No 'Sweetheart' Deal? Pull The Other One, Apple And Ireland

Steve Wozniak, aka "Woz," nailed it when it comes to Apple and tax -- or pretty much any huge corporation. To paraphrase comments he gave when grilled over Apple's tax arrangements, he pointed out that huge companies move on from being owned by a bunch of people to being listed to many shareholders who demand the highest returns possible.

That is completely incompatible with paying fair levels of tax and so corporations carry on setting up complicated structures to avoid paying their full dues. To undo this is virtually impossible because it would diminish the worth of the huge mega company and would leave them open to charges for higher tax from previous years as well as moving forward.

Hence, today, we have the highly anticipated news that both Apple and Ireland are to challenge the EU's decision that the tech giant owes some 13 billion euros in back tax. If anyone wants to know why Europeans are so angry at companies such as Apple, Google and Starbucks, you need only look at this case. Apple sets up its EU base in Ireland, attracted by a corporation tax rate of 12.5%, nearly half the rate it would have paid in other lead European economies. What it ended up paying was closer to 1%. That's 1% of profits, by the way, not revenue.

The deal goes all the way back to the early 1990s and the EU authorities claim it is a "sweetheart" arrangement through which Ireland turns a blind eye to the amount of tax the company should be paying because 1% is a whole lot more than the zero per cent it would receive if the business were based elsewhere. And when we say based, we are of course talking about a shell office with a few people in it. To all extents and purposes, the company is based and makes the majority of its money in or through the UK, not the shell of an office it operates in Ireland.

So all eyes will be on the next few years of legal wrangling, but perhaps the most simple question of all will be the one most easily missed. It's a very obvious question, based in logic. If the company is only paying 1% tax on profit and is being defended in doing so by Ireland, you have to ask why Ireland? Why would Apple take the unlikely decision to be based in one of its smallest EU markets based on a lower corporation tax rate that it isn't paying anyway? How can that decision be explained away under any kind of logic other than the postal address and a few chairs and tables in Ireland was giving it the power, via the Irish government, to pretty much pay whatever tax it liked. 

In the new world of super rich individuals and global corporates, that is exactly what tax has become. A voluntary payment to look good rather than to come anywhere near what you really should be paying. It's not just Apple that is, at the very least, morally guilty here. It's the system -- and Apple is right in saying that it has been picked out. But it has been selected to be made an example of because it's arguably the biggest example.

As the appeal unfolds, just keep asking yourself the question, if there is a legal way of paying just 1% tax on profits, why go through the pretence of being attracted to a country with a 12.5% rate? Might there be more to what Apple was getting from being "based" in Ireland. The EU certainly thinks so. 

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