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What Apple, Amazon, Google, Microsoft, and most other big US company do is the so called "double Irish"[1]. Essentially is a clever way of using two quirks of s

What Apple, Amazon, Google, Microsoft, and most other big US company do is the so called "double Irish"[1]. Essentially is a clever way of using two quirks of some EU countries loopholes in tax laws, from treating IP licensing fees (of course the brand and intellectual IP is owned by a British virgin island tax haven, where else could this stuff be created/invented), and the net result is that Apple et al end up paying single digit cents on the dollar in EU profits. And with another quirk - this time in US tax laws - the do not even have to pay taxed in the US on those earnings, as they have not repatriated the funds. How to pay dividends/fund buybacks, without repatriating those funds? Easy: Just issue debt (which your own subsidiary in the British Virgin islands making a killing on IP licensing might want to buy) or have your BVI IP trust fund buy those shares. Now why would other EU countries let Ireland and the Netherlands get away with these accepted loopholes is a mystery to me, especially since Ireland had to ask for a bailout lifeline, and was in no position to negotiate firmly. Why the US would allow their truffle pigs to not pay taxes on oversea earnings is clearly the result of expert lobbying. [1]: https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement

tinkerrr 10y ago
>And with another quirk - this time in US tax laws - the do not even have to pay taxed in the US on those earnings, as they have not repatriated the funds. This is not a 'quirk' as you think. No country in the world, other than the US, tax their corporations on already taxed profits in a different jurisdiction. This actually ends up hurting the US because corporations cannot repatriate already-taxed funds without being taxed again.
- shaqbert 10y ago
  The US tax code is a huge mess, agreed. But you gotta pay your dues (aka taxes) somewhere, and here Apple et al goes essentially Scot free. That is not cool.
  - X86BSD 10y ago
    Every time this apple in Ireland tax issue comes up it makes my brain hurt, literally hurt to read all these replies who don't seem to look at this problem correctly. First, Apple did nothing illegal. There is no wrong doing here. They pay tax in every country they owe tax. Period. Second, perhaps it's not Apple that's the problem? Perhaps it's the tax that is the problem. If you have mega corps building entities outside its main jurisdiction to avoid the main jurisdictions tax burden, perhaps you need to revamp your insane tax code. Hmm?
    - soperj 10y ago
      This is the point where Godwin's law comes into effect. Seriously though, it was legal to own slaves in the US not all that long ago, most people now a days wouldn't say "There is no wrong doing here", just because it was legal.
      - speleding 10y ago
        The only relationship between slavery and corporate profit tax is that both should be abolished. There are hundreds of different ways to tax. Taxing corporate profit is controversial because it's very hard to determine what exactly constitutes profit and for multinational firms like Apple deciding in what jurisdiction profit occurs is highly arbitrary (your iPhone has parts from half a dozen countries). The most logical conclusion is to simply get rid of corporate tax and make up the shortfall by increasing other taxes. Several countries already do this, countries like the US that stubbornly persist in trying to levy such arbitrary taxes will simply chase away international business.
        haneefmubarak 10y ago
        I agree with you to an extent, but I've often heard the argument that in that case wealthy individuals would just place all of their finances in a corporation and never have to pay any taxes whatsoever. How would you address this?
- snuxoll 10y ago
  Just like individual income tax for expats corporations only pay the difference between their foreign tax liability when moving funds to their US-based sister or parent companies, last I checked.
  - premium-concern 10y ago
    Which would be a shit-ton of money with their current tax "avoidance" schemes.
    - nedwin 10y ago
      Which is why it exists - to reduce tax avoidance by holing up in tax-friendly jurisdictions away from Uncle Sam.
      - premium-concern 10y ago
        I love how people try to downplay the things corporations do. "Oh, it's not tax evasion, it's tax avoidance!" And now "oh, it's not tax avoidance, it's tax-friendly jurisdictions". Let's just agree to close the loopholes so that everyone pays their fair share.
shaqbert 10y ago
How to counter this: Just regulated the transfer of IP rights. If you sell say a patent portfolio for $50m to your British Virgin Island subsidiary, and then make $20bn in profits in the decade thereafter on that BVI sub, it appears the IP transfer was waaaaay below market value. And should retroactively be taxed in the US where we engineers had developed that stuff in the first place. Problem solved. US tax base restored. Government deficit fixed.
- IMTDb 10y ago
