Is the EU picking on Apple with its €13bn fine?

It may be unfair to single the iPhone maker out as a tax avoider, but mud sticks and fines sting.

by Adam Gale
Last Updated: 30 Aug 2016

The EU’s investigation into Apple’s tax arrangements presents a dilemma. We love Apple and its world-changing gizmos, but we hate tax dodgers. The best the European Commission can get from even the most ardent of Remain supporters, meanwhile, is indifference.

So when the EC goes after Apple for avoiding taxes, whom do we support?

The Commission’s ordered Apple to pay up to €13bn in back taxes to Ireland, after ruling its ‘sweetheart’ tax arrangements with the country constitute unfair and selective state aid, in breach of the rules behind the Single Market.

Apple and Ireland are appealing (Ireland apparently wants to spend millions on lawyers to stop the world's richest company paying it billions - a matter of principle, eh?), which will take many years. Clearly, if that doesn’t work, Apple’s vast cash pile will lose a few inches. But what of the damage to the company’s reputation?

When you read that Apple paid a tax rate of around 1% on its European profits since 2003, it hardly makes your view of the iPhone maker more favourable, after all.

But is it actually avoiding tax? Taken globally, the answer is no more than anyone else. In 2015, Apple’s global tax rate was a hardly-gasp-inducing 26.2%. So far this year, it’s something similar.

Although its rather exotic arrangements both in Ireland and in other countries and indeed US states will have reduced its tax bill (a few years ago its overall rate was more like 10%), the more important question really is not how much it’s paying but where.

Essentially its arrangements currently favour the US Treasury over European tax authorities.  

A transatlantic spat

The Americans have unsurprisingly defended this as being perfectly fair, given that the US is where all the design, marketing and R&D takes place, but the rights and wrongs of that are largely a moot point for Apple.  

Paying tax in Washington or California isn’t likely to remove the taint of tax avoiding accusations for European customers. Apple doesn’t want to be seen as a hard-nosed blue chip pursuing shareholder returns at any cost to society. It doesn’t fit the brand.

Whether this will actually constitute a problem for the bottom line is harder to say. It seems unlikely that many people will turn their noses up at the new iPhone 7 because they’ve heard Apple doesn’t pay much corporation tax in Europe.

But then Apple benefits from an almost cultish devotion that most makers of Android devices would give their right motherboard for. Long term, stories like this could diminish that.

It may be, then, that this situation is unfair to Apple. Every listed firm will try to reduce its tax bills where the national and international rules allow, yet Apple’s the one facing this very high profile test of the Commission’s legal powers.

But publicity kind of comes with the territory of being the world’s most valuable firm. Unless Tim Cook is willing to explain to Apple shareholders why he’s replacing its enormous team of expensive lawyers and tax accountants with a plaque saying ‘let’s just roll with it’, he can’t really complain about bad publicity. 


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