Why the Ruling against Apple could have Negative Impact on EU’s Future

I was involved with the Irish Development Agency (IDA) during the early days of Apple deciding to go to Ireland. At the time, the Irish economy was a disaster and they were losing their college graduates to other countries because there was no work for them at home. This particularly impacted two universities that were producing some top engineers and IT pros.

The tax incentive program IDA developed at the time was groundbreaking when it came to luring tech companies to Ireland. In those days, they and other European countries had employed a tax incentive program for other industries, mostly in Europe, but none were tech-related.

Apple took advantage of that program and came in and created many jobs. As a result, both Dell and Lotus followed Apple to Ireland. Some years after Apple set up operations in Ireland, I went to visit the Apple Cork facility with IDA officials. They were proud of their tax incentives that helped bring these key US tech companies to their country. They acknowledged this tax program, which got unanimous support from the Irish government, helped provide jobs for university graduates and others and stabilized their economy at a critical time in their history.

In fact, in the early 1990s, I introduced other US tech companies to IDA who then took advantage of this program and their overall tech community grew. IDA is still very active in trying to bring companies from all over the world to Ireland but this EU ruling would hit them hard if it goes through.

Interestingly, the program IDA developed was so popular, many European countries copied it. They have been successful in France, the UK, Germany and with other EU partners as well.

This ruling from the EU, which basically demands Ireland collect retroactive taxes from Apple, is both absurd and dangerous and would have a major impact on the EU’s future.

In Tim Cook’s letter to the Apple Community in Europe, he lays out the real problem with this ruling:

“The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same. We are confident that the Commission’s order will be reversed.

At its root, the Commission’s case is not about how much Apple pays in taxes. It is about which government collects the money.

Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company’s profits should be taxed in the country where the value is created. Apple, Ireland, and the United States all agree on this principle.

In Apple’s case, nearly all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States. European companies doing business in the U.S. are taxed according to the same principle. But the Commission is now calling to retroactively change those rules.

Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.”

Part of my educational background was studying the potential of a European Union back in the early 1970s. As part of this study, I spent time in Geneva, Paris and other European capitals looking at the potential impact of a proposed European Union. Back then, the issues were so complex the movement to create an EU was killed and did not get revived for another 25 years. But one of the major things that came up, even back then, was how the individual countries would handle their taxes at a country level and how a federal tax could be implemented.

When the new EU was finally created, the EU governing body made concessions on this and each country could determine its own tax structure. This ruling goes against their own agreements with their EU partners. Given that Germany, the UK and France have similar tax incentive agreements, I suspect they will also be against this ruling and will weigh in and support Ireland and Apple at some point.

The Irish government and Apple are right to appeal this ruling. If it stands, it could impact the EU’s ability to lure new companies and impact jobs growth as well. This ruling is bad for Apple, Ireland, and all EU partners who want their economies to grow and not be negatively impacted by an over-reaching EU commission.

Keep in mind, this tax incentive program was created well before Ireland became part of the EU. It literally saved their economy. They have no interest in turning back the clock, given what this program did for them then and will do well into the future.

For another important perspective on this subject, check out John Swartz’ piece in US Today that points out this ruling could effect other tech players, too. Also see how US officials view this move by the EU to require Apple to retroactively pay back taxes to Ireland.

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.

27 thoughts on “Why the Ruling against Apple could have Negative Impact on EU’s Future”

  1. It’s a centralized economic system, argue those merits and failings.

    We are talking about a system where individual nation/states are told by a central authority what they are (and are not) allowed to produce or sell.

    What gives Ireland the right to give more favorable terms to corporations over other member states? More so than, say Portugal, entering the auto business? France, the Scotch business, etc.

    Then again, I don’t think the author would care too much if this didn’t involve Apple.

    1. Not true. Dell HP, Microsoft, Lotus and many others took advantage of these tax programs to build their European HQs in countries that did this. And this was all done before they were part of the EU. In fact I was involved with the Scottish Development Agency who landed HP using this same program. The goal was to create jobs and boost their economies. They had every right to do this as a individual nation at the time and carried these programs over to this day.

      1. First off, matters of sovereignty can indeed have an impact on the EU’s future. No argument there.

        Secondly, Ireland has been a member state of the EEC (now EU) since 1973.
        I do not doubt your involvement in these matters, nor do I single Apple out. What applies to HP, Dell, Lotus, etc. applies to Apple and these state sponsors as well. To be equitable these same kind of treatment should be levied on them as well. I leave that to EU legislature and justice system.

        We could debate whether this is “state sponsored money laundering” or not until the cows come home. That’s not the matter at hand today. Point is the centralized economy can decide who competes for foreign company presence as much as they can dictate who gets to participate in the olive oil business.

