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Half the comments here refer to Ireland offering Apple some special deal. To the best of my ability to determine (IANAL), there is NO special deal. Apple is s

by jholman 10y ago

Half the comments here refer to Ireland offering Apple some special deal. To the best of my ability to determine (IANAL), there is NO special deal. Apple is simply using a bog-standard Double Irish arrangement. It's a very common income-structuring arrangement for transnational corporations. Every comment that says "this'd be fine if Ireland let every company do it"? Guess what, Ireland lets any company do it. No signup required. It's just how corporate income tax law works in Ireland. I agree that tax havens are bad for civilization, and it seems to me that the EU's ruling is in a generally pro-civilization direction (whether or not it is, in fact, legal, under current EU law). Also, when people say "why is the EU allowed to rule on this", the answer to such questions is always "because the member state (in this case Ireland) first agreed to a treaty, and then ratified that treaty by creating an Irish law saying that Ireland had to obey the rulings". That's how treaties work. I'm not saying that's a good thing (I have serious concerns about the interaction between international treaty processes and what's left of democracy, but repairing it isn't helped by misunderstanding the mechanism). Again, the EU high court has jurisdiction because Irish law says it does, backed up by the probability that if Ireland flouts it hard enough, long enough, other member states are likely to jointly retaliate.

wavefunction 10y ago
I believe Ireland is failing to even charge Apple its statutory tax rate, which is why the the whole kerfluffle over Europe claiming back taxes are owed to Ireland, Apple claiming they don't, and Ireland claiming they don't want the taxes because they fear it will trigger a move by Apple from its shores. I assume offering deals like that runs afoul of international trade agreements.
- jholman 10y ago
  To the best of my knowledge, Apple, Ireland, and the EU all claim that Irish tax law is being obeyed. Do you have any reference to this claim of yours? Europe claims that Ireland's tax law is EU-illegal, and thus Ireland must retroactively enforce an EU-legal tax law, and thus the back taxes. I certainly agree with you about Ireland and Apple's motivations.
  - akvadrako 10y ago
    The "special deal" the EU is claiming exists might be legal according to Irish tax law, but that doesn't matter because according to them, "it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules" and "On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules. This decision does not call into question Ireland's general tax system or its corporate tax rate." From http://europa.eu/rapid/press-release_IP-16-2923_en.htm http://europa.eu/rapid/press-release_IP-16-2923_en.htm
    - jholman 10y ago
      I agree with you about "EU is claiming exists might be legal according to Irish tax law, but that doesn't matter [to the EU]", and your source is helpful. I think if you read the actual claim they make, and then you go read the description of the Double Irish accounting trick on wikipedia, you'll notice that to the untrained eye (such as mine), there's nothing special about the deal that Apple is getting; we are publicly aware of dozens of transnationals that get that deal, and there are probably hundreds or thousands. The EU's claim, I think, is not that the deal is special in its entirety, but that Ireland's ruling on the exact fiddly details of how profits are allocated to different Apple subsidiaries is, uh, irregular. It's a pretty technical accounting point. e.g. the following assertion, from Vestager, some months ago: "This is not about transfer pricing, it is about allocation of profits so it is different to the decisions on Starbucks and Fiat". http://arstechnica.co.uk/tech-policy/2016/08/apple-must-pay-ireland-13-billion-euros-in-taxes-says-brussels/ http://arstechnica.co.uk/tech-policy/2016/08/apple-must-pay-...
      - astaunton 10y ago
