Economist James Henry
Does Apple deserve tax breaks on sales in Europe? Well, not according to the European Union, who handed down a hefty tax bill to the tech giant on Tuesday.
MARGRETHE VESTAGER, EUROPEAN COMPETITION COMMISSIONER: The European Commission has today adopted a decision that Apple’s tax benefits in Ireland are illegal. Two tax rulings granted by Ireland have artificially reduced Apple’s tax burden for over two decades, in breach of E.U. state aid rules. Apple now have to repay the benefits, worth up to EUR 13 billion, plus interest.
EUR 13 billion equals about USD 14.6 billion. And Ireland has rejected these findings, and Apple has, too, and they plan to appeal the decision.
Joining us from Sag Harbor, New York, is James S. Henry. James is a leading economist, attorney, and investigative journalist who has written extensively about global issues.
James, thank you for joining us.
JAMES S. HENRY: Good to be here.
BROWN: James, so break this down for us, if you can. So Apple set up a head office in Ireland that the European Commission says existed on paper only, and as a result, the supposedly cushy tax arrangement the company had with Ireland, they were able to avoid paying sales tax on Apple products sold across the European Union. Help us understand this.
HENRY: Well, they were able to set up these shell companies in Ireland, and I think also Bermuda and Luxembourg, to shelter about USD 200 billion of royalties and profits that they parked offshore over the last decade or so. And on all of that they paid less than 4 percent total tax, about USD 8 billion.
So these companies basically were citizens of nowhere for tax purposes, and the European Commission on competition said, hey, Ireland cut this very special deal with Apple to give them these very low tax rates. I think last year they paid 0.005 percent of taxes on their offshore income. This is a very unusual arrangement. It isn’t something that’s even available to the ordinary investors in Ireland. Ireland has a low tax rate on corporations, which is already just 12.5 percent, but that wasn’t good enough for Apple. And many other multinational companies, American and European, have been negotiating these special deals with havens like Ireland, Luxembourg, Netherlands, where they get custom-baked, very low tax rates. Apple has about 5,000 people in Cork, a county in Ireland, and they are doing various things, but it’s nowhere near anywhere close to generating the USD 200 billion of income that they’ve parked offshore.
U.S. Treasury has been very disappointing, to me, in terms of its response to this. They have, probably for political reasons as much as anything else, said that the Europeans started a tax war with the United States and this is unfair to Apple. I mean, Apple is a company with USD 50 billion of net income every year. They, unlike small business, which is going to be paying 20-30 percent effective tax rates on their income, Apple is down in the–you know, certainly for its offshore income, this year and last year, less than 1 percent. So we’re talking about practices that are only available to the top tier of American multinationals.
BROWN: Well, what you mentioned about the U.S. Treasury is especially interesting, because Apple CEO Tim Cook, he put out a statement on the company’s website effectively saying that the European Commission’s decision, he totally refutes it and he refutes their claims that there wasn’t really a home office in Ireland. As you said, he said that they grew their operations in Cork from a staff of 60 to almost 6,000. And he also went on to say that this decision would threaten job creation throughout the European Union. And that sentiment was also echoed Tuesday by the White House, and also by the U.S. Treasury Department.
JOSH EARNEST, WHITE HOUSE SPOKESPERSON: We are concerned about a unilateral approach in state aid negotiations that threaten to undermine progress that we have made collaboratively with the Europeans to make the international taxation system fair. (…) Obama administration officials, not surprisingly, have heard from officials at Apple who are concerned about the way they are being treated by foreign governments.
BROWN: So it seems as if Apple, the White House, the Treasury Department, and Ireland are all standing shoulder-to-shoulder against the European Union.
HENRY: Well, they seem to be declaring a kind of tax war with the European Union. This is ridiculous. I mean, we should be moving in the opposite direction. I mean, major multinationals like Apple and Google and Amazon and Pfizer have been parking money offshore. The U.S. has a 35-39 percent corporate income tax rate, but if you park your intellectual property offshore, pay yourself royalties in a haven like Ireland, then it’s basically not taxed until you bring the money back. And you can borrow against it and deduct the interest. So these are very sophisticated companies.
What I’m disappointed in is that Tim Cook should be spending his time trying to get Apple’s new releases out and doing real business as opposed to playing these tax games. And the U.S. Treasury, far from starting tax wars with Europe, should be welcoming, enlisting, welcoming the European action to crack down on this kind of funny business and start collaborating. I mean, we need much more tax collaboration than we have across countries rather than the kind of race to the bottom that we’ve had for the last 30 years. There’s no evidence that job growth has benefited from all of these tax cuts that we’ve been giving big multinationals. Quite the opposite.
