Apple's long IRS-Irish history

Apple's long IRS-Irish history

Summary: There's no avoiding the stories surrounding Apple's shifting tax rates, whether through stock-buybacks or by moving profits among its off-shore operations. However, Apple has been in Ireland for decades and in dispute with the IRS just as long.

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TOPICS: Apple, EU
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The talk around Apple's taxes appeared to be everywhere this past weekend: from the Internet to angry jokes on the radio. There were new reports of Apple shifting billions from Australia to Ireland, and discussion around soon-to-retire CFO Peter Oppenheimer's strategies, including the dividend and stock-buyback plan that also saved billions in taxes. None of this is illegal, according to Apple and the reports, it's just that some see this as unseemly. 

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However, many young business reporters may not recall that Apple, like many other technology companies, have used Ireland as a manufacturing and operations base in Europe for decades. Apple constructed Apple II computers and Macs, fabricated circuit boards, and back in the days before software downloading, made shrink-wrapped software SKUs there.

Reading some issues of MacWEEK in the 1990s, it appears that Apple also learned much about international tax codes.

One 1993 business report talked about how Apple was battling a $290M claim by the Internal Revenue Service for back taxes from 1987.

The dispute centers mainly on "transfer prices" Apple's offshore affiliates charged for goods and services provided to the parent company. The IRS contends that the prices were artificially high, thereby reducing Apple's U.S. profits and, thus, its tax liability.

Sound familiar?

The IRS is also seeking to deny a variety of other deductions claimed by Apple, including cost of advertising, employee business expenses, computer hardware and software converted to Apple's own use, charitable contributions, disappearance of physical assets, legal expenses, capital investments, and research and development.

"We don't believe their claim is valid, and we are protesting the judgment," said Kate Paisley, an Apple spokeswoman. "We believe the outcome will be much different than the IRS' assessment." She said it is not uncommon for the IRS to present this type of transfer property claim.

In 1995, the IRS said that its claims against Apple were more than $1.3B relating to transactions between Ireland and Singapore.

In a 1996 story, Apple and the IRS disputed over U.S. taxes on sales from machines made in Ireland. Apple said its products weren't "made" in Ireland, rather, they were "assembled" there. It was impossible to tell whether this difference was accepted since Apple eventually settled the cases.

Around that same time, Apple cut back on its Elk Grove, Calif., manufacturing operation and outsourced the work to Singapore and Ireland. The company returned manufacturing to the mainland this past year with the Mac Pro.

Whatever the latest news, it is certainly unfair to hold Apple to a different standard than the rest of the computer industry. These practices have been done for decades by companies bigger than Apple was back then. Taking advantage of antiquated tax codes is something for legislators to deal with. It's not an Apple problem, despite all the "A-level" hype.

Topics: Apple, EU

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23 comments
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  • Apple apologist, long time...

    ...and no matter how you frame it, it is still morally bankrupt of a company like Apple to organize its tax affairs in this manner. Legal, it may (or may not) be, but moral, it most definitely is not.
    Master668
    • In no way is this immoral.

      To say otherwise is simply silly.
      Bruizer
      • Why should anyone pay taxes

        In fact lets all just pay 2% taxes, you, me, every company... since you think there is no immorality about it.

        I mean Apple uses all of the services, infrastructure, the protection of the US military, the police force, the government, government employees pensions, medicare, medicaid, social security, etc. And don't forget the billions the government spends on global warming, green energy, EPA with clear air and clean water (I'm sure Apple just imports their air and water from Ireland).

        Let all just enjoy all the US stuff that gets paid for in taxes yet lets just not pay any but 2%. Why not? I mean it no immoral.

        Face it, Apple is no different then "big oil", "big pharm", etc. They spend millions to corrupt the government with lobbyist and they hobnob with the president and the people in D.C. while people like me are paying 40%+ tax rate.
        Rann Xeroxx
        • Wow, way to totally miss the point

          The moral issue has nothing to do with a company following the law, it has to do with the law itself. If you feel it immoral for Apple (and all other companies) to not have to pay a certain share in taxes, it is your responsibility as a citizen to attempt to vote into office those that will change the tax code, and vote out those that won't. It is not Apple's job to donate money.
          .DeusExMachina.
    • No it isn't - why should it be?

      Remember, those revenues were earned overseas. Apple, as an international company, is allowed to keep those revenues overseas. Why should American taxpayers feel themselves entitled to sponge off of that?

      ...and Microsoft does the same. How exactly is it you believe Microsoft's Nokia deal was done? It was fully paid for using funds trapped overseas in a highly similar manner.
      Mac_PC_FenceSitter
      • There's nothing illegal about it at all.

        Every company does the same thing.
        The Governments of the world seemed to completely miss this loop-hope (and internet selling in general), and now try the "morally wrong" argument!
        Multi-nationals will obey every law they have to, if you want them to pay more tax, as an international community, the Governments need to close these loop-hole.
        Boothy_p
        • No one is saying its illegal...

          What people are saying is that Apple and all the other companies around the world and the billionaire CEOs and executives are scum and parasites who are not contributing to the welfare of the state, any state, but to their own welfare. Legal yes, scummy, absolutely.
          Rann Xeroxx
          • Marx and Lenin would applaud!

