EU Takes a Bite Out of Apple
The EU has interpreted Apple's tax arrangements with Ireland as state aid not generally available and is 'ordering' the repayment of €13bn. The diagram illustrates how the EU believe that Apple put structures in place allowing a very low rate of corporation tax to be paid.2 September 2016
The chart shows the amount of tax Apple have actually paid vs the amount now being demanded by the EU, despite protests from the Irish Government. €13bn sounds like a handy figure for the Irish Exchequer but if the repayment up ends Irish Tax Sovereignty and destroys the Celtic Tiger in the process, the short term gain will be replaced by long term pain.
The decision will be appealed to the ECJ but it will probably stick and it will then be very interesting to see what other cash strapped governments do in terms of Apple's activity in their jurisdictions.
The crux of the argument is where the most economic value is created and taxed. Apple will argue the vast majority of the value in their sales is in the IP, not the computer and phone kit, and they are at liberty to domicile the IP wherever they please.
Meantime Apple looks like it is going to to remit some if not all of its $215bn cash pile to the US where corporation tax will be paid but probably not at the current headline rate of 35%, so expect a tax holiday.
There will be popular support in Europe as the EU tilts at cross border tax arbitrage, but the problem is they are undermining tax certainty and transfer pricing principles going back 25 years. They are also undermining tax sovereignty and the OECD BEPs programme, which has already addressed this issue, and in the process creating significant investor uncertainty.
Less investment into Europe, and a US administration incentivised to modernise its tax code (long overdue) and cut tax rates, will actually hurt Europe's competitiveness in the long run, with a very real danger that tax wars will break out, destroying the OECD's hard won consensus.
This is a high risk strategy for the EU and it's members and will tangentially further strengthen the Brexiteer case in the UK. As far as Jersey is concerned we look on with interest as we are not a 'Treaty' jurisdiction and therefore not directly involved.