Tim Cook knows Apple is guilty

AUGUST 31ST, 2016 — POST 240

Apple yesterday was hit with a hefty bill. The European Union has concluded that Apple owes Ireland — the nation in which Apple’s European headquarters is based — €13bil in unpaid taxes, amounting to around USD$14.5bil. It’s the EU’s contention based on a multi-year investigation into Apple’s affairs in Ireland that “that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991.”

The story is easily understood as “Apple owes taxes” but the EU’s case targets Ireland as much as it does the Cupertino-based tech giant. Apple’s foothold into the market of the entire European Union, Ireland’s low corporate tax rates allow profits to be claimed as made in Ireland, even if the bulk of Apple’s EU sales are made outside of Ireland. But the EU reckons there’s more going on. As Matthew Yglesias of Vox explains, Ireland and Apple are understood to have reached an agreement in which just enough money flowed into the Irish coffers for Ireland to claim that Apple had fulfilled its European tax obligations. Yglesias writes:

“Ireland gets to artificially inflate its tax revenue while Apple artificially reduces its revenue, by ensuring that no taxes at all are paid to other European states.”

High-profile responses to this ruling have flowed both from Washington and from Apple CEO Tim Cook himself. Interestingly, the responses seems less interested with challenging the premises of the ruling — notably that Ireland provided “illegal state aid” to Apple in the form of these 1991 and 2007 agreements — and more interesting in painting the effects of the ruling as approaching apocalyptic. The language Cook uses in his ‘Customer Letter’, his official response, is curious. For one, it takes Cook five paragraphs to even mention the word “tax”.

Instead, Cook spends the letter’s opening detailing the company’s story as it applies to Europe. Cook writes:

“Thirty-six years ago, long before introducing iPhone, iPod or even the Mac, Steve Jobs established Apple’s first operations in Europe.”
“At the time, Cork was suffering from high unemployment and extremely low economic investment. But Apple’s leaders saw a community rich with talent”
“Countless multinational companies followed Apple by investing in Cork, and today the local economy is stronger than ever.”
“It has helped create and sustain more than 1.5 million jobs across Europe
“Countless small and medium-size companies depend on Apple, and we are proud to support them.”

Cook thinks this would be an appropriate venue to discuss Apple’s regional influence in Europe, one which paints the company as some sort of economic and cultural messiah (he even includes an image of Jobs at Apple’s Cork facility in 1980).

Most interestingly is the emotional plea this language makes, one less about the company’s guilt or otherwise and more a justification of any illegal state aid Apple is alleged to have received. Nothing does this more efficiently for Cook as the line where he finally gets around to touching on the EU ruling.

“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process.”

Cook wants to control the optics: Apple is the well-meaning underdog, unfairly targeted by continental bureaucracy in a way that could be fundamentally destabilising on the global stage. He continues further down:

“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.”

And here is the crux: Cook isn’t disputing Apple’s compliance with the law, but rather suggesting the laws themselves are wrong. The equivalence Cook implies between the U.S. and EU tax system is skewed: the economic union of nations inside the EU blurs the sovereignty of nations, at least as far as taxes are concerned. Frankly, there aren’t any unions like the EU anywhere else in the world — so of course this “fundamental principle” would be recognised around the world. But that’s beside the point. The EU is specifically a special case. It’s part of their unique union that this “fundamental principle” ought not necessarily to be recognised.

Cook doesn’t want to claim the ruling is wrong, but that it ought to feel bad. This to me reads as a tacit admission of guilt, a guilt that will continue to be glossed over through what will surely be a protracted appeals process. Apple probably won’t have to pay anywhere near the €13bil, if they do end up paying anything at all.

But they know they should.

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