BROWN: James, to note a couple of things here, so this fine is the largest ever of its kind levied against a corporation by the European Union. It should also be noted that Apple announced at the end of 2015 that they had over USD 200 billion cash on hand. Does Apple seem to feel that they are too big to be disciplined?
HENRY: Well, they seem to be announcing–Tim Cook has said he’s going to make revising the U.S. tax code a big priority of his next year. There’s about 1,800 tax lobbyists in Washington, D.C., and Apple has a good number of lobbyists there. They have about more than USD 200 billion stashed offshore, compared to the USD 2 trillion that U.S. companies as a whole have. So Apple has a big stake in this stuff. But I’d rather see Cook try to figure out how companies like Apple can pay a fair share of taxes across the planet, rather than just base its corporate strategy on less than 1 percent tax rates.
The 5,000 employees in Cork just have nothing to do with the two companies that are just basically shell companies. And as Cook’s own CFO admitted in his testimony before the Senate a couple of years back, these companies that they’ve set up are basically citizens of nowhere for tax purposes. They’re shell games.
So I hope that in the context of our current presidential campaign we have an opportunity here to focus on the way big companies are avoiding taxes, dodging taxes. This isn’t illegal, but in fact that’s the problem. A lot of this stuff is legal. It’s been made legal by virtue of the political lobbying power of these giant multinationals and banks and law firms and accounting firms that support them. We need to turn this around, because Apple should actually pride itself on being able to be resident in a country with the rule of law, where we don’t have middle class and the poor paying the entire cost of government the way they do in places like Brazil or Russia, where people are actually willing to share the tax burden for schools and hospitals and national defense, vital public investments that we have to make.
Apple should step up to the plate and say, we’re going to do our fair share here and show some leadership here.
BROWN: Is Tuesday’s ruling and subsequent fine of Apple by the European Commission, is that sort of a harbinger of more decisions to come against United States companies, or even multinational companies, who are using Ireland for that exact purpose, as a tax haven or shelter?
HENRY: I think it could be. The E.U. has set some important precedents here. Of course, this has to be upheld by the European Court of Justice. There’s probably a lengthy appeals process, so Apple’s not going to have to sort of concede here immediately. But many other countries around the world are also going to take a look at this E.U. decision and say, well, what is the real activity that that offshore subsidiary you have in the British Virgin Islands or the Cayman Islands or the other 91 havens on the planet, what are those haven-based companies really doing to deserve all the taxes and revenue that you’re parking or avoiding in our country?
So a country like India should also take a look at this E.U. precedent and see if they want to take a closer look at what Apple’s been doing with respect to avoiding taxes in India.
I was recently in the country of Iceland, and one of their biggest investors is a company called Alcoa, a big aluminum producer. They parked a lot of their profits in Luxembourg.
So the E.U. has started with Ireland. I think the next phase will for them be not only looking at other companies, but also at other jurisdictions, like Netherlands and Luxembourg, that have been engaged in these same one-off special deals for powerful multinationals.
BROWN: And lastly, James, I mean, do we expect any repercussions to come from the European Union or the European Commission directed at Ireland specifically? Because Ireland does not seem to be an innocent player in this game. They seem to fully understand what they’re doing by allowing companies like Apple to set up shop there and be given favorable tax status. Will Ireland have to deal with any repercussions for the arrangements that they make with these big corporations?
HENRY: Well, Ireland set off in this business of being a tax haven back in the 1990s. They cut their nominal corporate rate to 12.5 percent, which is already one of the lowest rates in the E.U. At the same time, they’ve received a lot of economic assistance from the E.U. during the 2008 financial crisis and its aftermath.
I think you have to partition the Irish polity into two groups: one of the tiny handful of banksters and corporations and lawyers and accountants and the politicians who tend to represent them, and there’s the rest of ordinary Irish people who are–you know, there are all these jobs in Ireland that Apple has created, but I think they’d probably be there anyway. If Cook is right, they didn’t arise as a result of this tax haven activity. But the elite there wants to cling to this tax haven business, and they want other companies as well to be able to negotiate special deals and favors and keep coming.
I think the E.U. is taking on quite an interesting and challenging role, kind of a leadership role here in pioneering this crackdown on this kind of aggressive behavior.
HENRY: We’ve been speaking with James S Henry. James a leading economist. He’s also an attorney and investigative journalist. He has written extensively about global issues, and he will be lecturing at Yale University this semester.
James, we really appreciate your expertise and analysis on this interesting issue about Apple and taxes in the E.U. Thank you.
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