Imagine Dublin promised Apple €220,000 in cash annually for every job located in Ireland. At 6,000 or so jobs, this totals about €13bn over 10 years. This would clearly equate to an instance of state aid, and coincidentally a bad trade for Ireland. The commission in essence concluded that this is the deal Ireland agreed — but, instead of collecting tax at the Irish 12.5 per cent tax rate and writing cheques to Apple, Ireland forgave substantially all of Apple’s Irish statutory tax liability.In tax policy we understand the economic equivalence between government cash subsidy schemes and “spending through the tax law”, where targeted spending programmes are couched as highly selective tax breaks, usually to hide their true nature. The commission’s decision makes clear it does too. It does not quarrel with Ireland’s 12.5 per cent tax rate.
This is a really terrific article on the issue of Apple’s Irish tax liability dealing with two myths being propagated by US Treasury.
The first is covered above, the second is that any tax which should be paid belongs to the US government. This flies in the face of the US’s own tax law. This, for more than 100 years has followed the “source principle” which means “that the jurisdiction in which income arises (the “source jurisdiction”) has priority in taxing cross-border income. To prevent double taxation, a US company can claim a credit against its US tax bill for levies already paid to source countries.”
The article is written by Edward Kleinbard who is Professor of Law and Business at the University of Southern California and sets out in crystal clear terms the essential issues.
What is difficult to understand is why the US Government is leaping to the defence of a company that is doing everything it can to avoid paying tax in its “home” county, even to the extent of borrowing at home to fund dividend payments rather than repatriating foreign profits and getting taxed on them. The fact that the US also passed the Foreign Accounts Tax Compliance Act (FATCA’T’) (Ed. adds final T) to chase US nationals attempting to avoid tax seems to stand in contradiction to the position in relation to Apple. If anyone knows why the US appears to face tow ways on this I would love to know.
But if you are interested in the Apple Ireland tax story this is a great starting point.