Apple tax investigation sparks war of words between US and Ireland

The ongoing investigation into Apple’s tax minimisation strategies in the United States has provoked a war of wars between the Irish ambassador to the US and two leading US senators who have accused Ireland of being a “tax haven”.

In their initial statement, Senator Carl Levin and former US presidential candidate John McCain accused Apple of shifting its intellectual property to an Irish subsidiary in order to minimise the amount of tax it pays in the US.

“Apple’s products are justifiably well known and used throughout the world. What may not be so well known is that Apple also has a highly developed tax avoidance system – a system through which it has amassed more than $US100 billion in offshore cash in a tax haven,” the senators said in a statement.

“Many US companies, including Apple, shift intellectual property rights – that is, the rights to market products based on their innovative ideas – to offshore affiliates. That shift directs the income associated with that intellectual property… to the affiliates’ home jurisdiction, which is typically a tax haven.

“Apple set up such an arrangement with its Irish subsidiaries through what’s known as a cost-sharing agreement. The cost sharing agreement enables Apple to shift profits generated by its intellectual property in most of the world to Apple subsidiaries in Ireland, where Apple has an arrangement that has allowed it since 2003 to pay a 2% tax rate or less.”

The senators’ statement came after a US Senate committee estimated Apple avoided paying another $US9 billion in taxes in 2012 using an offshore profit-sharing corporate tax minimisation strategy, with former Apple executives claiming the company enjoyed a 10-year tax holiday in Ireland from 1980 to 1990.

The senator’s claims about Apple paying a 2% tax rate was angrily rebuffed in a letter by Irish ambassador Michael Collins, who claimed all companies paid corporation tax at a rate of 25% of their non-trading income and 12.5% on their trading income.

“Ireland’s tax system is set out in statue – so there is no possibility of individual special tax rates being negotiated for companies,” Ambassador Collins wrote.

“[Your] Memorandum refers to Ireland as a ‘tax haven’. As you will be aware, the OECD has identified four key indicators of a tax haven. None of these criteria applies to Ireland.”

The ambassador’s denials provoked the senators to again accuse Ireland of being a “tax haven”.

“Records obtained by the subcommittee clearly reflect that, for years, Apple paid Irish tax authorities a nominal rate, far below Ireland’s statutory rate of 12.5%, on trading income. Testimony by key Apple executives, including chief executive Tim Cook and head of tax operations, Phillip Bullock, corroborates that Apple had a special arrangement with the Irish government that, since 2003, resulted in an effective tax rate of 2% or less,” the senators wrote.

“Most reasonable people would agree that negotiating special tax arrangements that allow companies to pay little or no income tax meets a common-sense definition of a tax haven.”