and EU has been demolited
As I understand it, the assurances are not from the Revenue, they are from the State.
I believe some other major MNCs have equivalent assurances. There are at least two other very large “stateless” IPs floating out there (who are probably bunking in one of the few Dublin EU tax avoidance IP “youth hostels” like 70 Sir John Rogersons Quay). As per my post above, the “stateless” IP tax structure is going to be attacked by various EU Revenues (who now realise it violates the EU TP rules). I think the “stateless” IP tax structure is going to turn out to be very bad tax advice indeed (certainly not worthy of Best Irish Tax Advisor award).
On reflection, it is understandable that Apple would have asked for such written State assurances. If a major MNC is going to use Ireland to “wash” it’s EU profits of all tax liabilities, which will require big investment in Ireland (small vs. scale of EU taxes being washed), then a big risk is that a future Irish Government (i.e. SF type) would dis-own this structure and all hell breaks loose. Once you commit, moving €50bn of IP around is not easy. However, if Apple had used a senior non-Irish EU competition lawyer, they would have advised them to burn it.
I believe that this is yet another reason why Apple will drop its appeal (per above), as such written assurances from the State are really helpful proof that Apple got a “sweetheart deal”. It is possible that the EU Commission knows about these assurances from their audit 18 months ago. Such letters are often used to nail EU anti-competition cases. Again, better advised, Apple should not have asked for them. However, this could all be rumour.
I would expect that there is a lot of “shredding” going on in Dublin over the weekend.
Margrethe Vestager’s 130 page report is going to be a bombshell. If Hillary Clinton does not win the US election, you could see substantive prosecution by the US IRS (and US FBI) on MNCs in Ireland (US executives have been criminally presumed for lessor US tax violations). Regardless, I suspect that we are going to see the various offices of Apple (and some other Irish MNCs) raided across the EU by local revenue commissioners building their cases against IP fraud.
Buried or whatever, it’s self assessment, so Revenue comfort letters/assurances/opinions are always pretty worthless?
Very interesting article. As you said very unusual for RTE which usually deals in trite generalities.
What I took from the article is that if the Commission findings had been against Google, Facebook or MS and their tax arrangement in Ireland then the companies would eventually prevail on appeal. But the key problem for Apple is the fact HQ was not tax resident anywhere. That is a circle than cannot be squared. Anywhere. In any jurisdiction. Even if HQ had ultimately been tax resident on Norfolk Island it would have given them a legal fig leaf. Although a very small one. But still far better than the legal position they currently find themselves in. The null tax resident HQ was just Apple playing silly buggers. A step too far.
Apples best legal strategy for now is to drag the legal war out for years and years and eventually the Commission in its current form will eventually go away. This legal strategy worked really well for IBM in the anti-trust case brought against them in 1969 to break them up. Thirteen years later, in 1982, the case against IBM was dismissed when it seems IBM’s chief defense counsel in the anti-trust case was made head of the Federal Anti-Trust division. For some reason he saw no merit in the case.
Thats how you win big court cases like this.
The Santander case was one that many EU countries had no issue with (for various reasons). That is why it failed on appeal. The ECJ is not some independent group of wise men. It is a politically driven body that enforces the will of the main EU partners. Apple is an outsider to the EU (hence the monumentally ironic “political crap” statement from Tim C(r)ook, when a phone call to Washington couldn’t make it go away.) and their reaction so far only proves this further. The RTE Samtander case study should be put on the shelf beside last weeks “it will only be a couple of hundred million fine according to well informed sources”.
Ironically, while Apple (and a few other MNCs in Ireland) are going to nailed by both US and EU tax authorities for using badly advised tax structures to try and take the complete p**s out of Europe (going for 0.005% rates), the future is fine for Ireland. More compliant MNCs will be a tax bonanza to Ireland (plus payment of back taxes).
HOWEVER, if all of this revokes the CCCTB debate (now the British veto is gone), then, as mentioned earlier, that would be very bad for us. Even if our tax rate was 0%, we would be toxic to MNCs, who would want to re-locate cost base to offset higher tax EU locations.
Observer35, are you sue about this? I’m no tax expert and certainly not on IP TP, etc. However,in Ireland and Luxembourg as examples only, invoices are tax deductible for CT purposes, irrespective of whether or not they come from tax treaty countries, no? Italy, AFAIK, has a black list…
However, perhaps its the IP TP aspect where I must admit my knowledge/experience is poor?
It’s a good article alright. I wonder could it be argued that the treatment of IP is also selective?
Yes. There is a reason why the MNCs have HQs in Ireland (and Holland and Luxemboug), instead of doing it all directly from the Cayman Islands (i.e. the ultimate end location for the cash). To make EU TP rules work for IP re-charges, you must be resident in the EU. The rules are extensive and very helpful. There are cases where IP can be re-charged from outside the EU but it requires more sign-off and scrutiny from each individual local EU tax authority. However their guide will be the appropriate tax treaty. A “stateless” company cannot have a tax treaty with the EU. Therefore it cannot re-charge IP across the EU. I would guess that the local EU tax authorities didn’t realise that Apple Ireland was “stateless” (and there will be questions around whether this was their own mistake, or whether they were misled).
The Irish Revenue’s own statement that Apple’s main “Irish” operation was stateless is the final nail in the coffin here (and why Apple moved their operation “onshore” in 2015, because of which we will pay €380m in additional annual EU levies).
Thanks Obserer35 for that clarification.
BTW, excellent stuff from you.
This bit jumped out…