Apple and Shamrock

This is not about Apple. It is all about Ireland. And Luxembourg and some other havens. Apple, Amazon, McD and Google just get caught up in this high roller tax game because of their size and negotiation leverage.

Ireland contributes 1.28% to the EU’s budget, just a smidgen more than Greece (1.26%) and Portugal (1.25%). Less than Finland, Denmark, Austria, Poland and 8 other countries. In comparison, Germany, the largest contributor, contributes 21.3%.

Ireland has been a net recipient of funds from the EU to the tune of 4.4B EURO between 2006 and 2014 (Source: EU information center). So they get more from the EU than they pay into it. Ireland also required 22B Euro IMF assistance in 2010.

Apple may not have done anything wrong. But that’s not clear about Ireland.

Apple was looking for the best deal they could get and found a country willing to negotiate a tax rate that is ridiculously low. They may have wondered if this isn’t too good to be true, but no, they didn’t do anything wrong on the face of it.

Ireland, on the other hand, likely did something wrong. They offered a ridiculous deal in a private negotiation to one company thus reducing their tax receipts by billions of dollars. At the same time they collected net 4.4b from the EU based on their low tax receipts and received a 22b IMF credit bailout in 2010–2013.

With benefits come responsibilities — one must pull its weight

When you are part of a union with free exchange of goods and services, money and people, it only works if the conditions are somewhat equitable. You cannot sustain a system where one country collects taxes and another does not and if the country without tax collection is in trouble it suddenly looks to the one with taxes to help out. Everyone must pull their weight, or at least make an honest effort, and one of the minimum expectations is that one collects taxes in an equitable way. Ireland did no such thing.

A country housing less than 1% of the EU population houses 100% of Apple’s EU profits

Ireland houses less than 1% of the EU population and by extrapolation 1% of Apple’s potential EU customer base. But it is housing 100% of Apple’s EU revenues and profits and chose not to tax it in a reasonable way. They were not pulling their weight.

The other countries in the EU are housing 99% of Apple’s potential EU customers. They provide infrastructure and rule of law to move those Apple products around and they receive exactly zero tax revenue from Apple.

At the same time those countries pay Ireland 4.4b to prop up its economy and grant 22b in credits to do more of the same

It should be understandable that they are not happy about this situation.

So, who is wrong?

Is Apple wrong? No, but they are caught in the middle. They were playing a high stakes game to maximize shareholder value and they got a great deal.

Is the EU wrong? I don’t think so. But the messaging could be sharper. This is about Ireland. By seemingly making this about Apple, the EU gets the wrath of the US, and it distracts from the underlying issue: Ireland is not pulling its weight as much as it could and should. It created obfuscated private tax deals that were not open to review by anyone else and not available to other companies. And that I presume is not only pissing off the net contributor countries in the EU, but, I suspect, might also likely be illegal under EU agreements.