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Shredding Tim Cook’s Letter [Updated]

Apple52 comments 31 August 2016, 21:17 Eduardo Archanco@eaala Update : Apple has created a document with Frequently Asked Questions for shareholders, which you can read here in English.

Although we have a keynote in just over a week, the announcement of the European Union’s decision on Apple’s taxation in Ireland is the news of the day . According to the commission in charge of the case, Apple should pay the Irish state up to 13 billion euros in untaxed taxes at the time. Therefore, this is not a fine.

Shredding Tim Cook’s Letter [Updated]
Shredding Tim Cook’s Letter [Updated]

The issue is of great importance. So much so that Tim Cook himself has decided to respond with an open letter to the European Union , one that can be read on the company’s Spanish website. It deals with quite a few interesting points that we will interpret and break down in this article.

The European Union has been calling for taxes since 2003, because it cannot go any further in time. This leads us to ask ourselves the following question: if the object of research originated 36 years ago, why is it being investigated now? Shouldn’t it have been resolved decades ago? What has changed from 1980 to 2014, when the research started?

It is often forgotten that the activity of a business does not only report taxes . It also creates jobs that are quoted and generates sales that bring in their corresponding VAT (which, in the case of Spain, is a surprising 21%). In short, Apple’s activity generates wealth wherever it is established. Tim Cook knows this and that is why he mentions it in this letter. Throughout the European continent, Apple generates:

  • 22,000 Apple employees in Europe, 1,400 in Spain.
  • 14,100 Apple retail employees in Europe spread over 109 stores across the continent.
  • 4,700 suppliers in 23 countries that provide components, materials or machinery for Cupertino.
  • Some 600 premium resellers throughout the continent, assuming an average of 4 employees would be added another 2,400 employees generated by Apple.

Second derivative of Apple’s activity in Europe: the creation of companies and indirect employment . More specifically and as Apple said a few months ago about its indirect activity in Europe:

  • 1,460,000 jobs created thanks to Apple’s activity, both workers and iOS developers and suppliers.
  • More than 10.2 billion euros distributed among European developers, or almost 28% of the total of 40 billion dollars distributed to developers worldwide until the beginning of 2016.
  • 1,200,000 jobs directly related to the iOS economy, 61,000 of them created in Spain, 75,000 in Italy.
  • Almost 3 million registered developers in Europe, 191,000 in Spain.

Translation: Apple has contributed over 80 billion in taxes in countries around the world between 2003 and 2015. This leads Cook to claim that his company is the largest taxpayer in the US, the EU and the world. Specifically, the evolution of income, taxes and profits in these years is as follows:

And the effective tax rate over all these years has been between 25 and 30% (which, let’s remember, is taxed on profits and not on income):

Las claves de la devolución de impuestos de Apple en Irlanda ¿Qué ha provocado esta situación y cómo se va a solucionar?

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The Irish Minister of Finance himself said this morning: “Ireland’s position remains that the total amount of tax has already been paid and in this case there has been no state aid of any kind. Ireland has not given Apple favourable treatment. Ireland does not deal with taxpayers”.

It’s funny, the country that is supposed to be looking forward to collecting unpaid taxes says that it has already charged Apple everything it was supposed to . However, the EU claims that this is not the case.

Both paragraphs are very interesting. The alleged special treatment does not exist, as other international companies have also benefited from Irish laws. Again, it is mentioned that Ireland does not claim anything from Apple in tax matters . Each member state of the EU has sovereignty over its fiscal policy, which the commission is asking for, and which questions that very sovereignty. This has very serious political implications.

And we arrive at the quid of the matter. As we have seen in the previous graphs, Apple pays between 25 and 30% per year in taxes on its activity worldwide . What is being discussed here is where those more than 80 billion taxes go in the last few years. Apple doesn’t mind paying them in one country or another according to the law, but the states don’t care. And that’s where this dispute comes from.

These are international tax laws and agreements, which establish that the activity of a subsidiary is taxed in the company’s country of origin. In the case of Apple and Europe, in Ireland. The same applies to Spanish companies operating in Latin America : Telefónica or BBVA pay all their local taxes (VAT, social security, etc.) in each country but the corporate tax is levied here in Spain.

In other words, this is not just about Apple . It affects all companies operating in the European Union. If member states end up deciding that they prefer to confiscate rather than collect, international companies that can escape from that tax hell will go to other countries. And the ones who will suffer will be the users, because we will have to pay more for the same products. Not just from Apple but from any other multinational.

What is usually said in these cases: make the law, make the trap. The tax system and its current regulations is a real labyrinth . If it were reformed in a more rational and clearer way, everyone would win: companies, customers and states. Apple has already announced that it will fight until the end this decision, but it has already warned that the deliberations will last for years.

Again, if the decision of the European Commission is confirmed, we will see how other economic powers like the USA react to the big European multinationals. Obama has already announced that he does not agree at all with this decision. We will see how the issue develops.

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