On Apple’s Tax Case & Tax Havens Of The World

On Apple's Tax Case & Tax Havens Of The World

Apple won a €13 bn tax avoidance case against EU Antitrust Regulator. You might think that how famous and well known companies like Apple sneak out from under the government’s nose without paying any tax or seldom paying minimal? Tax havens are the key to do so. But do you know what are tax havens and how do they help corporations and individuals bypass taxes? Let’s demystify it here.

Crux of the Matter

Apple Lawsuit
Apple won a €13 bn tax avoidance case against the EU Antitrust Regulator that objected to the aid given to Apple by Ireland, where the company’s the base for Europe, Africa, and the Middle East is accused Apple of avoiding tax. The EU’s General Court annulled the decision in favor of Apple as antitrust regulators failed to present enough evidence to show Apple broke EU competition rules.

What Did Apple Do?
All US-based companies in Ireland functioned with two subsidiaries but as per the 1991 treaty signed between Apple and Ireland which was renegotiated in 2007, Apple functioned with one subsidiary with two branches. Thus, Apple Sales International (ASI) had 2 branches namely IRL1 and IRL2. IRL1 is an Irish registered company selling products to non–US locations from Ireland and IRL2 is “registered” in Ireland, but “managed and controlled” from a tax haven such as Bermuda.

Ireland considers Apple as a Bermuda based company because of IRL2, but the US considers it an Ireland based firm based on IRL1. Now the interesting part is that, because of this arrangement, Apple was neither taxed in Ireland nor the US, but in Bermuda – having minimal corporate tax rate – because of Irish Tax arrangement. So the EU considered this arrangement illegal and claimed that this kind of favored arrangement towards Apple is disturbing the competition in the EU market.

What Are Tax Havens?
A tax haven is any jurisdiction that offers minimal tax rates to foreign individuals and businesses. Moreover, tax havens do not require businesses to operate out of their country or individuals to reside in their country to receive tax benefits. Lack of transparency and no substantial activities are features of tax havens.

Tax Havens Good Or Bad?
According to the World Economic Forum, it cost $200 billion in the form of loss in global tax revenue. Moreover, 40% of multinationals’ profits or $650 billion are shifted to tax havens each year and 10% of the world’s largest multinational firms are responsible for 98% of this activity. Such tax evasion results in huge revenue loss for many countries across the world.


Caught Offside?
Many athletes have also been found using tax havens to protect their income. Cristiano Ronaldo was accused of evading €14.7 mn in taxes via shell companies based in tax havens. Lionel Messi and his father were alleged to have used shell companies in tax havens to protect royalties and licensing earnings from Spanish income tax. Radamel Falcao was suspected of using a web of shell companies in the British Virgin Islands, Ireland, Colombia, and Panama to avoid taxes on €5.6 mn of income. Angel di Maria was accused of not pay €1.3 mn to the Spanish tax authorities by giving up his image rights to companies based in tax havens.

Data Leaks – An Important Issue in Tax Havens
However, tax havens are not always safe for clients. Here are some of the major data leaks revealing critical information about tax havens and chain of shell companies:

  • 2013 British Virgin Islands offshore leaks – International Consortium of Investigative Journalists released a 260 GB database of 2.5 mn tax haven client files.
  • 2015 Swiss leaks – Le Monde released 3.3 GB data about a tax evasion scheme of over 100,000 clients and 20,000 offshore companies with HSBC Bank, Geneva.
  • 2015 Panama Papers – 11.5 million docs totaling 2.6 TB, detailing financial and attorney-client information for more than 200,000 offshore entities leaked.
  • 2017 Paradise Papers – 13.4 mn documents totaling 1.4 TB, detailing personal and corporate client activities of the offshore magic circle law firm, Appleby, covering 19 tax havens, were leaked.

Curiopedia
  • The Double Irish is a base erosion and profit shifting (BEPS) corporate tax tool used mostly by US multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It is the largest tax avoidance tool in history and by 2010 was shielding $100 billion annually in US multinational foreign profits from taxation.
  • New trade theory (NTT) is a collection of economic models in international trade that focuses on the role of increasing returns to scale and network effects, which were developed in the late 1970s and early 1980s. New trade theorists relaxed the assumption of constant returns to scale, and some argue that using protectionist measures to build up a huge industrial base in certain industries will then allow those sectors to dominate the world market.
  • The Apple Park is the corporate headquarters of Apple Inc., located at One Apple Park Way in Cupertino, California, United States. It was opened to employees in April 2017, while construction was still underway. Its scale and the circular design, by Norman Foster, have earned the structure a media nickname “the spaceship“.

Apple Inc. strides towards passwordless future

Apple Inc. has signed up as a board member of the Fido Alliance, an organization committed to eliminating the need for passwords. Big names like Google, Microsoft, Samsung and Amazon are already part of this open industry association that promotes passwordless authentication, using the emerging standard WebAuthn.

Crux of the Matter

What is FIDO ?
The FIDO (Fast Identity Online) Alliance was formed in July 2012 to address the lack of interoperability among strong authentication technologies and remedy the problems users face with creating and remembering multiple usernames and passwords. It aims to change the nature of authentication with standards for simpler, stronger authentication that defines an open and scalable set of mechanisms that reduce reliance on passwords.
Andrew Shikiar, Executive Director and CMO of FIDO presented the organizations’ 2019 progress report by saying “We know that realizing the Alliance’s mission to move the world beyond the password ‘shared secret’ model of authentication requires making FIDO a ubiquitous feature across all of the devices, operating systems and browsers we use every day.”

What is WebAuth ?
WebAuthn or Web Authentication is a web standard published by the World Wide Web Consortium (W3C). It is a core component of the FIDO2 Project under the guidance of the FIDO Alliance. The goal of the project is to standardize an interface for authenticating users to web-based applications and services using public-key cryptography. In 2019, WebAuthn became an official W3C web standard.

What do these two offer to Apple?
Steve Jobs’ mastermind company already supports FaceID on iPhones, TouchID to log into apps and Apple Watch to have a gateway to use Mac. Joining the alliance means the users can expect more support for password-free authentication in iOS and macOS devices. Last year, Apple rolled out support for FIDO2-based physical security keys for Safari 13 and iOS 13.3.

Curiopedia

Apple Inc. is an American multinational technology company headquartered in Cupertino, California, that designs, develops, and sells consumer electronics, computer software, and online services.It was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976 to develop and sell Wozniak’s Apple I personal computer, though Wayne sold his share back within 12 days. It was incorporated as Apple Computer, Inc., in January 1977, and sales of its computers, including the Apple II, grew quickly. Within a few years, Jobs and Wozniak had hired a staff of computer designers and had a production line.

Apple went public in 1980 to instant financial success. Over the next few years, Apple shipped new computers featuring innovative graphical user interfaces, such as the original Macintosh in 1984, and Apple’s marketing advertisements for its products received widespread critical acclaim. Its worldwide annual revenue totaled $265 billion for the 2018 fiscal year. It is currently the world’s largest technology company by revenue and one of the world’s most valuable companies. More Info