  Let's imagine an honest tech company that buys a 100 patents each year for 10 years. As usual : 90% of them and up being useless. 9.9% of them allow to make a good product that sell well and keeps them afloat. And one of those ends up being ground breaking pushing the company forward, allowing major innovation in their product line. In the current situation, the company placed a bet on those patents. They took risks, every year, for 10 years. And ended up being rewarded for it after some struggle and a lot of research. In your proposed situation, the company would put as much risk in buying the patents. Would still struggle for 10 years. Then, once the ground breaking product comes along and starts generating sales, authorities come in and ask for retroactive taxation because their crown jewel was "clearly under market value" That honest company would probably not stay in business for very long. Or would not even exist if the founders knew that would be the outcome.
  - r00fus 10y ago
    Which honest company buys 100 patents a year and is either not flush with cash or patent troll (or both)?
  - shaqbert 10y ago
    You got this wrong. My point is to not allow to sell IP from the US Inc to the British Virgin Island subsidiary Ltd for a handful of dollars, and deprive the US taxman of billions of earnings. That "ground breaking product" was developed in the US, thus the profits and taxes should be made there. I love US companies making boatloads of cash. I just hate them to get around paying normal taxes here.
- 10y ago
anonymousDan 10y ago
You need to get your facts straight - the 'Double Irish' loophole was remove by the Irish government several years ago.
- shaqbert 10y ago
  "those already engaging in the scheme have a five year window to wind down." The correct way of saying this is by 2020 the loophole will be gone for real. Happy tax saving in the interim...
riffraff 10y ago
I Believe this is not just yoit standard double Irish, there was an extra loophole that Eire closed in 2014 where the second company could be based in no country at all, not just a fiscal haven
- talideon 10y ago
  Unless you're speaking Irish, please don't refer to the country as 'Eire' - it's akin to referring to Germany as 'Deutschland' in English. It's either 'Ireland' (the country's name in English) or 'Republic of Ireland' (its official description) if you're more comfortable with that.
  - eric_the_read 10y ago
    I have a bunch of ancient (~1980s) British comics with subscription prices listed as so many £ for UK, so many for Eire.
    - talideon 10y ago
      And that has long stuck in the craw of Irish people. It's seen as a way to subvert the legitimacy of the Irish state here in Ireland when the country is referred to as 'Eire'in English.
  - toyg 10y ago
    But, but... Isn't the modern norm to use "native" names wherever possible? Calcutta/Kolkhata, Peking/Beijing and so on? As a token of respect towards actual indigenous cultures.
    - talideon 10y ago
      No. This predates that by decades. Also, our constitution clearly states the specific name of the country in English and Irish. This might seem like a small thing, but it' actually a very important issue to Irish people: https://en.wikipedia.org/wiki/Names_of_the_Irish_state https://en.wikipedia.org/wiki/Names_of_the_Irish_state It's intended as quite the opposite of a token of respect: the purpose of referring to Ireland as 'Eire' (omitting the accent on the initial 'é' too) is to delegitimise the use of the term 'Ireland' to refer to the Irish state. If actual Irish people wanted the state to be referred to as 'Éire' in English, it'd be one thing, but we don't. In English, it's name is 'Ireland', and in Irish, it's name is 'Éire'. There's also a diplomatic fudge in that there's an 'official description of the state', which is 'Republic of Ireland', which isn't its official name, but which is an acceptable substitute. And yet, incorrect terminology is still used to refer to the Irish state, such as 'Éire' (being used in English) or 'Irish Republic', and sometimes you find particularly ignorant types refer to it as 'Southern Ireland' (which was the name of a failed attempt at a counterpart to Northern Ireland within the UK, but which never gained any legitimacy) and 'The Freestate' (which carries the implication of British dominion over Ireland). The norm is to use 'native' names where those people want those names to be used. Both Ireland and Éire are native names of Ireland, just in two different languages.
riffraff 10y ago
I Believe this is not just yoit standard double Irish, there was an extra loophole that Eire closed in 2014 where the second company could be based in no country at all, not just a fiscal haven
heisenbit 10y ago
While this sandwich structure is in principle highly problematic it is legal. Reading the complaint there is a lot in it about valuation of the intra-company transfers and arms length principle in establishing valuation numbers. I suspect it is there where Ireland and Apple colluded to enable Apple to avoid paying taxed in other EU states. Apple may be saying it is legal but they must know that the deal they got from the Irish Government was too good to be true. While the volume was small it did not raise alarm bells but the volume Apple is doing it eventually pushed the envelope too far.
