Well this is a tough one. On the one hand you have Apple, the world’s richest company, complaining about having to pay a reasonable rate of tax rather than the insanely favourable deal that had been receiving from the Irish government. On the other you have the EU; an institution that should be taking a long hard look at itself after its role in the Brexit saga, instead trying to show how tough it is by going after a US giant. It’s one of those ones where you want both sides to lose.
Here are the facts. In 1991 Apple (who had been in Ireland since 1980) went looking for a “sweetheart deal” to stay there. They made a pointed case that either they got tax breaks or they moved on. The Irish government conceded since Apple were the largest employer in the region at that time (fanboys note: Steve Jobs wasn’t with the company at that time, so no, this wasn’t his ‘singular vision’).
Ireland has been an EU member state since 1973. It is illegal for EU member states to offer up sweetheart deals to favoured companies. On paper, this one is pretty cut and dried. The deal was illegal, the Irish government shouldn’t have made it and Apple have been undercharged for over twenty years. So it is a bit rich for Tim Cook to call the deal “total political crap”.
Perhaps he feels emboldened by Washington stepping in on his side. The US government has waded in with the unlikely stance that this money that is owed should be paid to them, not to the EU. Why? Because Apple is a US company. Indeed, Apple does intend to ‘repatriate’ some of the $181bn of profits it is holding offshore to the US next year. Exactly how that will work is questionable.
The issue is further compounded by the Irish strategy of being the so-called Celtic Tiger economy. In real terms, this means that Ireland wants to be seen as a favourable place to do business, so it has attracted several giant companies to its shores with hefty tax breaks. The advantage? Jobs for Irish workers. The disadvantage? Well, Apple’s tax rate in 2014 was 0.005%. What? You don’t pay that? Get out of town….
In fairness Apple aren’t the only company that the EU is preparing to go after. Also in their sights are Amazon, Starbucks and McDonalds. All have dodgy tax deals in various EU member states. All are American businesses.
So what is going on here? Is this a witch-hunt on US companies? A shameless cash grab? I suppose that depends on how much of an arch capitalist you are. There can be no doubt that these sweetheart deals are staggeringly unfair and socially questionable. That malaise, however, runs deeper than any one company into the Byzantine setup of the tax codes themselves. Is it fair that a company can use its size and its employment capacity to strong-arm a national tax authority to give it a better deal? If might is right, then yes. If you prefer social balance then no. It’s not fair but it is realpolitik. Is it illegal? Well, yes, as it turns out. It is illegal in these cases.
So the Treasury Department doesn’t really have a leg to stand on with this one. They can grumble with some legitimacy that the EU has only just woken up to this, but their claims that US companies’ profits should just go back to the US is to ride roughshod over the economic principles of multinational corporations.
What would be nice in this situation would be for Apple to just settle up the bill and reorganise their operations. It is less than 10% of their currently held offshore profits, so it’s not like they can’t afford it. It also gives the opportunity for them to actually conform to the standards that Washington wants. They are an American company so why not move more of their actual operations back onto home soil? That way the Treasury can tax them as it sees fit without any interference from the EU. Hopefully they will be a bit tougher than Ireland were and Apple will become a more responsible corporate citizen, paying its way fairly and proportionally to the benefit of everyone. Yeah, like that’ll happen…