        In standard terms, from discussing this with several tax accountants in Ireland, the issue lies in Ireland applied 13.5% tax on a certain percentage of the profits, those declared in Ireland at the time, but did not apply it to all the profits. Although the book-keeping was done in an Irish company the sales where not all in Ireland. At the time Ireland sought clarification from the EU on how the tax should be applied, and were told they could only tax the profits generated in Ireland. Now, after discovering there is a sum of money in off-shore accounts that had not had the tax deducted, they have told Ireland to retrospectively apply the 13% tax on all profits unless another EU country could claim the profits were generated there. So the original ruling was to use Ireland as a tax collector that the rest of Europe could then ask for the taxes they were due. It seems that the Irish gov are seeking to overturn the original ruling as, according to the original information sought at the time, they were not doing anything illegal. In hindsight the accounting irregularity, refereed to as the double Irish, meant that Apple could accumulate these profits. The main issue is that these monies have not been declared in any EU country, so now because of the EU's ruling Trump has decided it belongs to America because American companies should only declare profits in America :D
- Retric 10y ago
  What deal? Ireland has tax laws on the books and Apple is following them. Ireland also has a law on the books saying it must comply with the EU. Nothing about this has anything directly to do with Apple. The real question is which of Ireland laws 'win'.
  - akvadrako 10y ago
    This is not about Irish law, but EU law. Ireland has to follow EU laws because the EU says so, not Irish laws.
    - Retric 10y ago
      No, Ireland is still a country it has to follow EU laws because Ireland law says so. They could leave the EU at any time with a single change to their laws. Brexit is going to take time for various reasons, but legally they could have left the next day.
      - jdmichal 10y ago
        Specifically, it takes time to wind it down in a way that does not damage both parties. As you said, Brexit could have happened 100% in a day, but then trade and movement would likely be negatively effected until new deals were worked out. Much better for everyone involved to work out those new deals first, then execute the exit.
      - akvadrako 10y ago
        A country cannot make a law that it's part of the EU and expect the rest of the world to accept it. The EU has to agree and can stipulate the conditions, like following the EU laws. I did not say Ireland needs to follow EU laws if it leaves the EU, but that isn't relevant.
        jholman 10y ago
        Yeah, that's all clear. But notice this sequence: Retric > Ireland also has a law on the books saying it must comply with the EU. akvadrako > Ireland has to follow EU laws because the EU says so Retric > No, Ireland ... has to follow EU laws because Ireland law says so My (modest) understanding of treaty law is that Retric is right, that the laws that require Ireland to obey EU rulings are Irish laws. In particular, presumably some members of various executive branches negotiated some treaties, and then asked their respective legislative branches to "ratify" those treaties, i.e. pass laws binding the signatories to obey the treaties, by their own respective legal systems. My non-lawyer understanding is that EU legal theory recognizes the sovereignty of nations, and the EU's authority is derived from the sovereign authority of nations. Do you actually disagree with any of this? If you do disagree, how do you understand international law to work? i.e. why would Ireland ever care what EU law says, other than via the legal chain I just outlined?
- return0 10y ago
  Which makes one wonder why doesn't Ireland just take the $14B. That is a lot of money , surely more than what apple is going to pay ireland in the next 20 years. They can say "sorry apple, they forced us". How likely is apple to leave Ireland for another country? There few countries that will offer such sweet deals.
Fnoord 10y ago
> (whether or not it is, in fact, legal, under current EU law). It was looked into, for years, by a team of lawyers on behalf of the ECC (as you could read in the other recent article). The article in this HN thread also links to an analysis by US lawyer Richard A. Epstein. Here it is once more [1]. Interestingly, Epstein is a critic of the EC: "My initial judgment—always subject to revision on the strength of additional information—is that the EC was correct in its decision. In making this assessment, I admit that I harbor a deep suspicion of the EC in its multiple roles. In general, there is much to the charge that the EC’s policies are prejudiced against American companies that do business in the EU. But it is one thing to start with a strong presumption, and another to put the pieces together in a prudent fashion." and "At its root, the Apple decision rests on premises far removed from Warren’s