Apple argues that $14.4B EU tax order 'defies reality'

Apple's Irish headquarters

Apple has begun its appeal against the European Union's ruling that required it to pay Ireland $14.4 billion in back taxes, saying the EU order was flawed.

Luca Maestri, Apple's Chief Financial Officer, and five legal colleagues, are at the European Union General Court, to appeal against the EU's previous ruling that forced it to pay Ireland $14.4 billion in back taxes. Apple's argues that the tax order was based on erroneous assumptions and, as such, "defies reality and common sense."

According to Reuters, Apple lawyer Daniel Beard spoke in court and said that the ruling presumed that the company's Ireland operation was involved in work such as the development of devices such as the iPhone and iPad.

"The Commission contends that essentially all of Apple's profits from all of its sales outside the Americas must be attributed to two branches in Ireland," said Beard. "The branches' activities did not involve creating, developing or managing those rights."

"Based on the facts of this case, the primary line defies reality and common sense," he continued. "The activities of these two branches in Ireland simply could not be responsible for generating almost all of Apple's profits outside the Americas."

Beard also addressed previous criticism of Apple's having paid 0.005% tax by accusing the European Commission of looking to make "headlines by quoting tiny numbers."

According to Beard, Apple has not tried to escape paying taxes, it has been paying them globally. Apple pays on average 26% tax globally, he claimed, and is currently paying approximately $22 billion in US taxes on the profits that the Commission claimed should have been taxed in Ireland.

Referring to previous testimony made by Ireland, which agrees with Apple, Beard said that the Commission's ruling damages businesses.

"As Ireland has already emphasized," he said, "it undermines legal certainty if state aid measures are used to retrofit changes to national law... and legal certainty is a key principle of EU law; one upon which businesses depend."

"Some may want to change the international tax system," he continued, "but that is a tax law issue - not state aid."

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32 Comments

ElCapitan

said about 4 years ago

It actually does not defy reality any more than Apple's pricing of many components and features does.

avon b7

said about 4 years ago

On the face of it this doesn't sound like a solid defence. The devil will be in the details.

'Apple currently pays' comes over as a PR message. The problem is not what Apple currently pays but what it paid in the past.

Mentioning the 'small numbers' really says little about what the numbers really were
according to Apple and almost in the same breath mentions reality and common sense. What is reality? Surely common sense tells us that those low numbers shouldn't be that low (even if reality is a little higher).

Perhaps I'm just being over cynical but these statements haven't convinced me at this very early stage.

urahara

said about 4 years ago

ElCapitan said:

It actually does not defy reality any more than Apple's pricing of many components and features does.

What a boring statement. Your comedy deserves only 2 out of 10 stars. Next time try harder.

carnegie

said about 4 years ago

I would say that 'defies reality' should be an apt description of the Commission's Ireland-Apple decision. Unfortunately, it doesn't really defy reality because the current reality is that the rule of law is regularly, and often blatantly, disregarded.

I don't expect Apple to win this case, but it should easily win it. Ireland is allowed to have the tax policies it wants, even if those policies are disfavored by the entire rest of the EU. This was not, as the Commission superficially alleges, a special deal (contrary to Ireland's generally applicable tax policies) which Apple was given. I've yet to find anyone who can identify what specifically Apple was allowed to do, in figuring its Irish taxes, which is contrary to Irish tax policy. The Commission's decision didn't identify any such thing.

The reality is that the Commission's qualms are with some of Ireland's unusual tax policies (which have since been changed) and the undesirable, in the Commission's view, results which they can, intentionally from Ireland's perspective, lead to. But the Commission doesn't have rightful authority to punish Ireland for those tax policies. So it pretended that it was going to demonstrate that Apple was allowed to violate those policies. That, however, is something it never did. It merely demonstrated that Ireland's tax policies are unusual (and disfavored by many) and lead to undesirable (in the Commission's view) results. Then it made the superficial assertion that it had demonstrated that Apple was allowed to do something otherwise not allowed by Irish tax policy.

The Commission's argument essentially boils down to this: Ireland's interpretation of its own tax policies would mean that Irish law allows for tax accounting methods which most of the developed world thinks are bad. And although Ireland would be free to have such laws and policies, we think the results of such policies are so out of line with what the rest of us think should be allowed that Ireland couldn't possibly have chosen those policies. So Ireland can't really have interpreted its own tax policies in the way it claims to have interpreted them. Yes, it would be free to have those policies and enforce those interpretations thereof, but we think those policies are so bad that Ireland wouldn't have actually chosen them. Never mind the fact that Ireland says that it did choose them.

The real issue was the unusual aspect of Irish tax law which only required that Irish income taxes be paid on the profits attributable to the Irish branches of domestic corporations. Irish income taxes didn't, at least in some circumstances, have to be paid on profits attributable to non-Irish branches of Irish corporations. But that unusual policy was clearly the chosen law of Ireland, so the Commission couldn't - as much as it might have wanted to - punish Ireland for that policy. So it tried to build a case around how Apple was allowed to allocate profits between non-Irish and Irish branches of Irish corporations. The problem is, there wasn't a legitimate case to be made on that issue. There's no there there in the Commission's decision. It's never able to demonstrate that the methods used to allocate profits were contrary to Irish tax policies in general. In what way does Irish law (or prior interpretations thereof) prohibit costs-plus-a-percentage as a way of determining the profits fairly attributable to a related party? That may not be the EU's preferred method for determining such profits, but under some circumstances its a reasonable method for doing so. More to the point, it doesn't seem to be a method which Irish law doesn't allow.

If I had to bet, I'd bet that Apple ultimately loses this case. But, if it does, that result will evince substantial disregard for the rule of law. The attitude is... to hell with the rules we've agreed to abide by, we should exercise power arbitrarily if we need to in order to achieve the results we think are proper. That impulse is understandable, or at least expected. It's always been strong; that's part of why the rule of law developed as a foundational ideal in come societies. But we shouldn't countenance indulgences of that impulse, even when given indulgences lead to results which we favor. It's dangerous. And it's wrong.