The Apple Appeals

We now have summaries of the appeals to be made by Ireland (published in December) and Apple (published yesterday) in the state-aid case.  Ireland set forward 9 grounds while Apple include 14.

On the facts of the case Ireland argue:

The decision also mischaracterizes the activities and responsibilities of the Irish branches of ASI and AOE. These branches carried out routine functions, but all important decisions within ASI and AOE were made in the USA, and the profits deriving from these decisions were not properly attributable to the Irish branches of ASI and AOE.

With Apple’s position being:

The Commission made fundamental errors by failing to recognise that the applicants’ profit-driving activities, in particular the development and commercialisation of intellectual property (‘Apple IP’), were controlled and managed in the United States. The profits from those activities were attributable to the United States, not Ireland.

The readers can identify the difference.  The case continues to attract significant attention and there were two recent opinion pieces in The Irish Times from Liza Lovdahl-Gormsen and Paul Sweeney on the topic.

Apple Cash Tax Paid

Finally, here is a piece worth reading from Martin O’Malloney in the Dublin Review of Books.

21 replies on “The Apple Appeals”

Thanks for this. I’m going to study these appeals carefully. Though you should brace yourself for all the hysterical moralising in the comments. I think we can all agree that (a) profitable multinationals should pay their fair share of tax, (b) loopholes in international tax laws are going to come to an end, and (c) Ireland is going to have to be inventive and creative in developing policies to encourage multinationals to continue to do business here and to attract new ones. We only have to get a tiny percentage of global trade and commerce to support our population now heading for 5 million.

If the ECJ decides the case on the morality of MNC’s avoiding tax then Ireland hasn’t a hope. On the assumption that the ECJ will look at the pure facts of the law it would be good to hear from other commenters their views on the appeal.

hysterical moralising

Not this time. In the immortal words of one lone mad “Fuck Apple, take the money!”. Actually no, let’s go farther.

I’m done pretending society can have a rational debate or intellectual discourse about this. People have picked their sides. Debate, facts, reason are not going to shift them. 10 years of recession aren’t going to shift them. 400,000 people gone aren’t going to shift them. So “Fuck Apple, Take the Money”. No moralising from me. No. I simply follow rational self-interested maximiser theory to its logical end.

I want money. Apple owe the state. Take the money and give me my share. What’s my share you ask? What about Apple? What about some bullshit argument for fairness or the law or all the other keystones of civilisation every one of you econ-wonks, policy-wonks, medi-wonks, wonk-wonks, has talked down, dismissed, and eroded over the last god knows how many years years? Fuck ’em. I want money. Take it off Apple and give it to me. Fuck them if they leave. I’ll take 3 grand over an Apple plant in some part of the country I never fucking visit anyway. What difference does it make to the likes of me, or most of the country anyway?

In case this isn’t clear, I mean I want cash. Cold hard.

I don’t give a shit if this “erodes Ireland’s reputation” or makes some FDA operations take the night train in fright. Fuck them, I want money. What use are they to me when I can’t get a steady job, or pay fucking rent, or have any future or hope of maybe making it retirement anyway? So fuck them, and fuck all the bullshitters and the endless fucking bullshit talks. Fuck society, fuck Cork, and fuck Apple! Give me money!!

Another summary here of the legal argument. and there is general agreement that the Commission is pushing the boundaries of what constitutes State aid, which is of course the nub of the case, not whether Apple pays enough tax.

It would seem that the Commission were hasty in announcing that ‘Ireland gave illegal tax benefits to Apple worth up to €13 billion” as it does not appear to have justified that sum.

The above Blog also notes that ‘A hearing, where both appeals would likely be run together, won’t likely take place until 2019, based on the General Court’s current timings. An appeal to the Court of Justice could take a further three years’.

The key elements, despite all the sound and fury, remain in the following coment viz.

“The Commission says this is the case because either: (i) Irish law incorporates the “arm’s length principle”, with which the Commission says Apple’s tax liability calculations are not compliant; or (ii) having compared ASI and AOE’s arrangements with 17 comparable advance pricing arrangements of Irish branches of non-resident companies disclosed to Irish tax administrators, the Commission says the ASI and AOE arrangements resulted in an advantage for ASI and AOE relative to those other companies.
The Commission also states that, as ASI and AOE’s tax arrangements are unique to them, the arrangements are presumptively selective, although the Commission acknowledges it must prove an advantage separately from demonstrating [this].”

