News / Europe

Apple Enjoyed Irish Tax Holiday from the Start

Apple Operations International, a subsidiary of Apple Inc, is seen in Hollyhill, Cork, in the south of Ireland in this Oct. 6, 2011 file photo.
Apple Operations International, a subsidiary of Apple Inc, is seen in Hollyhill, Cork, in the south of Ireland in this Oct. 6, 2011 file photo.
Reuters
​Apple has operated almost tax-free in Ireland since 1980, welcomed by a government keen to bring jobs to what was then one of Europe's poorest country, former company executives and Irish officials have said.
 
​Chief Executive Tim Cook faced criticism from a Senate subcommittee in Washington on Tuesday over the iPad and iPhone maker's tax practices, which had been shrouded from full view behind secretive tax-exempt Irish-based corporate entities.
 
Apple, one of Ireland's top multinational employers, denied avoiding billions of dollars in U.S. taxes and said its arrangements helped fund research jobs in the United States.
 
The committee revealed that Apple's Irish companies, which are not tax resident in any jurisdiction, allowed the group to pay no tax on much of its overseas earnings in recent years.
 
Senate homeland security and governmental affairs investigations subcommittee Chairman Carl Leviin speaks to Apple CEO Tim Cook during a hearing on offshore profit shifting and U.S. tax code, Capitol Hill, May 21, 2013.Senate homeland security and governmental affairs investigations subcommittee Chairman Carl Leviin speaks to Apple CEO Tim Cook during a hearing on offshore profit shifting and U.S. tax code, Capitol Hill, May 21, 2013.
x
Senate homeland security and governmental affairs investigations subcommittee Chairman Carl Leviin speaks to Apple CEO Tim Cook during a hearing on offshore profit shifting and U.S. tax code, Capitol Hill, May 21, 2013.
Senate homeland security and governmental affairs investigations subcommittee Chairman Carl Leviin speaks to Apple CEO Tim Cook during a hearing on offshore profit shifting and U.S. tax code, Capitol Hill, May 21, 2013.
Senator Carl Levin, chairman of the subcommittee, said Apple had sought “the Holy Grail of tax avoidance”.
 
A former company executive and Irish officials told Reuters the almost tax free status dates all the way back to Apple's arrival in County Cork 32 years ago.
 
Apple must have seemed attractive to Ireland and to Cork. Amid a generally moribund Irish economy, Cork had been hard hit by the closure of its shipyards and a Ford car plant and in 1986 nearly one on four were out of work in the city.
 
In the early days, Apple's staff sat down to meals together. Now the company employs 4,000 in Ireland and is the country's biggest multinational employer.
 
“There were tax concessions for us to go there,” said Del Yocam, who was Vice President of manufacturing at Apple in the early 1980s. “It was a big concession,”
 
In fact, the deal was about as good as a company can get.
 
“We had a tax holiday for the first 10 years in Ireland. We paid no taxes to the Irish government,” one former finance executive, who asked not to be named, said.
 
Apple wasn't an exception, although it was among the last to enjoy such favorable treatment. From 1956 to 1980, Ireland attracted foreign companies by offering a zero rate of tax, according to the Irish government's website. Eligible companies arriving in 1980 were given holidays until 1990.
 
“Any multinational attracted into Ireland that was focusing on the export market paid zero percent corporation tax,” said Barry O'Leary CEO of IDA Ireland, which is charged with attracting investment into Ireland.
 
Apple said it pays all the tax due in every country where it operates. It declined to comment on the tax treatment it received in the 1980s.
 
As part of Ireland's accession the European Economic Community, precursor to the European Union, in 1973, it was forced to stop offering tax holidays to exporters.
 
From 1981, companies arriving in Ireland had to pay tax, albeit at a low 10 percent rate, providing they qualified for manufacturing status.
 
Economic coup
 
Apple's investment was a major coup for Ireland. At the time, the country was struggling with high and rising unemployment, double-digit inflation and a brain drain of the young and educated through emigration.
 
“We were the first technology company to establish a manufacturing operation in Ireland,” recalled John Sculley, Apple's CEO from 1983 to 1993. He said government subsidies had also played a role in deciding to set up a base in Ireland.
 
Ireland also offered low wage rates - a big attraction when it came to hiring hundreds of people for the relatively low skilled work of assembling electronic equipment.
 
Apple told the subcommittee it could not answer questions about why it chose Ireland as a base since it had lost the paperwork from the period.
 
The operation in Cork built the company's Apple II computer and would later build disk drives, 'Mac' computers and others. These would be sold in Europe, the Middle East, Africa and Asia.
 
But having a tax holiday in Ireland would not, in itself, have allowed Apple to operate tax free in these markets.
 
