Apple’s systematic EU tax dodging exposed by new study

A report commissioned by the Left group in the European Parliament has found systematic tax evasion and abuse of legal loopholes by tech giant Apple between 2015 and 2017.

It examines the corporate tax rate paid by Apple globally and in the European Union after it made significant changes to its corporate structure in 2015. It looks into the methods Apple uses to continue to avoid paying tax today, and how it uses features of Irish tax law and policy that help with the ongoing tax avoidance.

The GUE/NGL report coincides with Apple’s refusal to appear before the MEPs in the Parliament’s TAX3 committee in a special hearing on today on the ‘Paradise Papers’ revelations.

Amongst the key findings include:

Apple has no geographical disclosure of profits and taxes wherever it operates – paying $13.9 billion in taxes for the Americas but only $1.7 billion for the rest of the world combined. The research suggests that Apple may have paid as little as 0.7% tax on its EU profits from 2015-2017.

Apple has avoided paying between €4 billion and €21 billion in tax to EU tax collection agencies from 2015-2017.

Ireland remains at the centre of Apple’s tax avoidance strategy. Following the US Senate inquiry (2013) and initiation of the European Commission’s state aid investigation into Ireland (2014), Apple organised a new structure in 2015 that included:

  • The relocation of its non-US sales from ‘nowhere’ to Ireland;
  • The relocation of much of its intellectual property from ‘nowhere’ to Ireland;
  • The relocation of its overseas cash to Jersey.

But despite the relocation of sales income and intellectual property to Ireland, there was no observable corresponding increase in corporation tax received from Apple by Irish Revenue from 2015-2017.

With the assistance of the Irish government, Apple has successfully created a structure that has allowed it to gain a tax write-off against almost all of its non-US sales profits.

Apple is achieving this by using:

  • A capital allowance for depreciation of intangible assets at a rate of 100% (this rate was capped at 80% from 2017, but the cap will not apply to the intangible assets brought onshore from 2015-2016, which can still benefit from the 100% rate);
  • A massive outflow of capital from its Ireland-based subsidiaries to its Jersey-based subsidiaries in the form of debt;
  • Interest deductions of 100% on this intra-group debt.

The report reveals that the Irish government introduced the 100% rate on capital allowances for intellectual property (IP) following a recommendation made by the American Chamber of Commerce in Ireland in 2014.

The law governing the use of capital allowances for IP is not subject to Ireland’s transfer pricing legislation, but it includes a prohibition from being used for tax avoidance purposes. Apple is potentially breaking Irish law by its restructure and it exploitation of the capital allowance regime for tax purposes. If the same legal reasoning used in the European Commission’s state aid ruling on Apple and Ireland is applied, Apple is in breach of Irish tax law, and owes Irish Revenue at least 2.5 billion additional euros annually in unpaid tax from the period 2015-2017.

The use of this structure has contributed to a significant increase in the amount of cash Apple is sitting on in offshore tax havens, almost doubling since 2014.

Apple is unlikely to the be the only multinational using this scheme, with one top offshore law firm advertising it as the typical scheme used by multinationals that trade in IP in Ireland following the announced phase-out of the Double Irish and accompanying changes to Ireland’s tax laws. The way this typical scheme is used is outlined in detail in the report.

You can read the report, Apple’s Golden Delicious tax deals: Is Ireland helping Apple pay less than 1% tax?, in full here.

You can also watch a press conference with GUE/NGL’s TAX3 MEPs from 12h30-13h00 CET via this link.