The concepts of “advantage” and “selectivity” are at the core of the legal debate and derived from the extensive jurisprudence flowing from the – correct – use of state aid rules.

It is up to the ECJ to decide if their use is correct in this instance. A former occupant of the post of Competition Commissioner does not think so.


Neelie Kroes, former Competition Commissioner, may have made valid points about the Apple ruling.

However 2 successors have been involved in these type of state aid investigations and Kroes is now a Startup Envoy for the Dutch government and director of Uber. She has accompanied the Dutch PM on an investment visit to Silicon Valley and it’s unlikely in her current roles that she would make critical comments on high profile tech firms.

Bloomberg reported last September that Kroes is under investigation by the EC as she held a directorship of a Bahamanian company while she was Competition Commissioner.

Does anyone have any idea how long this whole charade might be dragged out for? I know it’s impossible to be precise, but are we talking 3 years, 5 years.. or longer?

It’s difficult to see how the ECJ (or, now, the CJEU) can come up with a judgement that says Ireland deliberately and illegally refused to levy and collect the amount of tax DG COMP has estimated. It probably will have to come up with something that spares some DG COMP blushes, but even Commisioner Vestager accepts that other countries might like to stake a claim. But the main provider of state aid in this case is the US (as Seamus Coffey has previously pointed out) by allowing US MNCs to keep their crocks of gold offshore beyond the reach of the US Internal Revenue Service. And the Irish Leprechauns were just helping the US MNCs to do this in return for a small consideration. However, most of the existing loopholes have now been closed or are being closed and the effort is now being devoted to developing new ones.

All this, of course, is rapidly being overtaken by events. The Ryan House of Representatives and the Trump White House are likely to come to a landing very soon on a major shake-up of the US corporate tax regime and the Senate is likely, after much huffing and puffing, to fall in to line. And the EU’s mills will continue to grind out incremental changes to the taxation regime. The Irish rent-extracting Leprechauns will have to be even more nimble.

As for the commentaries linked, Lovedahl-Gormsen and Sweeney provide the usual hackneyed special-pleading from opposing perspectives. The piece by O’Malloney flattered to deceive by initially prsenting a slightly different perspective, but it finally crashed in to the wall with an unfortunately typical but totally irrelevant reference to “volatile neoliberalism”. Even respected left-of-centre commentators, such as Simon Wren-Lewis, who have honestly struggled to make some sense of this asinine concept have given up: ” I suspect in many cases that creed [neoliberalism] is simply a cover to disguise a far simpler motive of protecting and increasing the wealth of the rich.” And he could have added powerful special interests – for they exist across the political and economic spectrum.

“Does anyone have any idea how long this whole charade might be dragged out for? I know it’s impossible to be precise, but are we talking 3 years, 5 years.. or longer?”

If one defines the ‘charade’ in the wider terms of lower, and lower, corporate taxes, then the answer is that the ‘charade’ will keep going until the political systems underlying the economic structures of western societies completely break down. They are certainly headed in the direction of breakdown at present.

The race to lower corporate taxes continues with the UK’s putative reduction to 17.5%, the US to 15%-20% plus a special rate of 10% for repatriated profits.
What is the point of a disappointing talking shop like BEPS, when, while the talking is going on, actual corporate rates are being further reduced.
Ireland collected corporate taxes comprising over 16% of its total tax take in 2003 and 2004. Yet despite all the increased FDI since then, inversions, surprise extra Apple tax receipts, and a ‘booming’ economy, Ireland’s corporation tax receipts are still under 16% of the total tax take.

Regardless of the legal arguments in this particular case, the corporate world, and in particular the Irish corporate world, is not paying its fair share; and its not just Apple!

@ Joseph Ryan

If there is a separate thread on the morality of corporate taxation then your comments above can be copied and pasted. You could also ‘Talk to Joe’ on Radio 1 each day. The subject of this thread is the appeals lodged by Ireland and Apple in this state aid legal action.

1. The Court of Justice in a 1974 ruling said that business tax arrangements can be state aid; there have been various Commission investigations since including on the Irish 10% manufacturing tax rate.

Fiscal secrecy had barred scrutiny of firm tax avoidance until recent times and a task force was set out to collect factual evidence by studying the tax ruling practices of member states and analysing nearly 1,000 rulings.