progressivism. It makes a classical liberal argument in favor of free trade across national boundaries. Though the EC often acts as a statist institution, it has made a sound economic decision by taking on an American icon that deserves to have its wings clipped." (Note, the article is interesting far beyond what I quote, and I highly recommend reading it, but I have to quote selectively to make my point.) If Apple believes it is unlawful they should argue that, but as the article says they're playing the pity card and resort to other fallacies. If your opponent uses appeal to pity and ad hominem attacks that says enough since that is the two lowest of Graham's hierarchy of disagreement (the disagreement pyramid) [2] [1] http://www.hoover.org/research/europe-gets-apple-right http://www.hoover.org/research/europe-gets-apple-right [2] http://www.conceptdraw.com/examples/paul-graham-disagreement-pyramid http://www.conceptdraw.com/examples/paul-graham-disagreement...
spangry 10y ago
I'm only going off what I've read in these comments (most of which are pretty suspect, to be honest). But it sounds like Ireland have opted to not enforce their own transfer pricing rules by making some kind of special administrative ruling (despite it being inconsistent with the law and previous administrative practice). Truly bizarre, if I've understood the situation correctly. For starters, it's not like Ireland have a particularly onerous corporate tax rate, so engaging in illegal transfer pricing carries less reward. But, and again I might have the wrong end of the stick here, why in god's name would you undermine the rule of law like that? If there's one thing that governments seem to universally understand, it's that you don't want to do anything to undermine the legitimacy of legal tax collection. It has historically tended to result in either public sector bankruptcy, or revolution... As for the sovereignty issues, I suspect Ireland (and Luxembourg even more so) are fortunate to be on the inside of the system here. Because the typical response to tax-haven like policies (which suck capital out of other countries and erode their tax bases), tends to be a lot less friendly than being hauled before a EU court. At any rate, it's just continuing evidence that the EU is an untenable proposition in its current state. Free trade and free movement makes sense on its own. But it's insane to thing you can have a monetary union with any corresponding process of horizontal-fiscal equalisation. Either the monetary union will be dissolved, or EU member countries will have to give up a whole bunch more sovereignty over their national fiscal policy.
- IBM 10y ago
  Ireland had no transfer pricing rules until 2010, which was well after the 1991 and 2007 tax rulings. http://www.pwc.com/gx/en/international-transfer-pricing/assets/ireland.pdf http://www.pwc.com/gx/en/international-transfer-pricing/asse...
  - spangry 10y ago
    That paper says that Ireland did have a limited transfer pricing regime (which they hadn't really enforced, or in PWC's words "Owing to these uncertainties, it is not believed that this section [1036] is applied in practice."). Also, from: http://europa.eu/rapid/press-release_IP-16-2923_en.htm http://europa.eu/rapid/press-release_IP-16-2923_en.htm ...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... Yep, that sounds like either transfer pricing or just direct income mis-attribution to me.
jobu 10y ago
A Bloomberg article mentions a special formula for taxing Apple that may be the source of the issue: "To comply with European rules, Ireland finally ended its zero-tax policy in 1990. After that, Apple and Ireland agreed that the profit attributed to a key Ireland-based unit, the division discussed in Tom Connor’s letter, be capped using a complex formula that in 1990 would have resulted in a taxable profit of $30 million to $40 million." https://www.bloomberg.com/news/articles/2016-12-16/the-inside-story-of-apple-s-14-billion-tax-bill https://www.bloomberg.com/news/articles/2016-12-16/the-insid...
scythe 10y ago
In America, AFAIK, if the court wanted to declare that, as the article claims, "Irish law is [not] in compliance with [EU charter] Article 107", it would be forced to strike down the whole law; for example, Brown v. Board of Education did not desegregate one school in Arkansas but rather the whole system. That the court can declare the law invalid as applied to Apple while retaining it for every other company in Ireland is clearly a violation of the ideal of fair treatment, if not the rule of law in the first place.
deleted 10y ago
[deleted]

