The decision of the European Court of Justice (ECJ) on the Apple case means that Ireland will have to pay back €13bn in taxes they were told to collect from the company by the European Commission. The Commission’s ruling, which was annulled by the court, found that Apple had managed to gain a substantial tax advantage through an agreement they came to with the Irish authorities over the tax treatment of certain subsidiaries the company operated in the country. The Commission argued that the tax benefit gave Apple an unfair advantage, and so should be returned to Ireland.
Today’s ruling from the ECJ is therefore not about whether or not Apple has engaged in tax avoidance, but whether the European Commission was right to find that the government of Ireland had enabled Apple’s tax avoidance scheme by granting the company a tax ruling which should not have normally been available to companies operating in Ireland.
The fact that Apple has been engaging in tax avoidance is beyond doubt. According to the company’s own corporate filings, Apple paid just five per cent on its profits generated outside of the US between 2008 and 2015.
The company argues that the low tax bills it faces in countries like the UK are due to the fact that its products are designed in the United States, where most of its taxes are paid.
However, this argument is simply not borne out by the facts. According to our research, Apple’s own corporate filings from the last five years disclose that the company declared close to 70% of its profits outside of the United States.
It is true that the company has faced a much higher tax bill on the minority of profit it declares in the US. That is because most of its non-US profits have historically been shifted into companies which are not tax resident anywhere in the world.
This structure is very well documented by various investigations that have been carried out by government agencies and legislatures.
Three of the companies that are the focus of today’s ruling by the ECJ, Apple Operations International, Apple Sales International, and Apple Operations Europe were examined by the US Senate Permanent Subcommittee on Investigations in 2013, which concluded that they were part of a “complex web of offshore entities” designed to “avoid billions of dollars in U.S. income taxes”.
In the context of the vast nature of Apple’s tax avoidance scheme, the European Commissions focus on tax rulings made by Ireland was always a relatively narrow point, but this narrowness reflects the fact that the EU does not have many tools to deal with these kinds of issues. Tax policy has always been closely guarded by member states.
The high stakes involved in this dispute came about because Apple was using Ireland as a conduit to remove profits from countries around the world. Whatever the outcome of today’s ruling, no-country outside of Ireland would have been impacted by it.
For that reason, the judgement should serve as a reminder that governments need to urgently press ahead with reforming the international tax system and to implement domestic reforms to ensure that profits are taxed appropriately in their jurisdiction and make sure that the kind of corporate trickery deployed by companies like Apple is a thing of the past.
Apple’s scheme presents a particularly pressing issue because there is no backstop to Apple’s tax avoidance scheme such as the Digital Services Tax. Whereas other digital companies, such as Google and Facebook, will soon be faced with additional charges to make up for their profit shifting.
Photo by Marcin Nowak on Unsplash