Apple judgment partly about making big political statement

Apple’s use of what might be called ‘single Irish’ key reason why commission focused on it

Apple claims it was a “convenient” target for the European competition commissioner. Photograph: Reuters/Brendan McDermid

Apple claims it was a “convenient” target for the European competition commissioner. Photograph: Reuters/Brendan McDermid

 

Apple has said it was a “convenient” target for the European competition commissioner. But there is also an “inconvenient truth” for the US multinational behind all this. Stand back from all the technical legal arguments and one thing remains clear – Apple managed to avoid paying tax on vast amounts of revenue moved through Ireland, money earned in its operations outsider the US.

The commission’s conclusions are stark. The first step in calculating how much Apple owes Ireland in back tax, it says, is that “all profits of the business activities “ of the two key Apple companies involved from June 2003 to September 2014 should be subject to Irish corporation tax at 12.5 per cent.

While the commission does not go through precisely how it believes all the numbers add up to €13 billion, such was the level of revenues and profits involved in Apple’s activities outside the US that a massive tax total was inevitable once this approach was chosen.

What view the European courts take on all this remains to be seen. It comes down to complex pieces of tax law and judgments on precisely what rules it was reasonable for the Irish Revenue Commissioners to apply. For the ordinary PAYE taxpayer, the rules are clear. For the massive multinational, there are matters of interpretation in what tax should be paid where.

Apple also left itself exposed by the tax arrangements it used in Ireland. Apple’s structure was based on moving cash within individual companies . More recently-established companies usually operated the “double Irish” structure – under which money is transferred between two different subsidiary companies, one tax resident in Ireland and one not. This may seem a subtle difference, but the commission decision makes clear its unhappiness with how the transfers within Apple’s individual companies were managed and how profits were allocated to head offices which were “stateless” for tax purposes.

Apple’s use of what might be called the “single Irish” was a key reason why the commission focused on it. No doubt, too, its iconic nature and the amount of money involved did also make it a “convenient” and high-profile target.

Because at the end of the day the commission’s judgment was about making a big political statement as well as looking at the drier issues of competition and tax law.

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