secfirstmd 10y ago
"especially since Ireland had to ask for a bailout lifeline, and was in no position to negotiate firmly." Or we could have just burned the various EU and international bondholders...
doctorpangloss 10y ago
> the result of expert lobbying. You don't need expert lobbying. Look at this forum, full of tax-evasion apologists who conflate pragmatism with pedantry. Pedantry is the one of the most intellectually and emotionally bankrupt moral frameworks. It basically states that if you just think about the rules a lot, then you will find the solution. I mean, obviously all these politicians and normal people, they've just been getting it wrong all along! To quote other commenters, "Apple did nothing illegal!" The "Tax law is a system of rules!" Just look more carefully at those random tiny rules and then, we don't have to have a discussion anymore! People who don't read the rules carefully enough: "it makes my brain hurt!" Then blame the people who write the rules, or petition for the rules. Pedantry is the disease, not lobbyists. I don't know how to convince the pedants though that sometimes, it's ethical to reinterpret the rules. To clarify, I think we should be asking whether or not what Apple does is ethical. And the answer to that question shouldn't depend on whether or not we're wondering the same about other corporations. The answer is obviously no, tax evasion / avoidance isn't ethical.
- haneefmubarak 10y ago
  What exactly are the point of rules if you can reinterpret them in your favor as you see fit? It would be perfectly reasonable to rewrite rules going forward, but to retroactively change what the law says invalidates the point of having laws to begin with.
  - euyyn 10y ago
    The EU rules about what state aids are legal or not have been there for years, though.
    - LanceH 10y ago
      And this is an issue between Ireland and the EU.
      - euyyn 10y ago
        Yeah, that's what this announcement is about. The Commission is telling Ireland what it did was illegal, and has to fix it.
Veratyr 10y ago
> Why the US would allow their truffle pigs to not pay taxes on oversea earnings is clearly the result of expert lobbying. Are there any other countries that tax already taxed overseas earnings? If the sale was made in say China and taxes were paid in China, why does Apple need to pay US taxes? (This is an honest question, I really don't understand this. I understand _that_ it's US law, I don't understand why)
nodamage 10y ago
I posted this in the other thread on the subject but it's worth repeating here: Apple does not actually have any subsidiaries in the British Virgin Islands (or any other Caribbean island), and (despite common belief) it has not actually moved its intellectual property offshore. Apple's international tax structure was thoroughly documented when they were called up to testify before the Senate, which you can read about in the Senate Subcommittee Memo on Offshore Profit Shifting and Apple[1], and while they do have several Irish subsidiaries, they do not have any subsidiaries in the Caribbean or move any money into the Caribbean. This is further reinforced in Apple's testimony before the Senate[2]: > Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”). [1] http://www.hsgac.senate.gov/download/?id=CDE3652B-DA4E-4EE1-B841-AEAD48177DC4 http://www.hsgac.senate.gov/download/?id=CDE3652B-DA4E-4EE1-... [2] https://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf https://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf
- hackerboos 10y ago
  If that's the case, how does Apple have such an effectively low tax rate?
  - nodamage 10y ago
    They have a specially negotiated rate with Ireland. (The crux of this issue is whether Ireland granting them a special rate was legal under EU law.) Edit: Actually, "special rate" is a bit misleading, as it implies Apple went to Ireland and said "hey, we'd only like to pay .05% instead of 12.5%" and Ireland said okay. The way it actually works (as described in the previously mentioned Senate memo) is that ASI (the Irish subsidiary) buys an iPhone from its manufacturer in China at cost for $200, marks it up to $600, and then sells the iPhone to Apple Italy for $600. Apple Italy sells the iPhone to a customer for $600 and recognizes $0 in profit, while ASI records $400 in profit. But ASI claims to not be a tax resident of Ireland and therefore when it buys an iPhone from China and sells it to Italy, that transaction shouldn't be subject to Irish taxes since no economic activity actually occurred in Ireland. Therefore, the only taxes that ASI pays Ireland are from transactions where they actually sold products in Ireland itself. In 2011 ASI recognized profits of $22 billion, of which $50 million occurred in Ireland, and so they only paid ~$10 million in Irish taxes on that $50 million, leading to an effective tax rate of .05%.
johnnyhillbilly 10y ago
In their ruling, the commision implies that other countries may seek to judge this independently based on their findings. This can still turn into a much larger tax bill than the nominal value in the commission's findings. :)

