Apple’s official statement on the European Union ruling against
its Irish tax arrangements tells you all you need to know about
what is at stake: You can have taxes or you can have jobs, but
Apple is in no mood to deliver both.
After learning Tuesday morning that
the EU expects Apple to pay €13 billion (£11 billion, $14.5
billion) in back taxes, the company said, “It
will have a profound and harmful effect on investment and job
creation in Europe.”
That is not a threat, technically. But it will be seen as one by
EU politicians who want to attract new companies to their
Back in 1991, Apple struck a tax deal with Ireland that was
completely aboveboard and legal. The Irish government provided
Apple with a “comfort letter” that said the company would pay
very low rates of tax if it based its European operations in
In the 25 years since, Apple has created thousands of jobs in
2015 it had 5,000 employees in the country. Another
1,000 jobs are planned for the headquarters in the Irish city of
Cork. This year
Apple will open its site near the town of Athenry, with
another 200 jobs in the making.
The deal between Apple and Ireland was pretty clear: Give us low
taxes, and we will give you jobs.
A note from a meeting between the government and an Apple tax
adviser in 1990 basically said exactly that:
“Apple was now the largest employer in the Cork area with 1,000
direct employees and 500 persons engaged on a subcontract basis.
It was stated that the company is at present reviewing its
worldwide operations and wishes to establish a profit margin on
its Irish operations.”
Apple is now the single largest taxpayer in Ireland, so it has
the kind of negotiating strength to get what it wants.
Apple has noted that its tax arrangements were agreed to
repeatedly by Ireland’s government. The European Commission
itself says the agreements were legal, albeit mistaken. But
Margrethe Vestager, the European Commission’s competition
Apple’s Irish tax arrangements sound like a scam:
- Apple’s effective European tax rate was 1%, on sales of €16
billion or more per year.
- It sunk as low as 0.005% in 2014.
- Apple created a head office that did not exist: “This ‘head
office’ had no operating capacity to handle and manage the
distribution business, or any other substantive business for that
matter … The ‘head office’ did not have any employees or own
- The pact deprived other European countries of billions of
euros in unpaid taxes.
Perhaps the most serious part of Vestager’s case against Apple is
the way it contradicts Apple’s long-standing assertion that it
does not pay corporation taxes in the US because its foreign
(i.e., non-American) revenues are reinvested in the foreign
territories that earn them.
Apple’s annual report has said “substantially all of the
company’s undistributed international earnings intended to be
indefinitely reinvested in operations outside the US were
generated by subsidiaries organized in Ireland, which has a
statutory tax rate of 12.5%.”
That 12.5% rate appears to have been Irish mist. The European
money was actually being funnelled back to the US, Vestager says.
Apple’s Irish operations had a cost-sharing agreement with the US
headquarters in which they were allowed to use Apple’s
intellectual property if, in return, they paid for the American
R&D expenses to create that IP. The EC
statement says (emphasis ours):
“Under this agreement, Apple Sales International and Apple
Operations Europe make yearly payments to Apple in the US to fund
research and development efforts conducted on behalf of the Irish
companies in the US. These payments amounted to about US$ 2
billion in 2011 and significantly increased in 2014. These
expenses, mainly borne by Apple Sales International, contributed
to fund more than half of all research efforts by the
Apple group in the US to develop its intellectual
(Critics may also ask how many more jobs would have been created
in Europe if the money generated in Europe had actually stayed in
Vestager’s ruling will also be read as a threat by dozens of
other international companies who previously used Europe’s
flexible tax arrangements. The European Commission concluded in
October that Luxembourg and the Netherlands granted tax
advantages to Fiat and Starbucks. It is investigating Amazon and
The ruling will be appealed. It will be years before it is
resolved. It won’t hurt Apple — €13 billion is roughly equivalent
to only one month’s revenue, and Apple has always kept a massive
amount of cash stashed in foreign countries precisely because it
does not want to move it into jurisdictions where it might be
The more immediate problem is whether global companies will even
bother with Ireland in the future if they cannot get the tax
breaks they want — and whether that, in the long term, will
reduce the total tax take in Europe.
With that in mind, Apple published a
longer statement Tuesday morning reiterating the link between
jobs and taxes:
“Beyond the obvious targeting of Apple, the most profound and
harmful effect of this ruling will be on investment and job
creation in Europe. Using the Commission’s theory, every company
in Ireland and across Europe is suddenly at risk of being
subjected to taxes under laws that never existed.
“…We are committed to Ireland and we plan to continue investing
there, growing and serving our customers with the same level of
passion and commitment.”