Apple spotted gap in international tax arrangements

There is one fundamental truth which cannot be escaped from the Apple controversy: the company paid virtually no tax on vast tranches of its sales.

The row about Apple also spills over into Irish politics, the relationship between the EU and US and raises questions about the independence of sovereigns to determine their own tax affairs. 

Apple spotted a gap in international tax arrangements and took advantage of it. 

Europe decided the Revenue Commissioners should have charged Apple far more in tax than it did. 

At the heart of the controversy are two of the company's subsidiaries. These firms were registered in Ireland but were controlled and managed in the US where they held their board meetings. But they did not have any employees or own any premises.

The companies were a logistics company called Apple Operations Europe and a sales operation called Apple Sales International.

Although they were registered in Ireland the two companies were stateless.

The Revenue Commissioners taxed the companies on the basis of their activities in Ireland. They left the other activities to be taxed elsewhere. 

Sales in Ireland formed a small proportion of the two companies' profits.

The real problem emerged when it became clear the activities outside Ireland were not taxed at all. 

The finding by the European Commission says both companies should have been taxed by Ireland on the basis of their world-wide income. 

This means that all the sales activities associated with the ground breaking iPhone will be attributed to Ireland. 

The ruling applies to Apple's activities from 2003 to 2014. 

Ironically, Ireland is now mandated to collect the money from Apple although the Government disputes whether it is entitled to it.

Over the next four months the Revenue Commissioners will have to make a final determination about the taxes owed by Apple and collect the money.

Brussels says that could be €13bn plus interest. According to accountancy group Grant Thornton that interest could amount to a further €6bn. 

The ramifications of the Apple controversy will be felt for years. But its effect may be to throw a bucket of cold water over multinationals who have avoided paying their fair share of taxes around the globe.

From rte.ie (13/9/2016)