SAN FRANCISCO — Timothy D. Cook, Apple’s chief executive, issued a defiant letter to his European
customers on Tuesday after the region’s antitrust
enforcer ordered Ireland to collect 13 billion euros, or about $14.5 billion,
in back taxes from the company.
By turns outraged and scolding, Mr. Cook pushed back
on the findings by Europe’s competition
commission, which
said that Apple had made inappropriate low-tax deals with the Irish government
that let the technology company pay almost nothing on its European business in
some years.
Instead, Mr. Cook framed Apple’s operations in Ireland
as an investment in the people there, declared that Apple has a history as a
good corporate tax citizen, and added that the European Commission’s decision will hurt investment and business growth
in Europe.
We examined some of the points Mr. Cook made in the
letter, consulting with five tax experts to fact-check the chief executive’s
statements. While Mr. Cook was technically truthful, he omitted some context
and shifted the spotlight from the thrust of the European Commission’s case:
whether Apple took advantage of loopholes in Irish tax laws.
MR. COOK’S LETTER “As our business
has grown over the years, we have become the largest taxpayer in Ireland, the
largest taxpayer in the United States, and the largest taxpayer in the world.”
FACT
CHECK While it’s not a bad guess that Apple is the largest
taxpayer on the planet because of the company’s immense size, even Mr. Cook
said in testimony before
Congress in 2013 that this was just an estimate. United States
corporate tax information is private, so there is no way for Apple to say for
sure that it is the biggest taxpayer in the country, much less the world.
The issue of how much money Apple pays in taxes is
also a bit of a red herring. “This fight with the European Union is not about
what the company has paid in taxes overall, but about how much it should pay,”
said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy
Center. “Tax systems are not a pay-what-you-want system.”
_________
MR. COOK’S LETTER “In Ireland and in
every country where we operate, Apple follows the law and we pay all the taxes
we owe.”
FACT CHECK Apple, along with
many multinational companies, takes advantage of differences in national tax
laws by moving money around the globe in ways that shrink their overall tax
burdens. While a company like Apple may pay all of the taxes that it owes, it
also tries to find legal ways to owe as little as possible.
The European Union wants to crack down on the ways
that companies minimize their tax bills in Europe, especially in Ireland. In
the 1980s, Ireland began modeling itself after Bermuda, a well-known corporate
tax haven, said Khadija Sharife, a forensic financial researcher and an editor
at the African Network of Centers for Investigative Reporting. Ireland’s
corporate tax rate is 12.5 percent, compared with 35 percent in the United
States.
While Ireland is phasing out some corporation-friendly
rules, “companies will continue to come up with ways to pay less taxes in other
countries until all countries across the world can agree on corporate tax
rules,” said Lisa De Simone, assistant professor of accounting at Stanford
University.
__________
MR. COOK’S LETTER “The opinion issued
on August 30th alleges that Ireland gave Apple a special deal on our taxes.
This claim has no basis in fact or in law. We never asked for, nor did we
receive, any special deals.”
FACT CHECK The European
Commission makes clear, and tax experts agree, that Ireland let Apple determine
how much of the income that it generated in the country would be recognized and
taxed there.
The rest of Apple’s
income that was not recognized and taxed in Ireland could be put in other
corporate structures that were effectively stateless. That meant the money in
those structures was not taxable anywhere — not even in Ireland — and thus not
subject to Ireland’s 12.5 percent tax rate.
While other companies have also had the right to
negotiate with Ireland, the commission considers these sorts of loopholes a
no-no.
“In the U.S., states can fall all over themselves to
offer subsidies and loopholes, but that is exactly what is illegal in Europe,”
said Edward D. Kleinbard, professor at the Gould School of Law at the
University of Southern California and a former chief of staff to the
congressional Joint Committee on Taxation.
__________
MR. COOK’S LETTER “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.”
FACT CHECK Mr. Kleinbard said
the commission is not replacing Ireland’s tax law with a view of what the
commission thinks should happen. It is simply asking Ireland to enforce the tax
rate that it has and close loopholes that allow companies like Apple not to
recognize large portions of the income they generate in Ireland and pay even
less.
__________
MR. COOK’S LETTER “This would strike
a devastating blow to the sovereignty of E.U. member states over their own tax
matters, and to the principle of certainty of law in Europe.”
FACT CHECK Stanford’s Ms. De
Simone agrees with Apple that the E.U. ruling hurts the sovereignty of its
member countries. If Ireland wants to create rules that allow for stateless
entities not to pay taxes anywhere, up until now that has been Ireland’s
decision to make.
While the E.U. has been trying to create harmony
across the region when it comes to how to treat corporate taxes, for now taxes
are “an issue for each individual member state in Europe,” said Dr. Liza
Lovdahl Gormsen with the British Institute of International and Comparative
Law. She said this case creates uncertainty for many multinational companies
across Europe.
__________
MR. COOK’S LETTER “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.”
FACT CHECK It’s true the
majority of Apple’s profits are taxed in the United States.
But Ms. De Simone said Apple has also kept more than
$200 billion in accumulated profits offshore. That money could someday be
brought home and taxed, but Apple is in control of whether or not that actually
happens.
__________
MR. COOK’S LETTER “Beyond
the obvious targeting of Apple, the most profound and harmful effect of this
ruling will be on investment and job creation in Europe.”
FACT CHECK There is support
among tax experts for this statement. Mr. Rosenthal of the Tax Policy Center
said so many countries are motivated to use low tax rates to generate business
that Europe could lose multinational business if companies are discouraged by
the commission’s ruling on Irish tax treatment of Apple.
But Mr. Rosenthal said the issue is ultimately broader
than Europe. People would do well to also remember the total amount of
government revenue being lost to low-cost tax deals, he said.
“If we allow companies like Apple to pick its tax
haven — to place a few thousand employees in a place for a lower tax rate — we
do add a few jobs,” he said. “But more widely, the taxes given up globally
could be used for public service, worker training and infrastructure repair.”
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