Ondrej Holzman In the United States last week, Apple was publicly pilloried and defended, which was an exemplary case interviewed by the US Senate Permanent Subcommittee on Investigations, who doesn't like that the Californian giant is getting a tax break. A thorn in the side for some American legislators is the network of Irish companies, thanks to which Apple pays practically zero taxes. How is the apple trail in Ireland really?
Apple planted its roots in Ireland as early as 1980. The government there was looking for ways to secure more jobs, and since Apple promised to create them in one of the poorest countries in Europe at the time, it received tax breaks as a reward. That is why it has been operating here practically tax-free since the 80s.
For Ireland and specifically the Cork County area, the arrival of Apple was crucial. The island country was reeling in crisis and dealing with economic problems. It was in County Cork that the shipyards were closing down and the Ford production line ended there as well. In 1986, one in four people was out of work, the Irish were struggling with the drain of young intelligence, and so the arrival of Apple was supposed to herald big changes. At first, everything started slowly, but today the Californian company already employs four thousand people in Ireland.
[su_pullquote align=”right”]For the first ten years we were tax exempt in Ireland, we paid nothing to the government there.[/su_pullquote]
"There were tax breaks, that's why we went to Ireland," admitted Del Yocam, who was vice president of manufacturing in the early 80s. “These were big concessions.” Indeed, Apple got the best terms it could. "For the first ten years we were tax-free in Ireland, we didn't pay anything to the government there," said one former Apple finance official, who asked not to be named. Apple itself refused to comment on the situation surrounding taxes in the 80s.
However, it should be noted that Apple was far from the only company. Low taxes also attracted the Irish to other companies that focused on exports. Between 1956 and 1980, they came to Ireland with a blessing and until 1990 they used to be exempt from paying taxes. Only the European Economic Community, the predecessor of the European Union, banned these practices from the Irish, and so from 1981 companies that came to the country had to pay taxes. However, the rate was still low – it hovered around ten percent. In addition, Apple negotiated unbeatable terms with the Irish government even after these changes.
In one respect, however, Apple was the first in Ireland, settling here as the first technology company to set up a manufacturing plant in Ireland, as recalled by John Sculley, Apple's chief executive from 1983 to 1993. Sculley also admitted that one of the reasons why Apple chose Ireland because of subsidies from the Irish government. At the same time, the Irish offered very low wage rates, which was very attractive to a company that hires thousands of people for relatively undemanding work (installing electrical equipment).
The Apple II computer, Mac computers and other products gradually grew in Cork, all of which were then sold in Europe, the Middle East, Africa and Asia. However, the Irish tax exemption alone did not give Apple the opportunity to operate tax-free in these markets. Much more important than the production process was the intellectual property behind the technology (which Apple produced in the United States) and the actual sale of the goods, which took place in France, Britain and India, but none of these countries offered the conditions as Ireland. Therefore, for maximum tax optimization, Apple also had to maximize the amount of profit that could be allocated to the Irish operations.
The task of designing this entire complex system was to be given to Mike Rashkin, Apple's first tax chief, who came to the company in 1980 from Digital Equipment Corp., which was one of the first pioneering companies in the American computer industry. It was here that Rashkin acquired knowledge of efficient tax corporate structures, which he subsequently used at Apple, and thus in Ireland. Rashkin refused to comment on this fact, however, apparently with his help, Apple built a complicated network of smaller and larger companies in Ireland, between which it transfers money and uses the benefits there. Of the entire network, two parts are the most important - Apple Operations International and Apple Sales International.
Apple Operations International (AOI)
Apple Operations International (AOI) is Apple's primary holding company abroad. It was founded in Cork in 1980 and its main purpose is to consolidate cash from most of the company's foreign branches.
- Apple owns 100% of AOI, either directly or through foreign corporations it controls.
- AOI owns several subsidiaries, including Apple Operations Europe, Apple Distribution International and Apple Singapore.
- AOI had no physical presence or staff in Ireland for 33 years. It has two directors and one officer, all from Apple (one Irish, two living in California).
- 32 of the 33 board meetings were held in Cupertino, not Cork.
- AOI does not pay taxes in any country. This holding company reported a net income of $2009 billion between 2012 and 30, but was not held as a tax resident in any country.
- AOI's revenue accounted for 2009% of Apple's worldwide profits from 2011 to 30.
The explanation of why Apple or AOI does not have to pay taxes is relatively simple. Although the company was founded in Ireland, but she was not listed as a tax resident anywhere. That's why she didn't have to pay a cent in taxes in the last five years. Apple has discovered a loophole in Irish and US law regarding tax residency and it has emerged that if AOI is incorporated in Ireland but managed from the US, he won't have to pay taxes to the Irish government, but neither will the American one, because it was founded in Ireland.
Apple Sales International (ASI)
Apple Sales International (ASI) is a second Irish branch that serves as a depository for all of Apple's foreign intellectual property rights.
- ASI buys finished Apple products from contracted Chinese factories (such as Foxconn) and resells them at a significant markup to other Apple branches in Europe, the Middle East, India and the Pacific.
- Although ASI is an Irish branch and buys goods, only a small percentage of the products actually make it to Irish soil.
- As of 2012, ASI had no employees, although it reported $38 billion in revenue over three years.
- Between 2009 and 2012, Apple was able to shift $74 billion of global revenue from the United States through cost-sharing agreements.
- ASI's parent company is Apple Operations Europe, which collectively owns all intellectual property rights related to Apple's merchandise sold abroad.
- Like AOI, too ASI is not registered as a tax resident anywhere, so it does not pay taxes to anyone. Globally, ASI pays the real minimum in taxes, in recent years the tax rate has not exceeded one tenth of one percent.
All in all, in 2011 and 2012 alone, Apple avoided $12,5 billion in taxes.
Kudos to Apple for saving money :)
They probably wouldn't get from the garage to the most valuable company in the world by spending so much on nonsense :-)
Who can, can ;) However, it is clear that this is a thorn in the side of the US Senate subcommittee. The question is whether they can do anything for them. Or they will change the laws and Apple will have to start paying. He has enough money anyway and he could more or less care.
They can't prove anything to them, or Apple isn't breaking the law. It's just using what the legislators themselves, who don't like it now, have written. The whole process should now be more about opening up a debate on tax reform in the States than trying to persecute Apple. Plus, it's not just Apple, it's the top earner right now.
I have enough money, but the shareholders won't like it - after all, their EPS will drop
This information is already some Friday old, I'm quite surprised that the rest of the world found out about it only now, after all, every big company does it, even Facebook and their friend's company..
Yes, they have been using this system for a long time, but the US Senate got involved some time ago, and it seems that the situation no longer likes it anymore. That's why it's being resolved now. And I mentioned that other companies do it today and in the previous article.
Unfortunately, US laws support this. 35% tax on already taxed money to lure it back to the US? A bit of a joke, it is clear that every larger company will bypass this. Besides, I'm not doing anything illegal, so I find it funny that the USA is crying because Ireland was a more attractive country for Apple. And that's what every country should do - attract investors. That's the point.
Yes, I'll describe this one post below ;)