by jholman 10y ago

wavefunction 10y ago

I believe Ireland is failing to even charge Apple its statutory tax rate, which is why the the whole kerfluffle over Europe claiming back taxes are owed to Ireland, Apple claiming they don't, and Ireland claiming they don't want the taxes because they fear it will trigger a move by Apple from its shores. I assume offering deals like that runs afoul of international trade agreements.

jholman 10y ago
To the best of my knowledge, Apple, Ireland, and the EU all claim that Irish tax law is being obeyed. Do you have any reference to this claim of yours? Europe claims that Ireland's tax law is EU-illegal, and thus Ireland must retroactively enforce an EU-legal tax law, and thus the back taxes. I certainly agree with you about Ireland and Apple's motivations.
- akvadrako 10y ago
  The "special deal" the EU is claiming exists might be legal according to Irish tax law, but that doesn't matter because according to them, "it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules" and "On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules. This decision does not call into question Ireland's general tax system or its corporate tax rate." From http://europa.eu/rapid/press-release_IP-16-2923_en.htm http://europa.eu/rapid/press-release_IP-16-2923_en.htm
  - jholman 10y ago
    I agree with you about "EU is claiming exists might be legal according to Irish tax law, but that doesn't matter [to the EU]", and your source is helpful. I think if you read the actual claim they make, and then you go read the description of the Double Irish accounting trick on wikipedia, you'll notice that to the untrained eye (such as mine), there's nothing special about the deal that Apple is getting; we are publicly aware of dozens of transnationals that get that deal, and there are probably hundreds or thousands. The EU's claim, I think, is not that the deal is special in its entirety, but that Ireland's ruling on the exact fiddly details of how profits are allocated to different Apple subsidiaries is, uh, irregular. It's a pretty technical accounting point. e.g. the following assertion, from Vestager, some months ago: "This is not about transfer pricing, it is about allocation of profits so it is different to the decisions on Starbucks and Fiat". http://arstechnica.co.uk/tech-policy/2016/08/apple-must-pay-ireland-13-billion-euros-in-taxes-says-brussels/ http://arstechnica.co.uk/tech-policy/2016/08/apple-must-pay-...
    - astaunton 10y ago
      In standard terms, from discussing this with several tax accountants in Ireland, the issue lies in Ireland applied 13.5% tax on a certain percentage of the profits, those declared in Ireland at the time, but did not apply it to all the profits. Although the book-keeping was done in an Irish company the sales where not all in Ireland. At the time Ireland sought clarification from the EU on how the tax should be applied, and were told they could only tax the profits generated in Ireland. Now, after discovering there is a sum of money in off-shore accounts that had not had the tax deducted, they have told Ireland to retrospectively apply the 13% tax on all profits unless another EU country could claim the profits were generated there. So the original ruling was to use Ireland as a tax collector that the rest of Europe could then ask for the taxes they were due. It seems that the Irish gov are seeking to overturn the original ruling as, according to the original information sought at the time, they were not doing anything illegal. In hindsight the accounting irregularity, refereed to as the double Irish, meant that Apple could accumulate these profits. The main issue is that these monies have not been declared in any EU country, so now because of the EU's ruling Trump has decided it belongs to America because American companies should only declare profits in America :D
Retric 10y ago
What deal? Ireland has tax laws on the books and Apple is following them. Ireland also has a law on the books saying it must comply with the EU. Nothing about this has anything directly to do with Apple. The real question is which of Ireland laws 'win'.
- akvadrako 10y ago
  This is not about Irish law, but EU law. Ireland has to follow EU laws because the EU says so, not Irish laws.
  - Retric 10y ago
    No, Ireland is still a country it has to follow EU laws because Ireland law says so. They could leave the EU at any time with a single change to their laws. Brexit is going to take time for various reasons, but legally they could have left the next day.
    - jdmichal 10y ago
      Specifically, it takes time to wind it down in a way that does not damage both parties. As you said, Brexit could have happened 100% in a day, but then trade and movement would likely be negatively effected until new deals were worked out. Much better for everyone involved to work out those new deals first, then execute the exit.
    - akvadrako 10y ago
      A country cannot make a law that it's part of the EU and expect the rest of the world to accept it. The EU has to agree and can stipulate the conditions, like following the EU laws. I did not say Ireland needs to follow EU laws if it leaves the EU, but that isn't relevant.
      - jholman 10y ago
        Yeah, that's all clear. But notice this sequence: Retric > Ireland also has a law on the books saying it must comply with the EU. akvadrako > Ireland has to follow EU laws because the EU says so Retric > No, Ireland ... has to follow EU laws because Ireland law says so My (modest) understanding of treaty law is that Retric is right, that the laws that require Ireland to obey EU rulings are Irish laws. In particular, presumably some members of various executive branches negotiated some treaties, and then asked their respective legislative branches to "ratify" those treaties, i.e. pass laws binding the signatories to obey the treaties, by their own respective legal systems. My non-lawyer understanding is that EU legal theory recognizes the sovereignty of nations, and the EU's authority is derived from the sovereign authority of nations. Do you actually disagree with any of this? If you do disagree, how do you understand international law to work? i.e. why would Ireland ever care what EU law says, other than via the legal chain I just outlined?
return0 10y ago
Which makes one wonder why doesn't Ireland just take the $14B. That is a lot of money , surely more than what apple is going to pay ireland in the next 20 years. They can say "sorry apple, they forced us". How likely is apple to leave Ireland for another country? There few countries that will offer such sweet deals.