        1. Thanks for your thoughtful feedback. I should have stated one other key point in this issue. Yes Ireland was a member state of the EEC going back to 1973. But they,along with the UK and France floated this program to the EEC leadership and received no push back on these programs. That is why they moved ahead with these tax incentives aggresively at the time.

          1. I think the current pushback is due to 3 things mainly
            1- Ireland used to be rather poor, inciting benevolence in the name of job creation and wealth transfer from richer countries which looked the other way when dubious deals where being struck
            2- those deals have evolved from “creating cheaper jobs”, to “repatriating jobless profits”. I couldn’t find how many people Apple Ireland employs, which is rather telling.
            3- and have been relentlessly optimized. 0.05% effective tax rate can’t sustain a first-world social apparatus.

            The tax system still hasn’t adapted to the Service (well, Intangibles) economy, and was already flawed even for hardware. I remember back from my days at Dell France how intracompany selling prices were specificlly tweaked to make sure there was no profit to be taxed in France, not to reflect actual prices/value.

          2. Good points..At the time though the bigger issue was not having high tech jobs for their college graduates..Zero jobs. they all went to other areas of Europe or the US. This was the real motivation for the original tax breaks and when it started working they kept it up.
            There are still a lot of the jobs there and a lot of local graduates stay their for work. Have done for for decades. But the world has changed and laws should have been updated. Not sure where things stand there at the moment but I do know they changed the incentive rate so it is higher now..

          3. “I couldn’t find how many people Apple Ireland employs, which is rather telling.”

            Looks like it’s around 6,000 (perhaps a tad under six thousand). Took about ten seconds to find that out, it’s not exactly hidden information.

          4. “I couldn’t find how many people Apple Ireland employs, which is rather telling.”

            Per Tim Cook’s response to the EU decision:

            “We have operated continuously in Cork ever since, even through periods of uncertainty about our own business, and today we employ nearly 6,000 people across Ireland.”


          5. There’s some real funny math going on around here.
            6,000 people , 13 billion euro, ten years.
            That’s a 216,666 euro/year/Apple employee equivalent!

          6. That’s a false piece of logic that gets trotted out a lot, usually when people object to tax increment financing. It’s an exercise in regretting the loss of money you never had in the first place.

            Ireland did not give up 13 Billion in the bank in exchange for 6000 jobs. Apple would not have set up shop in Ireland without the tax concessions. So the choice was between no 13 billion and no jobs versus still no 13 billion but 6000 jobs.

            But I’m sure you know all that.

          7. That’s why I called it an equivalent. Still that money was based on a percentage of Apple revenue that they ostensibly would have paid as taxes elsewhere in the EU. It’s not money the Irish people would have spent, it’s money not earned. We agree on that.

            It is however a case of state sponsored money laundering, in exchange for jobs, and the EU does have a say in that.

            But you knew that. 😉

          8. “Ostensibly” being the operative word, since there is an appeal by Ireland, too. And according to the former EU dept head (whatever that is called), that’s some creative accounting to get to $13bill.

            I don’t know who is right. Hopefully the appeals process will make that clear. I am not for shady deals much less not paying what is due. But it is exactly that, what is due, that is being determined.


          9. I agree. This is an EU problem, they are not without jurisdiction in this matter and those involving other companies.

          10. It may have US tax bill implications, too. I don’t know how Apple’s taxes are structured, but typically what taxes we pay overseas is deductible from the taxes we owe domestically in the US. Nothing is in isolation.


          11. I could be wrong, but Apple in the EU is an EU Corp. Would what you say only apply to repatriated money?

          12. Like I said I don’t know how Apple is structured. Apple in the EU could still be a wholly owned subsidiary. The profit is still attributed to Apple Corp., not just a European Apple company.

            Point being, none of this is as cut and dried as any, pro or con, make it out to be. One thing IS a real concern (as the OP points out) is the future of foreign investments in the EU if the EU is planning on constantly over-riding individual member states and continue to claw back taxes.


          13. And if the appeal fails, that’s $13.5bill that can’t be repatriated and the US doesn’t collect.


          14. That’s not quite true though. Countries tax and regulate businesses operating in them. The EU lets that happen at the EU instead of the country level. If Apple hadn’t set up euro-shop in Ireland, they’d have had to set up euro-shop in another euro country, or in each individual one. Either way, they would have been taxed, most certainly at more than 0.005%.

            All of it wouldn’t have gone to Ireland (which is why asking *Ireland* if their tax montage was legal is funnily hypocritical on Apple’s part), but tax, more tax, would have been paid, and probably more jobs created.