Equipment assembly is not the kind of activity that economists or tax authorities usually credit with generating a large share of a technology company's profits.
 
More value has been associated with generating the intellectual property behind the technology - which Apple did in the United States - and with the selling of goods, which was to be done on the ground in France, Britain and India.
 
But none of these countries offered the tax advantages Ireland did. The key to minimizing Apple's tax bill was maximizing the amount of profit that could be ascribed to Apple's Irish operations.
 
The architect
 
This task fell to Mike Rashkin, Apple's first tax director, two executives from the period said. One called him “the father of it all”.
 
Rashkin arrived at Apple in 1980, from computer pioneer Digital Equipment Corp (DEC) in Massachusetts, where he had learnt about tax efficient corporate structuring in tech companies.
 
Apple had already decided to establish its base in Ireland when Rashkin moved to Silicon Valley, but he used his experience at DEC to set up a tax structure that took advantage of Apple's base in the country, the executives said. Rashkin declined to comment.
 
The Senate subcommittee's report reveals how the arrangement was structured. In 1980, Apple entered into a deal with its Irish operation, whereby the latter would share the cost of funding Apple's research and development. In return, the Irish unit would be able to enjoy rights to Apple intellectual property for goods sold outside the Americas.
 
Apple secured the blessing of the U.S. tax authority, the Internal Revenue Service, for the deal, one executive said. The IRS gave Apple an advance pricing agreement, or APA, an agreement which establishes how the IRS will treat a transaction between affiliates for tax purposes, before it is entered into.
 
Many countries' tax authorities offer APAs and companies say they are necessary to facilitate international trade and investment. Tax campaigners say tax authorities have been too ready to accept the pricing proposed by companies which apply for APAs.
 
The New York Times reported last year that Apple's low taxes were at least in part due to the confidential technology transfer arrangement.
 
The terms of the deal and subsequent cost-sharing deals, were favorable for Apple's Irish unit. In effect, the Irish unit paid much less to its U.S. parent, for the use of Apple intellectual property, than it made from selling that property on to affiliates.
 
“Apple's cost sharing agreement [CSA] with its offshore affiliates in Ireland is primarily a conduit for shifting billions of dollars in income from the United States to a low tax jurisdiction,” the subcommittee's report said.
 
Meanwhile, Apple also constructed a system whereby the affiliates which were actually selling the finished equipment would earn minimal profits.
 
The techniques Apple used over the years included selling goods to affiliates at prices which generated little profit at the retail level, or by paying sales affiliates commissions which are just about enough to cover their operating costs.
 
Rashkin's work and Ireland's accommodating approach had the desired result for Apple.
 
“We're very, very pleased,” Apple's then-President A.C. 'Mike' Markulla said in 1981. “The Irish have really lived up to their promises.”
 
Indeed, the accounts for Apple's main Irish unit, then known as Apple Computer Inc. Ltd, for 1989, the earliest year for which detailed accounts were filed, show exactly how effective the arrangement was.
 
The subsidiary paid $500,000 in income tax on profits of $317 million, a rate of 0.2 percent.
 
End of the holiday
 
In 1990, Apple's tax holiday came to an end, and in that year, the Irish operation's tax rate hit 4 percent, accounts from the period show.
 
At the same time, Apple's Irish manufacturing activities came under question as the company looked to cut costs by outsourcing. In 1992, the company announced plans to cut hundreds of jobs after deciding to shift some work to Singapore, which at this time was attracting increasing investment by offering tax holidays.
 
“They nearly left Ireland altogether,” O'Leary said.
 
By this stage, the European Community had banned tax holidays of the kind given to Apple, so the company and Dublin, negotiated an arrangement which had a similar outcome but fell within European rules.
 
The precise details of the arrangement were not disclosed but Phillip Bullock, Apple's head of tax operations indicated that it was linked to minimizing taxable profit.
 
“Since the early 1990's, the Government of Ireland has calculated Apple's taxable income in such a way as to produce an effective rate in the low single digits,” he told the subcommittee.
 
The deal didn't stop Apple from shifting manufacturing work to Asia but in the years that followed new jobs were created in Cork, in sales and administrative support for the European operation, the accounts of the Irish units show. Some manufacturing remains in Ireland, the subcommittee said.
 
Apple CEO Tim Cook, center, is surrounded by his team during a break from testifying on Capitol Hill in Washington, May 21, 2013.Apple CEO Tim Cook, center, is surrounded by his team during a break from testifying on Capitol Hill in Washington, May 21, 2013.
x
Apple CEO Tim Cook, center, is surrounded by his team during a break from testifying on Capitol Hill in Washington, May 21, 2013.
Apple CEO Tim Cook, center, is surrounded by his team during a break from testifying on Capitol Hill in Washington, May 21, 2013.
An Irish government spokesman declined to even confirm it held discussions with Apple regarding tax, citing rules on taxpayer confidentiality.
 