tinkerrr 10y ago

>And with another quirk - this time in US tax laws - the do not even have to pay taxed in the US on those earnings, as they have not repatriated the funds. This is not a 'quirk' as you think. No country in the world, other than the US, tax their corporations on already taxed profits in a different jurisdiction. This actually ends up hurting the US because corporations cannot repatriate already-taxed funds without being taxed again.

shaqbert 10y ago
The US tax code is a huge mess, agreed. But you gotta pay your dues (aka taxes) somewhere, and here Apple et al goes essentially Scot free. That is not cool.
- X86BSD 10y ago
  Every time this apple in Ireland tax issue comes up it makes my brain hurt, literally hurt to read all these replies who don't seem to look at this problem correctly. First, Apple did nothing illegal. There is no wrong doing here. They pay tax in every country they owe tax. Period. Second, perhaps it's not Apple that's the problem? Perhaps it's the tax that is the problem. If you have mega corps building entities outside its main jurisdiction to avoid the main jurisdictions tax burden, perhaps you need to revamp your insane tax code. Hmm?
  - soperj 10y ago
    This is the point where Godwin's law comes into effect. Seriously though, it was legal to own slaves in the US not all that long ago, most people now a days wouldn't say "There is no wrong doing here", just because it was legal.
    - speleding 10y ago
      The only relationship between slavery and corporate profit tax is that both should be abolished. There are hundreds of different ways to tax. Taxing corporate profit is controversial because it's very hard to determine what exactly constitutes profit and for multinational firms like Apple deciding in what jurisdiction profit occurs is highly arbitrary (your iPhone has parts from half a dozen countries). The most logical conclusion is to simply get rid of corporate tax and make up the shortfall by increasing other taxes. Several countries already do this, countries like the US that stubbornly persist in trying to levy such arbitrary taxes will simply chase away international business.
      - haneefmubarak 10y ago
        I agree with you to an extent, but I've often heard the argument that in that case wealthy individuals would just place all of their finances in a corporation and never have to pay any taxes whatsoever. How would you address this?
snuxoll 10y ago
Just like individual income tax for expats corporations only pay the difference between their foreign tax liability when moving funds to their US-based sister or parent companies, last I checked.
- premium-concern 10y ago
  Which would be a shit-ton of money with their current tax "avoidance" schemes.
  - nedwin 10y ago
    Which is why it exists - to reduce tax avoidance by holing up in tax-friendly jurisdictions away from Uncle Sam.
    - premium-concern 10y ago
      I love how people try to downplay the things corporations do. "Oh, it's not tax evasion, it's tax avoidance!" And now "oh, it's not tax avoidance, it's tax-friendly jurisdictions". Let's just agree to close the loopholes so that everyone pays their fair share.

shaqbert 10y ago

How to counter this: Just regulated the transfer of IP rights. If you sell say a patent portfolio for $50m to your British Virgin Island subsidiary, and then make $20bn in profits in the decade thereafter on that BVI sub, it appears the IP transfer was waaaaay below market value. And should retroactively be taxed in the US where we engineers had developed that stuff in the first place. Problem solved. US tax base restored. Government deficit fixed.

