The European Commission against the Apple’s tax spider web
Apple’s corporate network is investigated by the European Commission
The EU’s Competence Commission has calculated that Apple defaulted €13bn between the periods 2003 and 2013 in Europe. It is not the first investigation on this American multinational accounts, which is already being investigated by the Spanish Tax Agency.
In fact, The Spanish Tax Agency has opened an investigation on what Apple should had paid with regards to VAT, corporate tax and non-resident income tax from tax periods 2009-2012. How is Apple maintaining a tax structure that tries to avoid taxation during a decade in an amount equivalent to six times the Ministry of Education’s budget?
The system used by this technological business is trying to concentrate all its taxation in Ireland, where corporate tax is lower; while its EU’s branches are acting just like commission agents. In this way it gets lowering up to the minimum its tax base in those countries, even resulting in losses declaration.
Using this system, according to the annual accounts submitted in 2015, Apple Retail (the branch in charge of Apple’s shops’ management in Spain) bought products worth €232m to its Irish head office, selling them afterwards for €296m.
Apple’s income tax declaration declared expenses such as social security worth €9.3m, €12m in renting, and salary expenses worth €28m (Apple has a management board whose members do not get a salary).
Apple’s corporate network is trying to create the fiction that each one of the companies are independent and separate entities, selling the products from Ireland to its branches at market price. This set up shows minimum profit , allowing Apple to pay fewer taxes than it should.
Through the last deposited annual accounts Apple somehow is insisting that “it is still buying products” to Ireland “to full competitive pricing”. Although it is true that this strategy is not new, it does require a solution that only can be achieved by all affected States’ join performance.
In this sense, from 2014 OECD is working in finding a consensual solution for the mentioned tax structures. The BEPS (Base erotion profit shifting) project is trying through 15 action points to bring to an end the practices that move profits to countries with non-existent or low taxation by using mechanisms that are nevertheless compliant with current laws in many cases.
Apple’s case cannot be better fitted on BEPS project‘s goals: to end with the lack of international tax transparency, to avoid misusing agreements in order to prevent double taxation; to assure that transfer pricing are correspondent to value creation and to develop a multilateral tool to apply the needed measures.
It is necessary that this project’s participants agree on what legal measures should be globally implemented to end imbalances resulted from these practices; adjustments that are depriving States of needed resources to boost their development; and especially they are undermining citizenship’s trust on tax system’s justice.
Only a coherent and structural solution will end with those tax planning strategies that are weakening the tax systems’ integrity and impartiality by giving multinationals a competitive advantage over national businesses; being also an unfair treatment for the rest of taxpayers.
Claudio Rodríguez Vera (@rvclaudio)
Lawyer at Del Canto Chambers