The History behind Apple’s Irish Offices

In 1988, I was invited to go to Ireland on a project for a client to work on creating a European HQ for this company. In the process, I was introduced to the Irish Development Agency (IDA), an organization created by the Irish Government to promote business opportunities for companies outside of Ireland.

In my first meeting with IDA officials, they explained why their division was created. It turns out that the Irish universities were graduating thousands of engineering and business students each year, and there were not enough Irish companies who could hire them. This was especially true when it came to companies who could hire students trained in science and engineering majors. These students were leaving Ireland to go to work for tech companies in the US, UK, Germany, and France. They called it a brain drain and were anxious to lure tech companies, as well as new business ventures, to Ireland to try and stem the tide of their students leaving Ireland for greener pastures.

At the time, they had some minor successes as Apple, Microsoft, and Lotus agreed to put outposts in Ireland. However, these were mostly distribution centers, and they did not have the demand for technical skills or students with advanced degrees. As part of our meeting with IDA, we toured Apple’s small facility back then in Cork, Ireland as well as a larger one that Microsoft had established near Dublin.

At first, the Irish Development Agency gave these companies tax breaks on property and equipment, but as the tech market heated up, they needed to sweeten the pie and extended their incentives to include tax breaks on business costs and even profits.

While IDA targeted many companies with these incentives, and actually landed HP, they really wanted Apple to anchor their new program. Interestingly, at the same time, the Scottish Development Agency created a similar program and landed Compaq as their anchor company and pursued similar outreach to companies outside of Scotland.

By the early 1990s, IDA and Apple developed a closer tie, and they refined the kind of tax incentives that would make Apple choose Ireland as their European HQ.

Keep in mind, all of this took place before the EU was formalized and Ireland and Scotland developed their own set of rules and regulations that govern how each country handled their various business partnerships and program incentives back then.

In 2014, the European Commission began a probe into how all of the EU countries handled their tax breaks as it pertained to the various economic development programs. It took two years, but eventually, the Commission concluded that the tax rules between 1991 and 2007, applied to Apple, were artificially lowered and the EU contended Apple underpaid taxes due to Ireland.

According to Will Goodbody, at RTE News:

“Essentially the Commission claimed that the tax rulings rubber-stamped a method of determining the taxable profits for two companies based in Ireland – Apple Sales International and Apple Operations Europe.

The Commission concluded that those head offices only actually existed on paper, and as a result, could not have generated such profits.
These profits were not, as a result, subject to tax in any country under specific provisions of the Irish tax law which are no longer in force, it found. The result of all this, it said, was that Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.

The Commission ruled that the tax treatment here in effect enabled Apple to avoid paying tax on nearly all the profits it generated from product sales across the EU Single Market because all sales were booked in Ireland rather in the territories where they were actually sold.
As a consequence, the European Commission ordered Ireland to recover €13bn in unpaid taxes over the period 2003 to 2014, plus the interest.”

If you want more details on this case here are a few other links that cover it well. Link, Link.

Apple and Ireland have appealed this judgment and presented their view and rebuttal to these charges to an EU court over the last few days. To be safe, Apple has put $13.1 billion in escrow and has already accounted for it in their financials in 2017-2018.

Apple and Ireland adamantly believe the EU Commission case is based on flawed logic and told the court that directly over the last two days.

While a tax payment is at stake for Apple, there is a bigger stake in play that impacts American companies deciding to put roots in EU countries or expand current operations as their market grows in the EU.

Even though Ireland could reap a huge tax windfall if the EU Commission wins, they are highly against this EU Commission ruling for many reasons.

First and foremost, they entered into this deal with their eyes open, and Apple delivered as promised. Apple has spent hundreds of millions of dollars on buildings, infrastructure and employs 6000 workers in Ireland. Moreover, they add to Irelands GDP and, like other tech companies who established businesses in Ireland, bring the kind of tech jobs that kept many of these graduates from leaving Ireland. Ireland also wants to disprove claims that Ireland acts or acted, as a tax haven.

From Ireland’s standpoint, Apple delivered.

Second, this ruling challenges Ireland’s sovereignty when it comes to setting their own business dealings. This is a huge deal to them, and this is at the core of why they are so against this Commission’s ruling.

The other big thing at stake is the issue of other American companies investing in EU countries in the future. If a company comes in and does a local deal, and the EU prevails with their Commission’s ruling, they set a precedent that at any time they could either nullify the deal or change its terms in favor of any new EU rules and regulations. That means a lot of companies could stay away from future investments in Ireland and other EU countries. Ireland wants to show to multinational investors and companies that it is a safe and predictable place to do business.

Regardless of the outcome of these courts findings, you can expect the losing side to appeal. A decision from this EU court is due by the end of 2010, but it could take years before this legal tussle concludes. Too much is at stake for both sides, and neither will go down without a huge fight.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

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