From 1996 Ireland phased in a 12.5 percent tax on all corporate trading income, although foreign companies often pay effective rates lower than this by shifting money into tax havens such as Bermuda.
 
Apple's Cook told the Senate panel on Tuesday that Apple does not hold money on a Caribbean island or divert profits from sales to U.S. customers to other jurisdictions to avoid us taxes.

You May Like

How to Safeguard Your Mobile Privacy

As the digital world becomes more mobile, so too do concerns about eroding privacy and increased hacking More

'Desert Dancer' Chronicles Iranian Underground Dance Troupe

Film by Richard Raymond is based on true story of Afshin Ghaffarian and his friends More

Obesity Poses Complex Problem

Professor warns of obesity’s worldwide health impact More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Rolling Thunder Run Reveals Changed Attitudes Towards Vietnam Wari
X
Katherine Gypson
May 25, 2015 1:32 AM
For many US war veterans, the Memorial Day holiday is an opportunity to look back at a divisive conflict in the nation’s history and to remember those who did not make it home.
Video

Video Rolling Thunder Run Reveals Changed Attitudes Towards Vietnam War

For many US war veterans, the Memorial Day holiday is an opportunity to look back at a divisive conflict in the nation’s history and to remember those who did not make it home.
Video

Video Female American Soldiers: Healing Through Filmmaking

According to the United States Defense Department, there are more than 200-thousand women serving in the U.S. Armed Forces.  Like their male counterparts, females have experiences that can be very traumatic.  VOA's Bernard Shusman tells us about a program that is helping some American women in the military heal through filmmaking.
Video

Video Iowa Family's Sacrifice Shaped US Military Service for Generations

Few places in America have experienced war like Waterloo. This small town in the Midwest state of Iowa became famous during World War II not for what it accomplished, but what it lost. As VOA’s Kane Farabaugh reports, the legacy of one family’s sacrifice is still a reminder today of the real cost of war for all families on the homefront.
Video

Video On Film: How Dance Defies Iran's Political Oppression

'Desert Dancer' by filmmaker Richard Raymond is based on the true story of a group of young Iranians, who form an underground dance troupe in the Islamic Republic of Iran. This is the latest in a genre of films that focus on dance as a form of freedom of expression against political oppression and social injustice. VOA’s Penelope Poulou has more.
Video

Video Turkey's Ruling Party Trying to Lure Voters in Opposition Stronghold

Turkey’s AK (Justice and Development) Party is seeking a fourth successive general election victory, with the goal of securing two-thirds of the seats in Parliament to rewrite the constitution and change the country's parliamentary system into a presidential one. To achieve that, the party will need to win seats in opposition strongholds like the western city of Izmir. Dorian Jones reports.
Video

Video Millions Flock to Ethiopia Polls

Millions of Ethiopians cast their votes Sunday in the first national election since the 2012 death of longtime leader Meles Zenawi. Mr. Meles' party, the Ethiopian People's Revolutionary Democratic Front, is almost certain of victory again. VOA's Anita Powell reports from Addis Ababa.
Video

Video Scientists Testing Space Propulsion by Light

Can the sun - the heart of our solar system - power a spacecraft to the edge of our solar system? The answer may come from a just-launched small satellite designed to test the efficiency of solar sail propulsion. Once deployed, its large sail will catch the so-called solar wind and slowly reach what scientists hope to be substantial speed. VOA’s George Putic reports.
Video

Video FIFA Trains Somali Referees

As stability returns to the once lawless nation of Somalia, the world football governing body, FIFA, is helping to rebuild the country’s sport sector by training referees as well as its young footballers. Abdulaziz Billow has more from Mogadishu.
Video

Video With US Child Obesity Rates on the Rise, Program Promotes Health Eating

In its fifth year, FoodCorps puts more than 180 young Americans into 500 schools across the United States, where they focus on teaching students about nutrition, engaging them with hands-on activities, and improving their access to healthy foods whether in the cafeteria or the greater community. Aru Pande has more.
Video

Video Virginia Neighborhood Draws People to Nostalgic Main Street

In the U.S., people used to grow up in small towns with a main street lined by family-owned shops and restaurants. Today, however, many main streets are worn down and empty because shoppers have been lured away by shopping malls. But in the Del Ray neighborhood of Alexandria, Virginia, main street is thriving. VOA’s Deborah Block reports it has a nostalgic feel with its small restaurants and unique stores.

VOA Blogs