            Sounds like a load of commie crap to me. Political rhetoric rarely makes any sense, regardless of the position it is fired from.
            pikeman666
          • Being that Communism has NO gov't, one wonders WTH you're talking about.

            .DeusExMachina.
    • It is no more immoral

      Than you taking advantage of every legal tax deduction you can to lower your tax burden. The only people who think it is immoral are the greedy who think they deserve some of Apple's money.
      baggins_z
      • Funny

        It only seems to be the rich and powerful that seem to be able to actually take advantage of these great loopholes while us suckers are paying 40% tax rates.

        But you just keep thinking that the deal made in the back rooms of D.C. and the rest of the places of power have the working people's best interest in mind and not the billions of money being poured in from lobbyist like the ones Apple and the other tech giants employ.

        This is not even tin hat stuff, this is just the way it works. Why do you think those loop holes are still there?
        Rann Xeroxx
    • So, How Many Companies Are Moral?

      For argument's sake let's indeed say it is immoral. Most other companies use the same or similar methods to shave taxes. Tax laws are game rules. Everybody wants an advantage. Many of these tax saving measures are within the rules. How far within the rules must a company be to be moral? I don't think you've given this subject much thought.
      Yacko
      • My company...

        They are a manufacturing company and based in the US. They could have moved overseas years ago, they have the money to do so but they choose to stay here and keep American jobs. They pay all of their taxes, local, state, and federal and they surely pay a crap more then 2%. No of our products are made by people working 14 hour/7 day work weeks. None of our employees are killing themselves at our plants. My company makes the top 100 best companies to work for in the Forbes rankings.

        So compare my company with Apple. Do you see a difference? Yes, companies can be moral. Other companies can be about maximizing and squeezing every single dollar they can and about amassing an mountain of money.
        Rann Xeroxx
        • Nonsense

          First, I suspect your company does not do business overseas. If it did, I suspect it would keep its overseas profits there, as would be its right.
          Second, being that Apple DOES manufacture here, one wonders what your real point is.
          Oh, and good job showing you don't know what you're talking about, referencing FoxConn suicides.
          .DeusExMachina.
    • What about

      Other companies that do the same thing? Is it bad then or is it just because it's Apple that it's bad?
      athynz
    • They're just playing the game . . .

      and they are doing so very masterfully, right down to engaging the IRS in a decades-long battle.
      Since when did morality come into play in the US corporate culture?
      pikeman666
  • And yet...

    Even with the tax acrobatics, the cost of Apple kit, made in Ireland, was more than twice what it cost in the USA at the time.

    Their European pricing, compared to the US prices, seem almost consumer friendly, compared to 2 decades ago.

    Would you pay $1600 for an iPhone or iPad? That's how much it would cost in Europe, if Apple were still using the same conversion principles they had in the early 90s! Today, they are a measly $969 by comparison (current Apple pricing on the German online store).

    I guess a MacBook Pro Retina would still be around $4-5000 for then entry level model...
    wright_is
  • The reason it can be considered immoral,

    and possibly deserving of legal prohibition, is that it uses a "captive seller" to create a fictitious "market" value for the product made overseas. Essentially, it is a form of monopoly.

    Take another example: your company imports and sells French wines. Since there are many wineries in France, your company chooses the ones which have the best (in your judgement) cost-to-quality factor. In other words, the wineries COMPETE for your business, and your U.S. company chooses the BEST price. In such a business, your company is justified, for tax purposes, to cite the average price you pay for French wine as the wholesale cost of product, and your taxable profit is the money you collect from your ccustomers here, less the money you pay to various wineries in France, less other expenses. Of course, the profit of each winery itself is the money YOU pay them, less the cost of production and other expenses, and the French tax system (which is a VAT, not an income tax) will tax them accordingly.

    Now, suppose your company goes to France and purchases, or opens from scratch, your OWN winery, making your own brand of wine. Suppose you get the cost of production in France down to a quarter of what the French wineries usually pay (maybe skimp on quality, maybe hire illegal Algerian workers, whatever). Now, your company here COULD afford to sell the wine for half of what your company, or your competitors, charge for the better wines bought on the open market from France. Instead, you "cook the books" by charging yourself MORE than any other winery ever charged you, and still sell the wine here for less. Now, even though your production costs in France went DOWN, and your French subsidiary would have to charge LESS if you were to allow it to sell to OTHER importers on the open market, it sells to YOU for a huge profit, and your American company computes, and pays taxes on, a very small profit. Of course, all the profit goes to you regardless of which country "earned" it.

    So, if Apple bought products wholesale from its Irish or Chinese factories for what OTHER importers WOULD have offered, this accounting would be truthful, and moral. But if, as appears to be the case, it buys the products (with intra-company make-believe money) for MORE than their market value, merely to increase the taxable profits in a low-tax country and reduce the taxable profits in a high-tax country, THAT, the false market manipulation, is what makes it immoral.
    jallan32
    • Excellent explanation of...

      Of how to use the existing laws to your best advantage but I still fail to see how this creates a immoral action. This is especially true when these rules are the same for all companies and no one has a competitive advantage other than some are smart enough to get the most from the situation that was given to them by the legislative branch. If anyone her is acting immoral it would be the legislators that created the system in the first place.
      bws605
    • AGAIN, the issue is NOT the morality of a tax code

      It is the morality of Apple for following one within the law. These are two TOTALLY different things.
      .DeusExMachina.