2. Apple’s use of Irish shell companies for tax avoidance purposes where it allocated about two-thirds of its overall earnings to, could be compared with tax shelters — the earnings were deemed to be “foreign” in public filings while it now says they “were attributable to the United States, not Ireland.”

In the US in particular, the Department of Justice and the courts deal harshly with artificial entities that do not have economic substance or lack a business purpose other than for circumventing tax rules. In the UK the House of Lords in 1982 (then containing the supreme court) ruled that that “courts are not confined to literal interpretation of tax statues, and that they should consider for tax reasons the context, the scheme and the purpose of an act.”

I don’t know how the ECJ would handle the issue but Apple would not say to US Senate investigators where the Irish shell companies were controlled/ managed from as an answer would have then raised a question as to its basis for saying that the Irish entities were stateless — not tax resident anywhere.

3. The Revenue arrangements with Apple were not commonly available to registered companies.


“2. Apple’s use of Irish shell companies for tax avoidance purposes….”

In 2004, ASI and AOE had 1,492 employees in Ireland; in 2011 that figure was 2,532. As well as these, AOE had between 200-300 employees in Singapore up to 2009. Shell company?

“but Apple would not say to US Senate investigators where the Irish shell companies were controlled/ managed from…”

Senator LEVIN. All right. Now, relative to ASI, Mr. Bullock, is ASI functionally managed and controlled in the United States?
Mr. BULLOCK. As a practical matter, applying the Irish legal standard of central management and control, I believe that it is centrally managed and controlled from the United States.
Senator LEVIN. And does Apple agree that it is functionally managed and controlled in the United States?
Mr. BULLOCK. Under Irish law——
Senator LEVIN. No. Under our law, do you believe that?
Mr. BULLOCK. I do not believe that central management and control is a legal term under U.S. tax law.
Senator LEVIN. All right. Do you believe it is functionally managed and controlled in the United States?
Senator LEVIN. Mr. Cook, do you agree?
Mr. COOK. We have significant employees in Ireland. We have about 4,000. And so there is a significant amount of decisions and leadership and negotiations that go on in Ireland. But some of the most strategic ones do take place in the United States.
Senator LEVIN. Would you agree on balance that ASI is functionally managed and controlled in the United States?
Mr. COOK. From a practical matter. I do not know the legal definition of the word.
Senator LEVIN. As a practical matter, you would agree that it is functionally managed and controlled in the United States?
Mr. COOK. Yes, Senator.

They were asked and they answered.

@ S. Coffey

Apple Inc.’s position in 2013 was:

Apple has not made a determination regarding the location of AOI’s central management and control. Rather,
Apple has determined that AOI is not managed and controlled in Ireland based on the application of the central
management and control test under Irish law. The conclusion that AOI is not managed and controlled in Ireland
does not require a determination where AOI is managed and controlled.” Information supplied to the Subcommittee
by Apple, APL-PSI-000242.

As noted above, Apple also has two positions on where most of its earnings should be attributed to.

There is an obligation under Irish law for the owners of non-resident companies to notify the authorities of the place where they are controlled from.

The issue here is not how many subsidiaries or branches the parent companies — termed “sham” by Sen Carl Levin and a “head office” by Commissioner Vestager — had but their function as facilitators for massive short and long-term tax avoidance.

Vestager said:

But under the tax rulings it was the “head office” that was attributed almost all of the company’s profits – in fact, due to Apple’s set-up, it was attributed almost all of the profits Apple made from selling products throughout Europe, the Middle East, Africa and India.

The second company, Apple Operations Europe, makes certain Apple computers in Ireland. Under the same two tax rulings, the majority of its profits was also artificially allocated to a “head office” that only existed on paper, and whose profits were not taxed.

This selective tax treatment of Apple in Ireland is illegal under EU state aid rules. It gave Apple a significant benefit compared other businesses.

Tax rulings cannot endorse a method to calculate taxable profits of a business that fails to reflect economic reality.

The EC have investigated ASI and AOE; quotes relating to AOI offer little.

From the recital 112 of the Commission’s decision.

According to Apple, ASI and AOE were functionally managed and controlled from the US and all significant business decisions (including in relation to matters such as IP, product development, what products and component would be manufactured and sales and marketing strategy) were made in the US and not in the Irish branches of ASI and AOE.

