Talk about a Rigged System: Apple Corp is in bed with Ireland

If you want to talk about a “rigged” system – but one that you can bet we won’t hear Donald Trump talking about – then look no further than the announcement out of the European Union that Apple owes approximately $14.5 billion in back taxes that it failed to pay.

Apple’s is a complicated story of tax avoidance and what multi-national companies can do. The company has used what’s been designated the “Double Irish” strategy based on a loophole in American tax law that allows companies to avoid an income tax if that income was earned by a subsidiary overseas, even though the American company owns the subsidiary. The way the system works is this:

  • The company creates several subsidiaries, and licenses it to a subsidiary based in Ireland. The first Irish company is legally based in an offshore tax haven such as the Bahamas or Cayman Islands.[1]
  • This offshore company licenses the patent rights to a second Irish company, which receives income from the first Irish company, but whose taxes are low because of royalties and fees paid by the second Irish company to the first Irish company.[2]
  • The United States company – in this case Apple – does not pay any Federal taxes on the income from the Irish companies because the earnings were not made in the United States.

And Apple is hardly the only company guilty of these kinds of practices. Google, Facebook and others are not far behind.

Part of the problem here is clearly that these companies can create all these fictitious subsidiaries that don’t actually do anything besides open a P.O. box and move money around. Wouldn’t it be nice if a corporation had to actually DO SOMETHING before being allowed to exist just anywhere.

Yeah, good luck with that idea.

It turns out that worldwide Apple pays an effective tax rate that has been estimated at 0.05%, unlike the approximately 15% that many middle class Americans pay. And yet, Tim Cook still has the gall to claim that Apple pays its fair share of taxes. (On this issue, he is prevaricating with the likes of Donald Trump!)

The European Union finally got tired of the way that Apple does business, and after a lengthy investigation decided to sock them with the $14.5 billion bill. (Not much chance that Apple will pay it, mind you.)

The European Union found, among other things, that

  • Apple chose to record all sales in EU countries as sales in Ireland.
  • In 2014 Apple paid an effective tax rate of 0.005 on EU sales.%.
  • That the illegal tax breaks began in 1991, but that the EU can only order “recovery” from 2003 through 2014.

All of this has put the Irish Finance Minister, Michael Noonan, is the awkward position of promising to appeal a ruling which would send a massive amount of tax funds to his government.

Strange bedfellows, Apple and Ireland.

By the way, Apple is not the only business facing a hefty tax bill after EU regulators scrutinized member country policies. In addition, Starbucks has been ordered to pay up to 30 million euros to the Netherlands, and McDonald’s and Amazon are both waiting for decisions about deals they struck with Luxembourg.

[1] Apple has in fact incorporated two companies in Ireland: Apple Sales International and Apple Operations Europe.

[2] These royalties and fees are deductible expenses, so no taxes are paid on them.

About a1skeptic

A disturbed citizen and skeptic. I should stop reading the newspaper. Or watching TV. I should turn off NPR and disconnect from the Internet. We’d all be better off.
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