The European Commission is expected to announce today that Apple, now one of the world's biggest listed companies, got special treatment from the Irish authorities, when the American company sought assurances on tax issues in 1991 and 2007 - - from the latter year, Apple's foreign tax rate tumbled compared with earlier in the decade. The Financial Times says today that Apple's CFO said the company in 2007 sought an “advanced opinion” that would provide “complete certainty” about its tax liabilities.
Joaquín Almunia, the EU’s competition commissioner, will set out the Commission's case that Apple's alleged special treatment in respect of its principal Irish offshore company Apple Operations International (AOI) and AOI's Apple Operations Europe (AOE) subsidiary, were in breach of EU state aid rules.
There will be a 30-day period from today for parties to respond to the preliminary finding.
Investigations are also in process in respect of Starbucks and the Dutch government, and Fiat Finance and Trade, the financial unit of the Italian automotive group, with Luxembourg.
The Irish Government emphatically rejects that any special treatment was given to Apple but we reported last June that AOI used to pay corporation tax in Ireland on its overseas revenues until it was declared by Apple in 2006/2007 to have no tax jurisdiction - - in effect stateless - - according to evidence given to the US Senate Permanent Subcommittee on Investigations.
The most explosive revelation in the May 2013 report [pdf] of the US Senate panel was Apple’s claim that three key offshore companies were not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies. The report said Apple Operations International had "not paid any corporate income tax to any national government in the past 5 years."
The last accounts filed for AOI (as Apple Computer Inc. Limited) was in 2005 in respect of fiscal 2004.
Irish Revenue officials must have been aware of the change of status of AOI from a tax-paying company in Ireland to a tax-exempt status?
There is evidence that a November 2005 report [pdf; free] by The Wall Street Journal on Microsoft's sophisticated tax avoidance schemes in Ireland, influenced Apple.
In 2006, Apple like Microsoft changed its Irish offshore companies to unlimited status, avoiding publication of financials while a new subsidiary named Braeburn Capital, in Reno Nevada, would not only avoid California's corporate tax but it would manage Apple's investments and tax strategy. Braeburn is a variety of apple and Apple told the US Senate panel that AOI’s assets are managed by Braeburn Capital. "Apple indicated that the assets themselves are held in bank accounts in New York."
With revenues and earnings accelerating and an apparent nod from the Irish authorities, there was no further tax paid in Ireland by AOI and cash was routed directly to New York.
In Apple's biggest markets the effective rate of corporate tax was in the 20s but the foreign tax rate could be cut to low single digit levels and to foreign tax authorities, the Irish offshore letter-box companies used the address of Apple's Irish facility in Cork, Ireland, and appeared as conventional operations.
This arrangement could not have been possible without driving a coach-and-four through the US tax system -- overseas cash could be held in New York.
At the end of June, Apple had $164.5bn of "cash, cash equivalents and marketable securities" on its balance sheet with $137.7bn technically held by Apple's foreign - - mainly Irish - - subsidiaries.
“There’s never been any special deal, there’s never been anything that would be construed as state aid,” Luca Maestri, Apple’s chief financial officer, told the Financial Times.
“We were simply trying to understand what was the right amount of taxes that we would have to pay in Ireland,” Maestri said of the agreements, describing Apple’s approach as “very responsible, transparent and prudent.”
For AOI, the answer was apparently none.
Why did the Irish authorities apparently agree to the change to a stateless status with no taxes due?
The Senate report in May 2013 said: "According to Apple, AOI’s net income made up 30% of Apple’s total worldwide net profits from 2009-2011, yet Apple also disclosed to the Subcommittee that AOI did not pay any corporate income tax to any national government during that period."
As outlined above AOI did operate as a tax resident company until recent times.
The stateless loophole was closed in an Irish Finance Act in 2013.
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