IMTDb 10y ago
Let's imagine an honest tech company that buys a 100 patents each year for 10 years. As usual : 90% of them and up being useless. 9.9% of them allow to make a good product that sell well and keeps them afloat. And one of those ends up being ground breaking pushing the company forward, allowing major innovation in their product line. In the current situation, the company placed a bet on those patents. They took risks, every year, for 10 years. And ended up being rewarded for it after some struggle and a lot of research. In your proposed situation, the company would put as much risk in buying the patents. Would still struggle for 10 years. Then, once the ground breaking product comes along and starts generating sales, authorities come in and ask for retroactive taxation because their crown jewel was "clearly under market value" That honest company would probably not stay in business for very long. Or would not even exist if the founders knew that would be the outcome.
- r00fus 10y ago
  Which honest company buys 100 patents a year and is either not flush with cash or patent troll (or both)?
- shaqbert 10y ago
  You got this wrong. My point is to not allow to sell IP from the US Inc to the British Virgin Island subsidiary Ltd for a handful of dollars, and deprive the US taxman of billions of earnings. That "ground breaking product" was developed in the US, thus the profits and taxes should be made there. I love US companies making boatloads of cash. I just hate them to get around paying normal taxes here.
10y ago

anonymousDan 10y ago

You need to get your facts straight - the 'Double Irish' loophole was remove by the Irish government several years ago.

shaqbert 10y ago
"those already engaging in the scheme have a five year window to wind down." The correct way of saying this is by 2020 the loophole will be gone for real. Happy tax saving in the interim...

riffraff 10y ago

I Believe this is not just yoit standard double Irish, there was an extra loophole that Eire closed in 2014 where the second company could be based in no country at all, not just a fiscal haven

talideon 10y ago
Unless you're speaking Irish, please don't refer to the country as 'Eire' - it's akin to referring to Germany as 'Deutschland' in English. It's either 'Ireland' (the country's name in English) or 'Republic of Ireland' (its official description) if you're more comfortable with that.
- eric_the_read 10y ago
  I have a bunch of ancient (~1980s) British comics with subscription prices listed as so many £ for UK, so many for Eire.
  - talideon 10y ago
    And that has long stuck in the craw of Irish people. It's seen as a way to subvert the legitimacy of the Irish state here in Ireland when the country is referred to as 'Eire'in English.
- toyg 10y ago
  But, but... Isn't the modern norm to use "native" names wherever possible? Calcutta/Kolkhata, Peking/Beijing and so on? As a token of respect towards actual indigenous cultures.
  - talideon 10y ago
    No. This predates that by decades. Also, our constitution clearly states the specific name of the country in English and Irish. This might seem like a small thing, but it' actually a very important issue to Irish people: https://en.wikipedia.org/wiki/Names_of_the_Irish_state https://en.wikipedia.org/wiki/Names_of_the_Irish_state It's intended as quite the opposite of a token of respect: the purpose of referring to Ireland as 'Eire' (omitting the accent on the initial 'é' too) is to delegitimise the use of the term 'Ireland' to refer to the Irish state. If actual Irish people wanted the state to be referred to as 'Éire' in English, it'd be one thing, but we don't. In English, it's name is 'Ireland', and in Irish, it's name is 'Éire'. There's also a diplomatic fudge in that there's an 'official description of the state', which is 'Republic of Ireland', which isn't its official name, but which is an acceptable substitute. And yet, incorrect terminology is still used to refer to the Irish state, such as 'Éire' (being used in English) or 'Irish Republic', and sometimes you find particularly ignorant types refer to it as 'Southern Ireland' (which was the name of a failed attempt at a counterpart to Northern Ireland within the UK, but which never gained any legitimacy) and 'The Freestate' (which carries the implication of British dominion over Ireland). The norm is to use 'native' names where those people want those names to be used. Both Ireland and Éire are native names of Ireland, just in two different languages.

riffraff 10y ago

I Believe this is not just yoit standard double Irish, there was an extra loophole that Eire closed in 2014 where the second company could be based in no country at all, not just a fiscal haven

heisenbit 10y ago

While this sandwich structure is in principle highly problematic it is legal. Reading the complaint there is a lot in it about valuation of the intra-company transfers and arms length principle in establishing valuation numbers. I suspect it is there where Ireland and Apple colluded to enable Apple to avoid paying taxed in other EU states. Apple may be saying it is legal but they must know that the deal they got from the Irish Government was too good to be true. While the volume was small it did not raise alarm bells but the volume Apple is doing it eventually pushed the envelope too far.

secfirstmd 10y ago

"especially since Ireland had to ask for a bailout lifeline, and was in no position to negotiate firmly." Or we could have just burned the various EU and international bondholders...

