Today, Apple was ordered by the European Commission to pay up to 14.5 billion dollars in unpaid taxes. Tim Cook wrote an open letter to answer his company’s position. One of his arguments stood out: Apple is the largest taxpayer in the world.
That’s a lot of money, I thought. But, how much? I decided to run the numbers and came out with my own conclusions.
The following graph shows some of them:
Between 2003 and 2015, Apple has:
- Generated 1.05 trillion dollars in revenues.
- Almost 230 billion dollars in net income.
- More than 80 billion dollars in taxes.
The key aspect of these figures is that they are worldwide. But before analysing what that means, lets have a look at Apple’s effective tax rate for all these years:
Or 25-30% per annum.
A brief reminder as some people has asked me, taxes are only paid on profits, not revenues. A company can have a huge revenue (as in Apple’s case) but be unable to generate any profits. In that case, it would be unfair to tax a company that is struggling.
In order to gain some perspective, I’ve compared last fiscal year’s tax provisions for several companies:
- Taxes paid by Apple in FY 2015: 19.121 million dollars.
- Taxes paid by Alphabet in FY 2015: 4.400 million dollars.
- Taxes paid by Microsoft in FY 2016: 2.953 million dollars.
Both Alphabet and Microsoft are far behind Apple. The reason why Apple is the largest taxpayer in the world is simple: it has the record for the largest revenue generated by a single company.
That is why I find the EU’s arguments a little off-base. Let’s now have a look at some of Tim Cook’s remarks.
Some remarks on Tim Cook’s letter
Tim Cook’s letter to the Apple community in Europe sheds some light into this affaire. In it, Cook reveals that Apple established its Irish european subsidiary in October 1980. Almost 36 years ago.
Since the tax investigation started in 2014, what took so long for the European Union to figure out Apple’s illegal scheme with the Irish corporate tax structure?
Never mind. We will never solve that mystery.
There is another relevant point in Cook’s letter, often lost in these tax debates:
The success which has propelled Apple’s growth in Cork comes from innovative products that delight our customers. It has helped create and sustain more than 1.5 million jobs across Europe — jobs at Apple, jobs for hundreds of thousands of creative app developers who thrive on the App Store, and jobs with manufacturers and other suppliers. Countless small and medium-size companies depend on Apple, and we are proud to support them.
Apple has been carefully promoting the economic activity generated by the company’s ecosystem in several regions. The figures in Europe are as follows:
- 1.2 million jobs attributable to the iOS and App Store ecosystem.
- 241,000 European jobs created at other companies as a result of Apple’s spend and growth.
- 22,000 Apple employees in Europe.
This economic activity brings employment, income taxes and VAT within the European Union. Apple’s new App Store strategy is set to build on the 40 billion dollars already distributed to developers worldwide.
In other words, Apple is creating a sizeable amount of wealth in our continent. Just like any other company, but so much more than any other.
The European Commission states that Ireland has given Apple some kind of special deal regarding taxes. But Ireland has said, via its Finance Minister:
Ireland’s position remains that the full amount of tax was paid in this case and no State aid was provided. Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with taxpayers.
In other words, the state that should require Apple to pay 14.500 million dollars of unpaid taxes does not want to get the sum it’s due. That’s weird.
Apple is the largest taxpayer in the world so, where is the problem?
At its root, the Commission’s case is not about how much Apple pays in taxes. It is about which government collects the money.
You have to almost reach the end of the letter to find the real reason for this investigation.
Apple is the largest taxpayer in the world, but that doesn’t mean that each country is receiving what they consider their fair share. The 26,4% of effective tax rate in FY 2015 is worldwide. It doesn’t show the individual tax share per country or region.
European members are being greedy, demanding part of those taxes to be collected in each member’s territory. But that would imply a change in the international tax laws. Which isn’t happening any time soon.
Ultimately, this is not an Apple-exclusive problem. It’s a tax system problem. If you don’t like it, you should change it. Apple is in favor of reforming international tax laws in order to gain more “clarity and simplicity”.
Maybe it’s about time to do it.