At this time of publishing, it is not known yet how much the EU has decided that Apple owe the Irish Exchequer in ahem, "avoided" taxation over several years. J.P.Morgan in New York estimate the figure to be upwards of €19 billon
There are several aspects to this wrangle, not least the question as to why the EU has stuck its oar in. Every European country has its sweetheart deals with big employers in their own regions. Spain made special arrangements with Santander and don't tell me the French have no wink and elbow arrangement with Renault. A flat rate of corporation tax is not set in stone and even the rate itself is subject to change as needs must. We all know that the big guy always gets looked after and Apple is the biggest company in the world by market capitalization. This would be the case too if they were cited in Germany or anywhere else for that matter but in Ireland, the Apple influence on our Government bean counters is understandably enormous because our economy is so small.
When I began work with Apple Computer Sales Ltd in Dublin, there was a model in place to do business. Effectively, our job was to supply Macs that were ordered and bought by our office and supplied to the 26 counties of Ireland. We were what's known as a "Cost Centre," meaning we ran our office as a stand-alone going concern. We ordered and purchased the equipment from a notional Apple Central at a price of X per unit and sold these on at Y per unit in our own territory. The difference between X and Y was gross profit and from that was deducted our overheads and cost of doing business. then after local taxes were paid the remaining amount was profit for Apple Inc. This was known as the "contribution," and was paid to head office in the US as the return from the 'Irish' sales cost centre. But as I was not the one to actually write that year-end cheque, I have no idea where it was posted to, as it were.
It was one way to do business but for a global multinational, it was certainly not the most efficient way. Our competitors like Hewlett Packard, Compaq and Dell had much more streamlined and profitable operations and at Apple, we only had five per cent of the personal computer market. In fact, strong rumours persisted in technology circles at the time that Apple was going bust. I can only speculate at this point but I do know that Steve Jobs returned to the helm around this time and big changes began to happen. He was not just a brilliant technological visionary, he was a damned sharp business operator as well. It seems reasonable now to believe that the great man took a look at the business model the company used and saw that, in Europe for example, each country ran its own cost centre. I reckon Steve decided to gather all of his chips in one place, but why Ireland?
He travelled to Ireland at the invitation of the Industrial Development Authority, (IDA), in the late seventies and by the early eighties, Apple had bought a large industrial site at the edge of Cork City. Choosing to buy this huge acreage is important to the story because most multi-nationals lease property and buildings, reflecting their flexible attitude to re-location. Then Apple designed and built a custom facility with the expressed purpose of making the full range of Apple equipment for the European, Middle Eastern and Asian markets. It was their first facility outside the US. An IDA grant sweetened the deal but the real attraction was a willing and english-speaking workforce, open access to markets via the Irish EEC membership and a high standard of education locally. Good quality of life in Cork was also a factor. On the downside, there were no direct flights from the US to Cork, meaning executives had to either fly to Shannon, 70 miles away, or London, another flight away. Then all manufactured products from Cork had to go by sea to the European mainland, an added logistical cost.
Through the eighties and nineties, Apple was a steady if unspectacular employer in Cork and because of their decision to cite their European headquarters in Ireland, Microsoft, IBM, HP, Dell, Epson, Compaq and many more copied the move and did likewise. However, all of these chose Dublin, except Dell, who went to Limerick. EMC however chose to be beside Apple in Cork. In the nineties, Jobs "left" the company to set up Pixar and Next Computer taking a lot of the best techies with him. At one point in the late nineties I heard a rumor that Apple Inc had a mere €300m left in bank and we could all be out of a job before the summer. Then the great man was invited to return to lead the company that he had founded. Within a short time, you could sense the drastic changes without knowing specifically what was going on. It may be strange now to reflect that while I worked in the Dublin office, my home and family were in Cork and I returned every weekend. But during the working week, I never had ANY dealings with Apple in Cork. I knew some of the lads there of course because Cork is small but I didn't have a need at any time to visit or even pick up the phone to them.
With Steve back, first came the five colours of iMac, those zany colorful all-in-one boxes and the PC publications instantly pronounced them the final nail in the coffin for Apple because they had no floppy drive. Imagine that! But the big news was the addition of the letter "i" as a prefix and this was largely overlooked at the beginning. It stood for internet or 'internet ready' and denoted that Steve saw the future of the whole industry online. Traditional Apple sales offices around the world were under notice of closure because the selling process was going to the AppleStore online, and when our office in Dublin went, I was transferred to the plant in Cork. By this time there was a new and discernible buzz around the place and iPod, quickly followed by iTunes came into existence. But the business model changed too and it quickly became apparent that Apple finances outside the States were routing through Cork. Local cost centers were replaced by a global internet view of the world and with it, a smarter way to handle the profits. That would have been the point that the company big-hitters may have sat down with the Irish Revenue Commissioners and outlined what they intended to do and what they needed from the Irish to do it. There is nothing illegal or underhanded about it though and neither party at those negotiations did anything wrong. The same scenario probably takes place everyday somewhere in the world with different Governments and different companies.
I can say, hand on heart, that Apple were always extremely ethical, frustratingly so at times when I wanted to try a clever sales gimmick myself but was refused permission. The company went to extreme lengths to do things correctly in all of its dealings. I do not believe that they broke the law in their negotiations with Ireland Inc but I do know that they would have got the best possible deal they could get for themselves without crossing the legal or ethical boundaries. When they started the plant in the eighties, they did so with twenty employees. Today there are 5,000 with another 1,000 coming on stream when the new building is complete. A whopping 64 per cent of all Apple profits flow through the Cork operation but very little of it is generated in Ireland. Looking today at the EU case against Apple you can deduce that they do not believe the company has broken any European laws by repatriating profits from EU countries to Cork and I would surprised if they had. Instead, the EU is accusing the Irish Government of making a deal locally with Apple as to what happens that (corporate profit) money once it got to Cork.
Reading between the lines, our Government is publicly saying they did nothing wrong while privately telling the EU to fuck right off. Anything which threatens the huge corporate presence in Ireland would be a cause for this country to pull out of the EU, it's as simple as that. When the expected ruling from the EU is delivered this afternoon we will promptly take a case to the ECJ to drag out this saga for at least three more years. This is a real hot potato though because to the ordinary Irish man and woman, we are in the frame for a possible €19 billion windfall and our Government appear to be doing anything they can to avoid receiving that money. It would be similar to the UK turning down £200 unexpected billions.
UPDATE!!!! The EU ruling is in and the unelected ones have demanded that the Irish Revenue Commissioners must immediately collect thirteen billion euros from Apple in unpaid taxes for the last ten years. "Jesus H"
For several years now member states of the EU have been bitching on the fringes about the Irish corporate tax rate of 12.5 per cent. It now appears that the big boys in Europe have got together to shatter the Irish experiment with large multinational employers and really destroy our economy. As a result of this ruling today, Apple begins to consider re-location elsewhere, you can bet your ass the French and Germans will be rolling out big enticing red carpets for them. Other European headquartered corporates here will naturally follow suit and our Finance Minister Michael Noonan knows that too. So you can expect that this formal ruling from Brussels today is the beginning rather than the end of the matter.