Wednesday 7 December 2016

Apple and Ireland against the world

The EU's €13bn tax ruling against Ireland dominated world headlines last week. In the second part of our exclusive interview, Apple boss Tim Cook tells Adrian Weckler that it's all due to a deepening trade rift between Brussels and the US

Published 04/09/2016 | 02:30

Apple chief executive Tim Cook
Apple chief executive Tim Cook

The chief executive of the world's richest company is normally mild-mannered.

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But last week, Tim Cook was genuinely angry.

"Ireland is being picked on and this is unacceptable," he said, voice rising over the phone.

And on Apple's alleged 0.005pc Irish tax rate quoted by the European Commission?

"It's total political crap."

Dominating world headlines last week, the €13bn state aid ruling against Ireland from Brussels raised issues of sovereignty, morality and EU-US trade relations.

But one of Cook's biggest complaints is a contention that Apple hasn't been given due process during the two-year investigation.

"They didn't share with us their information before the [press] meeting, we got the release one hour before everyone else got it," he said.

This, Apple generally believes, reflects a degree of shoddiness and political mendacity in the way the Commission has approached the whole issue of calculating Apple's actual tax liabilities and the rate it is said to have paid over the last number of years.

"Let's go into some detail on this," he told me. "The [0.005pc] number is completely false and it is intentionally misleading. If you take 2014 as an example, the year the Commission points out, Apple paid income taxes to Ireland of 400m dollars, not counting any other social or property taxes.

"[In Ireland] we're subject to the statutory rate of 12.5pc, which is the same kind of rate that everybody is paying. In addition to that $400m, we also paid taxes in the countries where we have the final sale of our product or service. Those tax rates vary by country because each country gets to select their own rate. The Commission completely ignored those taxes paid in their analysis. They just picked another number from I don't know where.

"In addition to those two taxes, the largest tax, frankly, is that Apple's profits on a worldwide basis are subject to additional US income taxes. And the current federal income tax rate is 35pc in the US. And then, depending on which US state, you add something for the specific state. In 2014, we provisioned several billion dollars for those taxes from the entities in Ireland.

"So you've got these huge buckets of taxes. And the Commission totally ignored two out of three of those and chose a number other than the $400m."

Cook also said that, using this as its context, Apple's global tax rate in 2014 was 26.1pc rising to 26.4pc in 2015. (Although this doesn't mean that Apple paid 26.1pc or 26.4pc of its profits in tax in those years as some tax is allowed to be "deferred" under US tax law.)

Fundamentally, all of this might be considered moot. If Cook, Apple and the Irish government are correct in their appeal that no state aid rules were broken because Apple got no individually favourable treatment from the Revenue, it actually doesn't matter whether Apple's tax rate in Ireland was 0.005pc or 50pc. So long as the company wasn't singled out for uniquely beneficial tax consideration, the Commission has a tough case on appeal.

But Cook knows that the whole thing is much more political than the technical definition of state aid.

Left uncontested, a 0.005pc tax rate, even if it's legal, makes you sound like a parasite. Especially when you're the richest, most successful company in the world with a cash pile of almost €200bn.

This is undoubtedly why Cook has been so vocal on this specific point. Apple's actual global tax bill, he says, is on "the high end" compared to other massive companies.

"If you look at that [26pc rate] compared to other multinational companies, you'd find that it's on the high end of tax rates," he said.

"I'd be the first to say I hate the tax system," he said. "It should be made simple and straightforward. And Apple wants to play a constructive role in that and we have some ideas. But I think that most people would look at that [26pc] number and say 'yeah that's about right'.

"They may have a view that it should be allocated differently within the countries we do business in. And these are fair points. I think that's a reasonable debate to have.

"But it should be talked about going forward - not retrofitting the law to what they [the European Commission] wish it was and then trying to run the game again."

Apple isn't alone in its basic thesis that the Commission may be overreaching in its interpretation of Irish tax law. Neelie Kroes, the former EU Commissioner for Competition, backed Apple in a surprisingly forceful intervention last week.

While the Irish Cabinet decided on Friday that it would appeal the decision, Cook says that the issue is so fundamental to global economics that it is going to cause macro-economic trade difficulties between the US and the EU.

"I definitely do," he said when asked about the likelihood of transatlantic trade difficulties. "Just as a point of reference, for the last several years, we've had a difficulty in the US getting the two major parties to agree on pretty much anything.

"On this one, if you watch the comments, literally 100pc of them are in agreement - that this is a huge overreach, that it is a retroactive move, and that it is completely unfair and wrong."

The irony to all of this is that Cook has long been a fan of Europe. On his last visit to Dublin, he spoke of feeling "at home" in the EU because of its sensibilities on privacy.

He still goes out of his way to praise Cork when asked about it, saying that Apple will stay committed regardless of what happens with the tax ruling.

"In the end, this too shall pass," he told me. "The important thing is that the relationship between Apple and Ireland is strong. Ireland stuck with Apple when it wasn't easy to stick with Apple. And now we're sticking with Ireland."

But isn't this just a corporate line? From someone whose company has benefited from a generous tax rate?

No, he says.

"It's a very deep relationship. When I joined the company in 1998, we were in dire shape. We were literally on the brink of bankruptcy. And I remember going to Cork at that time. The team there didn't know it, but we really thought that we had to shut down the plant there."

(At the time, the Hollyhill Cork facility largely made iMacs and other computer parts.) "But from the meetings I had there, it was clear to me the passion and industriousness that exists there. So right there, we decided we'd pare back rather than shut it down. We decided that we would diversify the things we were doing there so that when the next cycle came, we would have a whole series of functions."

In 2016, the Hollyhill Cork facility remains Apple's only internally owned manufacturing facility anywhere in the world.

"We are so proud of our team there," said Cook. "Every time I go there it brings me such joy to be there. We feel like an integral part of the community there."

This means that whatever happens with the European Commission, Apple's current expansion plans for up to 1,000 new jobs remain on track.

"We are going forward, absolutely," he said. "I want to be really clear that we are very committed on Ireland. We are going to continue with the expansions we talked about."

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