Fnoord 10y ago

> (whether or not it is, in fact, legal, under current EU law). It was looked into, for years, by a team of lawyers on behalf of the ECC (as you could read in the other recent article). The article in this HN thread also links to an analysis by US lawyer Richard A. Epstein. Here it is once more [1]. Interestingly, Epstein is a critic of the EC: "My initial judgment—always subject to revision on the strength of additional information—is that the EC was correct in its decision. In making this assessment, I admit that I harbor a deep suspicion of the EC in its multiple roles. In general, there is much to the charge that the EC’s policies are prejudiced against American companies that do business in the EU. But it is one thing to start with a strong presumption, and another to put the pieces together in a prudent fashion." and "At its root, the Apple decision rests on premises far removed from Warren’s progressivism. It makes a classical liberal argument in favor of free trade across national boundaries. Though the EC often acts as a statist institution, it has made a sound economic decision by taking on an American icon that deserves to have its wings clipped." (Note, the article is interesting far beyond what I quote, and I highly recommend reading it, but I have to quote selectively to make my point.) If Apple believes it is unlawful they should argue that, but as the article says they're playing the pity card and resort to other fallacies. If your opponent uses appeal to pity and ad hominem attacks that says enough since that is the two lowest of Graham's hierarchy of disagreement (the disagreement pyramid) [2] [1] http://www.hoover.org/research/europe-gets-apple-right http://www.hoover.org/research/europe-gets-apple-right [2] http://www.conceptdraw.com/examples/paul-graham-disagreement-pyramid http://www.conceptdraw.com/examples/paul-graham-disagreement...

spangry 10y ago

I'm only going off what I've read in these comments (most of which are pretty suspect, to be honest). But it sounds like Ireland have opted to not enforce their own transfer pricing rules by making some kind of special administrative ruling (despite it being inconsistent with the law and previous administrative practice). Truly bizarre, if I've understood the situation correctly. For starters, it's not like Ireland have a particularly onerous corporate tax rate, so engaging in illegal transfer pricing carries less reward. But, and again I might have the wrong end of the stick here, why in god's name would you undermine the rule of law like that? If there's one thing that governments seem to universally understand, it's that you don't want to do anything to undermine the legitimacy of legal tax collection. It has historically tended to result in either public sector bankruptcy, or revolution... As for the sovereignty issues, I suspect Ireland (and Luxembourg even more so) are fortunate to be on the inside of the system here. Because the typical response to tax-haven like policies (which suck capital out of other countries and erode their tax bases), tends to be a lot less friendly than being hauled before a EU court. At any rate, it's just continuing evidence that the EU is an untenable proposition in its current state. Free trade and free movement makes sense on its own. But it's insane to thing you can have a monetary union with any corresponding process of horizontal-fiscal equalisation. Either the monetary union will be dissolved, or EU member countries will have to give up a whole bunch more sovereignty over their national fiscal policy.

IBM 10y ago
Ireland had no transfer pricing rules until 2010, which was well after the 1991 and 2007 tax rulings. http://www.pwc.com/gx/en/international-transfer-pricing/assets/ireland.pdf http://www.pwc.com/gx/en/international-transfer-pricing/asse...
- spangry 10y ago
  That paper says that Ireland did have a limited transfer pricing regime (which they hadn't really enforced, or in PWC's words "Owing to these uncertainties, it is not believed that this section [1036] is applied in practice."). Also, from: http://europa.eu/rapid/press-release_IP-16-2923_en.htm http://europa.eu/rapid/press-release_IP-16-2923_en.htm ...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... Yep, that sounds like either transfer pricing or just direct income mis-attribution to me.

jobu 10y ago

A Bloomberg article mentions a special formula for taxing Apple that may be the source of the issue: "To comply with European rules, Ireland finally ended its zero-tax policy in 1990. After that, Apple and Ireland agreed that the profit attributed to a key Ireland-based unit, the division discussed in Tom Connor’s letter, be capped using a complex formula that in 1990 would have resulted in a taxable profit of $30 million to $40 million." https://www.bloomberg.com/news/articles/2016-12-16/the-inside-story-of-apple-s-14-billion-tax-bill https://www.bloomberg.com/news/articles/2016-12-16/the-insid...

scythe 10y ago

In America, AFAIK, if the court wanted to declare that, as the article claims, "Irish law is [not] in compliance with [EU charter] Article 107", it would be forced to strike down the whole law; for example, Brown v. Board of Education did not desegregate one school in Arkansas but rather the whole system. That the court can declare the law invalid as applied to Apple while retaining it for every other company in Ireland is clearly a violation of the ideal of fair treatment, if not the rule of law in the first place.

deleted 10y ago

[deleted]