August 30, 2016

Apple versus the E.U. is more than that


I went over to the European Union press release database to see what it had to say about the tax levy it imposed upon Apple.  It's eye opening in it's over-reach.  Consider:
Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a "head office". The Commission's assessment showed that these "head offices" existed only on paper and could not have generated such profits. These profits allocated to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.

This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.
Effectively, the E.U. is dictating to a member state, Ireland, how it must conduct its internal affairs, in particular taxation. Interestingly, if the EU is looking to accelerate Brexit type reactions, this sort of thing might do the trick. Clearly Ireland wanted Apple and acted in a way that they assumed would attract Apple to Ireland.

Unfortunately, the EU seems to think it knows what is better for Ireland than does Ireland. Bureaucrats seldom know better than businesses and in this case bureaucrats twice removed from the economic situation on the ground in Ireland are least likely to understand what Ireland needs and Apple needs. Nevertheless, it's not stopping the EU, though it should give member nations pause to reflect on the implications of the decision.
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