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

Tired of Waiting, South Africans Demand Change ‘Now’

With chronic poverty and lack of basic services largely fueling recent xenophobic attacks, many in Rainbow Nation say it’s time for government to act More

Challenges Ahead for China's Development Plans in Pakistan

Planned $46 billion in energy and infrastructure investments in Pakistan are aimed at transforming the country into a regional hub for trade and investment More

Audio 'Forbidden City' Revisits Little Known Era of Asian-American Entertainment

Little-known chapter of entertainment history captured in 80s documentary is revisited in new digitally remastered format and book More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Study: Insecticide Damaging Wild Bee Populationsi
X
April 24, 2015 10:13 PM
A popular but controversial type of insecticide is damaging important wild bee populations, according to a new study. VOA’s Steve Baragona has more.
Video

Video Study: Insecticide Damaging Wild Bee Populations

A popular but controversial type of insecticide is damaging important wild bee populations, according to a new study. VOA’s Steve Baragona has more.
Video

Video Data Servers Could Heat Private Homes

As every computer owner knows, when their machines run a complex program they get pretty hot. In fact, cooling the processors can be expensive, especially when you're dealing with huge banks of computer servers. But what if that energy could heat private homes? VOA’s George Putic reports that a Dutch energy firm aims to do just that.
Video

Video Cinema That Crosses Borders Showcased at Tribeca Film Festival

Among the nearly 100 feature length films being shown at this year’s Tribeca Film Festival in New York City are more than 20 documentaries and features with international appeal, from a film about a Congolese businessman in China, to documentaries shot in Pakistan and diaspora communities in the U.S., to a poetic look at disaffected South African youth. VOA’s Carolyn Weaver has more.
Video

Video UN Confronts Threat of Young Radicals

The radicalization and recruitment of young people into Islamist extremist groups has become a growing challenge for governments worldwide. On Thursday, the U.N. Security Council heard from experts on the issue, which has become a potent threat to international peace and security. VOA’s Margaret Besheer reports.
Video

Video Growing Numbers of Turks Discover Armenian Ancestry

In a climate of improved tolerance, growing numbers of people in Turkey are discovering their grandmothers were Armenian. Hundreds of thousands of Armenians escaped the mass deportations and slaughter of the early 1900's by forced conversion to Islam. Or, Armenian children were taken in by Turkish families and assimilated. Now their stories are increasingly being heard. Dorian Jones reports from Istanbul that the revelations are viewed as an important step.
Video

Video Migrants Trek Through Western Balkans to Reach EU

Migrants from Africa and other places are finding different routes into the European Union in search of a better life. The Associated Press followed one clandestine group to document their trek through the western Balkans to Hungary. Zlatica Hoke reports that the migrants started using that route about four years ago. Since then, it has become the second-most popular path into Western Europe, after the option of sailing from North Africa to Italy.
Video

Video TIME Magazine Honors Activists, Pioneers Seen as Influential

TIME Magazine has released its list of celebrities, leaders and activists, whom it deems the world’s “most influential” in 2015. VOA's Ramon Taylor reports from New York.
Video

Video US Businesses See Cuba as New Frontier

The Obama administration's opening toward Cuba is giving U.S. companies hope they'll be able to do business in Cuba despite the continuation of the U.S. economic embargo against the communist nation. Some American companies have been able to export some products to Cuba, but the recent lifting of Cuba's terrorism designation could relax other restrictions. As VOA's Daniela Schrier reports, corporate heavy hitters are lining up to head across the Florida Straits - though experts urge caution.
Video

Video Kenya Launches Police Recruitment Drive After Terror Attacks

Kenya launched a major police recruitment drive this week as part of a large-scale effort to boost security following a recent spate of terror attacks. VOA’s Gabe Joselow reports that allegations of corruption in the process are raising old concerns about the integrity of Kenya’s security forces.
Video

Video Japan, China in Race for Asia High-Speed Rail Projects

A lucrative competition is underway in Asia for billions of dollars in high-speed rail projects. Cambodia, India, Indonesia, Malaysia Thailand and Vietnam are among the countries planning to move onto the fast track. They are negotiating with Japan and the upstart Chinese who are locked in a duel to revolutionize transportation across Asia. VOA Correspondent Steve Herman in Bangkok has details.
Video

Video Scientists: Mosquitoes Attracted By Our Genes

Some people always seem to get bitten by mosquitoes more than others. Now, scientists have proved that is really the case - and they say it’s all because of genes. It’s hoped the research might lead to new preventative treatments for diseases like malaria, as Henry Ridgwell reports from London.
Video

Video Bible Museum Coming to Washington DC

Washington is the center of American political power and also home to some of the nation’s most visited museums. A new one that will showcase the Bible has skeptics questioning the motives of its conservative Christian funders. VOA religion correspondent Jerome Socolovsky reports.
Video

Video Armenia and Politics of Word 'Genocide'

A century ago this April, hundreds of thousands of Armenians of the Turkish Ottoman empire were deported and massacred, and their culture erased from their traditional lands. While broadly accepted by the U.N. and at least 20 countries as “genocide”, the United States and Turkey have resisted using that word to describe the atrocities that stretched from 1915 to 1923. But Armenians have never forgotten.
Video

Video Afghan First Lady Pledges No Roll Back on Women's Rights

Afghan First Lady Rula Ghani, named one of Time's 100 Most Influential, says women should take part in talks with Taliban. VOA's Rokhsar Azamee has more from Kabul.
Video

Video New Brain Mapping Techniques Could Ease Chronic Pain

From Boulder, Colorado, Shelley Schlender reports that new methods for mapping pain in the brain are providing validation for chronic pain and might someday guide better treatment.

VOA Blogs