          15. As more keeps coming out and I keep trying to make sense of it, the problem isn’t even the tax rate, it seems. The question is one of anti-competitive allowances Ireland may have given Apple that aren’t open to other companies. That’s why the phrase “state aid” keeps coming up. Did Apple have some arrangement with Ireland that other companies could not take advantage of as well? At least that’s my latest take on the issue.


          16. That’s how I understand it too: the problem is not the tax rate, countries are free to set up their tax system as they want. The issue is that Ireland made a specific deal with Apple. That’s “corporate discrimination” or “corporate favouritism”, and that’s forbidden.

            It’s a huge part of why the EU is unpopular with a lot of people: it makes subsidizing companies or industries very hard, and local/national politicians are very quick to point out that they’d looove to help regions/industries/companies, but sadly, can’t because EU. That excuses them from getting Thatcher-sized balls, but creates a lot of issue-specific EU haters to few “overall content” EU supporters. My phone bill went from a US-like $120 to $20 because the state the telcos’ monopoly and state aid (direct + regs) got dismantled, yet, mostly, the EU gets blamed for job losses at the incumbent, not praised for saving most everyone $100/mo – and that’s only for Mobile.

            They’re trying to be smart about deregulation too, not accepting/promoting incredible infrastructure duplication à la US (CDMA vs GSM), but regulating sharing of “natural monopoly” infrastructure (the telco’s last mile, carriers’ towers, railroads, electric grid…). Google’s issues getting gFiber built up just couldn’t arise in the EU.

  2. And what if a revolution happens in Europe tomorrow and all Americans’ accounts will be frozen? There is no FDIC insurance on those…

  3. Apple paid all of the taxes that it was legally required to pay, by the Government of Ireland.

    Did Apple seek to reduce its taxes legally? Yes. Just as every corporate and personal tax payer seeks to use legal tax deductions and optimizations when paying their taxes.

    If you reduce your taxes legally before paying them are you “guilty” of something? On the contrary, you would be “guilty” of incompetence if you didn’t take advantage of every legal method of reducing your total taxes.

    The question is, who controls tax laws in Ireland? Is it the sovereign nation of Ireland… Or is it the European Commission???

    Apple’s European offices (and the thousands of jobs they provide) could easily moved to another non-EU nation (for example, Great Britain) if that other non-EU nation provides a stable and beneficial tax structure for Apple to operate in.

    I have lived in a location where the tax laws and political climate changed. As a result, almost all of the multi-national head offices moved to another jurisdiction, leaving the original location with a depressed economy.

    This CAN happen just as easily to Ireland if it allows the EC to override its tax laws. There are currently over 1,000 multi-national companies (about 70% of them are USA based) operating, and employing citizens, in Ireland. If the Irish Government’s and Apple’s appeals on the EC ruling fail, we are very likely to see a mass exodus of businesses from Ireland over the coming years.

    This entire situation has to do with the European Commission claiming that they have control over Ireland’s laws. Ireland is a sovereign nation that is part of (for the time being) the European Union. Ireland now has to fight to retain its right to make laws within its own country, without the interference of an external commission.

    If the EC continues in this direction it may motivate an “Irexit” referendum and decision, similar to what we saw in Great Britain recently. And multi-national companies will be encouraged to move their operations from EU countries to non-EU countries in order to get some tax law stability.

    1. Acutally, EU countries do agree to follow a set of supra-national rules. One of them: not to give preferential treatment to any individual company. That’s a bulwark against former state-sponsored capitalism, now also being used to protect against “social low-balling”, though it wasn’t the original intent.

      EU sovereign countries have, sovereignly, agreed to join a community and abide by a few rules. As the British events show, they’re also free to leave. But the whole point of the EU is a free and fair market, in particular with no preferential treatment for specific companies.

      Moving to a non-EU country doesn’t solve the issue per se, as other countries don’t then have to assume that proper taxation is applied in the “Euro bot not EU” state, and can audit and correct abuses with their usual procedures. Starbucks for example is famous for charging a lot from tax heavens for… know-how about making marketing and selling coffee. They’re a bit further down the Commission’s list ^^

  4. with all due respect Mr @tim_bajarin:disqus you do not seem to understand the case presented here http://europa.eu/rapid/press-release_IP-16-2923_en.htm or you’re simply repeating Apple misleading attempt to Fool the public into thinking that the issue is about state law versus the commission instead of Crony capitalism that enable one company to negotiate his own tax law with a government that is not available for any other company from the same country which is illegal according to EU rules

    it is a sad to see so many of you defending these type of Crony capitalism without even taking into account the danger that may result from it

Leave a Reply

Your email address will not be published. Required fields are marked *