A message from the European community to Apple

We have nothing against Apple or American companies. There is no need for hurt feelings or silly threats — no you are far from employing millions of people in Europe, and if you didn’t exist nothing terrible would happen — just Google and Tesla would pay their engineers a bit less and other stores would pay their retail staff the same as you.

Hence, according to the Econ 101, your contribution is only marginal — if you pay your staff above competition, you are contributing to their welfare above average. But unless you are their only option of employment, you make a difference only *on the margin*. Just pay taxes locally like Coca Cola and try to humbly grasp what your unfair advantage in the single biggest market was.

Tim Cook, the CEO of Apple issued a Customer Letter titled “A Message to the Apple Community in Europe” in reply to the long term and well explained investigation of the EU authorities into allegedly unfair state aid of Ireland that allowed Apple to sell their products across the single EU market with an effective tax rates being almost zero (0.005% in 2014). The trouble with the customer letter is, that many of Tim Cook’s statements don’t add up or pass simple logic tests.

Apple’s products might have a sublime aura, but there is nothing magical about tax avoidance. Also, the issue is not retroactive legally as the EU rules about single market access and unfair tax aid preceded Apple’s investments and tax deals with Ireland. Unlike tax evasion which is illegal, tax avoidance is a way how companies optimize their tax base with legitimate intra-company trade and lending operations between related entities. This is also called transfer pricing.

But there is a thin line between legitimate operations that make business sense and are thus justifiable, and bat-shit crazy escapade. According to the EU investigation, Apple billed almost all their expenses related to all sales in the biggest world market to a nonexistent head office, and thus seems to belong in the second category. The trouble is that Apple sells mainly hardware, and no PR exercise or tech magic gibberish like R&D-AI-Cloud-Machine-Learning hype can cover this simple fact. The point is that you cannot lower your effective tax rate by a factor of 200, from 1% in 2003 to 0,005% in 2014 without raising eyebrows in the biggest single market. And you know very well what Korean company beats you already in other, emerging markets so I thing there should be a more respect for the EU mandarins, who helped to create this biggest market where you consolidated your leading position, while paying almost zero back to the community.

All explanations that you, on behalf of Apple, provided are silly — the argument that Apple is the biggest tax payer globally is very hard and maybe impossible to prove - but also it is irrelevant. Apple is on paper the most valuable company in the US. Last year Apple held $181B offshore in cash, otherwise it would need to pay the US authorities $59B in taxes. In other words just in the two biggest world markets, your tax liability, Apple, is currently north of $80 billion. Being the biggest doesn’t reduce your responsibility to behave according to the rules of the single EU market. By the way they are above the Irish law in areas that relate to our common EU market. They existed before, and thus the investigation is not retroactive. The EU is not punishing you for your tax deal with Ireland. If you sold your products only in Ireland nobody would bother. But you sold them (on paper) from Ireland to the rest of the EU and paid no taxes. But claiming that you are a responsible corporate citizen is also just a PR exercise — remember the concept of a margin? You would be a good corporate citizen if you paid taxes locally, and thus inspired other companies to join you in this race to the top (instead of the race to the bottom). You claim that the vast majority of your expenses is with R&D but it is also irrelevant to this case. Expenses related to your sales in the EU, but wrongly billed to a nonexistent head office with no employees who thus couldn’t do the sales, are at stake, not R&D expenses.

I would like to conclude just with two useful links: lesswrong.com and fairphone.com.

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