I’m not sure what the issue is. It has been pointed out since 2013 that the domestic/foreign split in Apple’s financial statements was not reflective of the tax accounting treatment of the risks, functions and assets that generated the profits. Leaving aside the scale in this instance, differences between financial accounts and tax accounts are not unusual. Of course, the countries involved may not have similar or compatible legislative provisions for the treatment of that profit allocation but that, of course, is what has got us here.

@ S. Coffey

“Leaving aside the scale…”

The issue here is not for example why Apple uses a rarely used accounting provision to boost its reported global effective rate by about 10% but the false accounting where two-thirds of earnings are routed through the Irish shell companies to avoid/defer tax — which is hardly an inconsequential issue.

@ MH,

The cost-sharing agreement that granted these companies the economic rights to Apple’s IP outside the Americas was entered into in 1980. The agreement was not designed to attribute two-thirds of the group’s profits to the Irish-registered companies that were party to the CSA – unless you could predict the international success of the iPhone 27 years before it was launched.

What definition of “shell company” are you using? And how does that correspond to companies that have a couple of thousand employees?

And providing for tax liabilities on foreign earnings does not seem unusual. For example, in their accounts Pfizer state that “We record U.S. deferred tax liabilities for certain unremitted earnings, but when amounts earned overseas are expected to be indefinitely reinvested outside the U.S., no accrual for U.S. taxes is provided.” All companies that expect to repatriate some or all of their foreign earnings will make a provision for the US income taxes that will be due on repatriation. Companies that do not expect to repatriate any of their foreign earnings will not make such a provision.

@MH, Seamus

“3. The Revenue arrangements with Apple were not commonly available to registered companies.”

I don’t think “not commonly available” is the quite the correct analysis here.

From the EU perspective, suppose a car showroom selling a broad range of cars, has one customer (who might be, say, a local celebrity) purchase a prestige 4×4 and then asks “I get a free Mini with that, don’t I?”.

If the showroom manager considers the point and then says “Yes” has that customer been dealt with preferentially & selectively?

The showroom manager may say that he would have given every customer a free Mini with any prestige car purchase – its not his fault if no one else asked.

The questions with Apple seems to be:
(i) Did other companies receive the same deal?
(ii) If not, was this because
a) they didn’t because they had no idea the deal was available since from commonly available information they would have no reason to think it might be available, or
b) they didn’t because they were a bit remiss in their corporate tax planning, or
c) having considered the deal, no other company was willing to structure its business in that way, even though they knew of the tax savings

If it was b), then why did so many highly competent tax advisers fail to realise the deal was there for the taking?

Anyone know the answers to these?

@ grumpy

The analogy to giving customers different deals is not a great one! In many parts of the world, you wouldn’t get a discount for example if you don’t ask for one and that is fair.

State tax agencies crushing flies and doing deals with tigers — some senior staff dealing with former colleagues — ain’t right.

In 2013 Prof John Kay, the FT columnist, put it as follows:

In the main, however, tax authorities have preferred to cut deals with big corporations rather than pursue costly legal action. They will not do the same for you and me. It makes no sense for a small company to pay an accountant to do anything but calculate the amount of tax that is properly due, or to incur legal fees resisting a challenge. The unacceptable outcome is an entirely correct perception that there is one law for the little guy and another for the big battalions. The potential effect of that perception on tax compliance is one that it is well worth spending millions of pounds to avoid.

A serious reform agenda would involve a principled reappraisal of the basis for taxing corporations both nationally and globally, and a strategy for effective enforcement of existing rules. Such a strategy would make clear that executives of companies which present accounts to tax authorities that are essentially false, and the accountants who support them, will in future run serious risks. The door they hear closing behind them might be the door of a prison cell rather than the door of 10 Downing Street.

Apple was able to avoid the Double Irish exposure by not using island tax havens, and to the world, the non-resident companies were just normal offshore Irish companies with addresses in Cork — in 2006/2007, Apple reorganised its finances, it made the Irish companies unlimited to avoid public filings and it made a new deal with the Irish Revenue.

Apple did have a Cayman Island firm until the early 2000s and retains a unit in the British Virgin Islands.

Apple’s foreign tax rate fell from 12% in 2002 to 2% in a decade


Don’t get distracted by the specifics in that analogy of a retail business. The point is that the car showroom works under a regulatory regime in which “selectivity” is not allowed.

Just focus on the questions I posed.

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