Apple’s been presented with the mother of all tax bills: a whopping 13 billion euros in outstanding taxes, payable to the Irish government. But the Irish government doesn’t want it. Confused? We explain Apple’s curious tax setup in this complete guide to Apple and its taxes
Why does Apple pay so little tax in Europe? It’s an incredibly profitable company.
Apple is in hot water – again. After its run-in with the feds earlier this year, Apple is in trouble with a really scary foe: the tax man. After a three-year investigation into the company’s tax affairs, the European Commission has ordered Apple to pay 13 billion dollars in unpaid taxes to the Irish government… but the Irish government doesn’t want it.
It’s all very confusing, so we’ve put together this guide to Apple’s tax arrangements: how much it pays, why it’s been told to pay more (and why the Irish government is saying “no thanks”), and how its tax setup compares to the other tech-industry giants. If you’ve got any more questions about Apple’s taxes, add them to the comments.
Does Apple pay tax? How much tax does Apple pay?
Yes it does! Quite a lot, in fact. Not far off $3bn in the last quarter. But whether that money is funnelling into your local economy very much depends on the country you live in.
Apple stands by its belief that it should be taxed principally “where the value is created”, and that this is in the US: its products are researched and developed in California. Accordingly, Apple’s main tax burden falls in that country.
In its most recent financial results, for Q3 2016 – which was a moderately disappointing quarter for Apple – the company declared revenue of $42.4bn and an income after operating expenses (and additional income) but before tax of $10.5bn, and allocated £2.7bn of that for income tax. (You can read Apple’s Q3 2016 financial statement here.) That’s a rate of 25.5 percent, which sounds pretty solid, although it would probably be higher if Apple held less of its profits offshore – Tim Cook has stated that he cannot repatriate the firm’s overseas holdings to the US because it would cost 40 percent of the total. The statutory rate for corporations in the US is 35 percent; although in practice very few companies pay that much.
In any case, the 25,5 percent is a figure that reflects Apple’s global operations, and in many of the territories where it operates the company pays a rate that is far lower.
In 2014 (and this is what caused the recent ill-feeling), Apple paid an effective rate of 0.005 percent tax in Ireland, where the usual rate of corporation tax is 12.5 percent – a rate that is already lower than almost anywhere else in Europe. The UK’s corporate tax rate is 20 percent.
Maybe the Irish should be grateful they got even that much: Apple didn’t pay any corporation tax at all in the UK in 2012. But more recently things have got a little better here; Mail Onlineestimates that Apple made £1.9bn of profit in the UK in the year ended September 2014 and paid £11.8m in tax – a rate of 0.6 percent – although it should be emphasised that this figure is based on accountants’ estimates of profit generated rather than Apple’s own figures, which are vastly lower.