It’s hard to imagine that Apple Inc. (NASDAQ:AAPL) won’t feel renewed pressure in both the US and Europe over new revelations that the iPhone manufacturer paid virtually no corporation tax for years on billions of dollars of revenue earned in other countries using the infamous ‘double Irish’.
Apple: Unexplained lower taxes
Accounts uncovered for an unlimited Irish entity known as Apple Sales International (ASI), show that Apple Inc. (NASDAQ:AAPL) paid just $36 million of taxes on a staggering $7.11 billion in profits between 2004 and 2008. With Ireland’s official corporation tax rate of 12.5%, that means the tech giant avoided $850 million of Irish taxes. More worryingly, the official accounts do not explain how the rate was decided or even in what jurisdiction the tax was paid. The accounts simply state:
“The current tax rate is lower than the standard rate in Ireland.”
The new figures have emerged from ‘forgotten’ filings in Australia. Since ASI is an unlimited company in Ireland, it does not need to file accounts in that jurisdiction. However, the firm was obliged to file details of its Irish transactions in Australia, where an analysis of the figures by the Australian Financial Review found that ASI shifted AUS $9bn of profit earned in Australia to Ireland.
Although the corporation hasn’t acted illegally, that hasn’t stopped a US senate panel from criticizing Apple Inc. (NASDAQ:AAPL) last year for avoiding billions of dollars of taxes by moving profits through Irish subsidiaries. During the hearings, Apple executives admitted to paying just 2% tax on $74 billion of sales outside North America over three years, using Irish tax structures, stating that a special tax deal had been struck with the Irish government as a result of its decision to set up an Irish operation in 1980. The Irish government has since denied the existence of any such deal.
Tánaiste Eamon Gilmore said:
“These are not issues that arise from the Irish taxation system. They are issues that arise from other jurisdictions and secondly… it needs to be tackled by having robust international agreements, and Ireland is very much in favour of that.”
It also emerged that some of Apple Inc. (NASDAQ:AAPL)’s Irish entities avoided corporation tax due to being ‘stateless’, i.e., not tax resident in any jurisdiction due to a loophole in Irish law. The Department of Finance in Ireland says that Michael Noonan closed this loophole in last year’s budget.
Academic says the figures don’t add up
Despite that, in February, Prof. James Stewart, an associate professor in finance at Trinity College Dublin published a research paper that stated US multinationals paid an average of just 2.2% corporation tax in 2011. Also in that month, on a visit to Paris, Taoiseach, Enda Kenny, had to answer questions over Yahoo!’s decision to move its European operations from Switzerland to Ireland, saying that both PricewaterhouseCoopers and the World Bank Group found Ireland’s effective corporation tax to be 11.9%, much greater than France’s effective rate of 8%.
However, Professor Stewart said this rate is based on a hypothetical Irish company selling flowerpots with no imports or exports, ruling out tax strategies employed by subsidiaries of international corporations:
“It is surprising that this study is frequently cited by Irish Government sources to the effect that effective tax rates in Ireland are not that different or even higher than in other EU countries. Critics of Irish tax policy in other countries are unlikely to be persuaded that their criticisms are unfounded on the basis of such flimsy evidence.”
With statements from the G20, G8 and the OECD all indicating that it’s only a matter of time that major governments move to curb tax optimization strategies employed by multinationals, the big question is not so much how Apple Inc. (NASDAQ:AAPL)’s future profits will be affected, but whether such measures could be backdated? If so, Apple won’t be the only big corporation with big tax bills to settle, perhaps on both sides of the Atlantic.