doctorpangloss 10y ago

> the result of expert lobbying. You don't need expert lobbying. Look at this forum, full of tax-evasion apologists who conflate pragmatism with pedantry. Pedantry is the one of the most intellectually and emotionally bankrupt moral frameworks. It basically states that if you just think about the rules a lot, then you will find the solution. I mean, obviously all these politicians and normal people, they've just been getting it wrong all along! To quote other commenters, "Apple did nothing illegal!" The "Tax law is a system of rules!" Just look more carefully at those random tiny rules and then, we don't have to have a discussion anymore! People who don't read the rules carefully enough: "it makes my brain hurt!" Then blame the people who write the rules, or petition for the rules. Pedantry is the disease, not lobbyists. I don't know how to convince the pedants though that sometimes, it's ethical to reinterpret the rules. To clarify, I think we should be asking whether or not what Apple does is ethical. And the answer to that question shouldn't depend on whether or not we're wondering the same about other corporations. The answer is obviously no, tax evasion / avoidance isn't ethical.

haneefmubarak 10y ago
What exactly are the point of rules if you can reinterpret them in your favor as you see fit? It would be perfectly reasonable to rewrite rules going forward, but to retroactively change what the law says invalidates the point of having laws to begin with.
- euyyn 10y ago
  The EU rules about what state aids are legal or not have been there for years, though.
  - LanceH 10y ago
    And this is an issue between Ireland and the EU.
    - euyyn 10y ago
      Yeah, that's what this announcement is about. The Commission is telling Ireland what it did was illegal, and has to fix it.

Veratyr 10y ago

> Why the US would allow their truffle pigs to not pay taxes on oversea earnings is clearly the result of expert lobbying. Are there any other countries that tax already taxed overseas earnings? If the sale was made in say China and taxes were paid in China, why does Apple need to pay US taxes? (This is an honest question, I really don't understand this. I understand _that_ it's US law, I don't understand why)

nodamage 10y ago

I posted this in the other thread on the subject but it's worth repeating here: Apple does not actually have any subsidiaries in the British Virgin Islands (or any other Caribbean island), and (despite common belief) it has not actually moved its intellectual property offshore. Apple's international tax structure was thoroughly documented when they were called up to testify before the Senate, which you can read about in the Senate Subcommittee Memo on Offshore Profit Shifting and Apple[1], and while they do have several Irish subsidiaries, they do not have any subsidiaries in the Caribbean or move any money into the Caribbean. This is further reinforced in Apple's testimony before the Senate[2]: > Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”). [1] http://www.hsgac.senate.gov/download/?id=CDE3652B-DA4E-4EE1-B841-AEAD48177DC4 http://www.hsgac.senate.gov/download/?id=CDE3652B-DA4E-4EE1-... [2] https://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf https://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf

hackerboos 10y ago
If that's the case, how does Apple have such an effectively low tax rate?
- nodamage 10y ago
  They have a specially negotiated rate with Ireland. (The crux of this issue is whether Ireland granting them a special rate was legal under EU law.) Edit: Actually, "special rate" is a bit misleading, as it implies Apple went to Ireland and said "hey, we'd only like to pay .05% instead of 12.5%" and Ireland said okay. The way it actually works (as described in the previously mentioned Senate memo) is that ASI (the Irish subsidiary) buys an iPhone from its manufacturer in China at cost for $200, marks it up to $600, and then sells the iPhone to Apple Italy for $600. Apple Italy sells the iPhone to a customer for $600 and recognizes $0 in profit, while ASI records $400 in profit. But ASI claims to not be a tax resident of Ireland and therefore when it buys an iPhone from China and sells it to Italy, that transaction shouldn't be subject to Irish taxes since no economic activity actually occurred in Ireland. Therefore, the only taxes that ASI pays Ireland are from transactions where they actually sold products in Ireland itself. In 2011 ASI recognized profits of $22 billion, of which $50 million occurred in Ireland, and so they only paid ~$10 million in Irish taxes on that $50 million, leading to an effective tax rate of .05%.

johnnyhillbilly 10y ago

In their ruling, the commision implies that other countries may seek to judge this independently based on their findings. This can still turn into a much larger tax bill than the nominal value in the commission's findings. :)