The European Commission have responded to the recent interventions by the US Treasury into the tax related state-aid investigations with this letter from Margrethe Vestager to Jack Lew.
On one of the issues raised by the US Treasury the response is as would be expected:
I also hope we agree that the taxation systems of EU Member States entitle them to tax the profits generated by companies operating in their territory, including US companies. The Commission has the duty to ensure that these rules are applied in a non-discriminatory manner by excluding preferential treatment in any form that constitutes incompatible State aid. This does not put into question the US taxation system or go against double taxation treaties concluded by EU Member States.
So we await whether DG Comp are going to conclude that the estimated $120 billion of profits earned by Apple Sales International between 2004 and 2013 were generated in Ireland and so should be taxable in Ireland as opposed to only those profits earned by ASI’s branch in Ireland. The Commission could also conclude that the allocation of profit to ASI’s Irish branch was “wrong” but if that was to be the case then this ongoing exchange of letters would have been wholly disproportionate.
The Commission are also investigating Apple Operations Europe (AOE). AOE also has an Irish branch which undertakes manufacturing of a specialised range of computers. However, ASI is the global hoover of Apple’s profits – it contracts with third-party manufacturers in China (with all agreements signed in the US) and sells on the products to Apple distributors at an “arm’s length price”. The difference between the fee paid to the manufacturer and the price charged to the distributor is considerable. Hence, the estimated $120 billion of profits earned by ASI between 2004 and 2013, with 90 per cent of that occurring in the final four years of the period.
ASI is a subsidiary of AOE so it is possible that the Commission could rule that the profits are taxable in Ireland when they are distributed as a dividend by ASI to AOE. This could potentially bring our 25 per cent Corporation Tax rate into the equation. But that seems very unlikely. The focus will probably be on the trading profits earned by ASI, though if it ends up being a dispute over the profit allocated to ASI’s Irish branch we really will be left wondering what all the excitement was about.
How long more will they keep us waiting? And if a decision is published by DG Comp is there a timeframe within which an appeal to the CJEU must be made?
10 replies on “Vestager replies to Lew”
Ireland should unofficially welcome an adverse finding against Apple and hope that there is a big tax windfall — even though it is akin to an accessory to a crime getting an award.
Apple produces impressive products but it’s power enables it to get away with tax shenanigans that would risk others being in prison.
Tim Cook and Eric Schmidt brag about complying with all laws and paying every penny due — well whatever the excuses, fake invoices for billions from Irish shell companies in Bermuda in the case of Google, with nothing but an address at a lawyers’ firm in Bermuda, is a form of fraud.
A civilised society would not survive long if everyone just complied with statute law — Adam Smith makes the same point in the Wealth of Nations 1776.
The positive development is that the type of regime that was operated by Ms. Vestager’s boss when he was PM of Luxembourg is no longer tolerated.
You seem to be blind to the big issues and what Bernie Sanders would call a rigged system. I saw Hilary Clinton’s speech earlier and she called out Johnson Controls who plan a tax inversion.
The Republican elite is shocked that Trump is also making similar points even though he’s a hypocrite.
Imagine an Irish firm setting up a tax structure with a foreign holding company and shell companies with an address in Knocknaheeny, Cork, using charges to reduce tax visa fake invoices for “technical services” or IP, would a tax inspector who didn’t see the prospect of a job in a BIG 4 accounting firm, be sanguine about such an arrangement?
A handy reference document, freely available.
At the risk of appearing pedantic, I would point out once again that the issue, insofar as state aid is concerned, relates solely to treating one firm more favourably than another in a comparable situation cf. previous thread for the conditions that have to be met. We know this because the Commission says so.
On the question posed on the time-frame for a reference to the ECJ, the manual is silent but one would assume that this would be dictated by any time-limits for compliance set in any negative Commission decision.
The only relevance of the exchange of letters Lew-Vestager lies probably in the fact that the Commission will have to devote a deal of time to the legal reasoning behind any decision (Section 1-7).
A simple approach would be to judge that Apple products are sold at a given profit level in Europe, and tax is due to all EUMS on profits earned, based on sales, in European markets. The cost of intellectual property should be fully incorporated into the pre-profit net cost of the products, so should not overly concern European tax authorities.
Tim Cook claimed in an interview with Charlie Rose, shown on Bloomberg, that the deferred US tax rate on overseas profits not yet repatriated should be reduced to avoid double taxation “…because those profits have already been taxed overseas”.
Participants in this debate need to consider which eyeglass they are looking through. The only one that matters, at least for the moment, is that through which the Commission is looking. It can only use the state aid one, the sole focus of which is on unfair discriminatory treatment between firms in the same objective position. The Commission has said so in all its comments, while attempting to imply that that the focus is wider cf.
This Charlie Rose interview?
I’d be really surprised if he said that. But if you can find it I’d appreciate the reference.
Before Xmas Cook gave an interview where tax was covered:
Maybe he is simplifying but by saying it would cost “40 per cent to bring it home” he is saying that little or now foreign tax has been paid on those earnings.
A blast from the past!
Since that date, the legal situation, on both sides of the Atlantic, has not changed by a dot or a comma.
Tim Cook knows it!
The US are “reviewing” Section 891 in relation to the EC approach.
Section 891 has never been used. What is section 891?
There’s that word discrimination again!
The title of a book on big game hunting by Robert Ruark ‘Use enough gun’ gives a flavour of the situation. There is no doubt about the fact that the US has the legal firepower. But does the EU, acting through the body charged with implementing the rules on competition?
That isn’t the interview I saw on BBG a couple of nights ago – only watched a couple of minutes of it, by chance the content was about overseas tax and I was surprised to hear him come up with “already been taxed overseas” given what we know about how much tax Apple pay overseas.
The discussion was about US corporate tax rates being too high (from Apple’s perspective).