Focus on Ireland immigration and Irish facts:
Beijing time, May 27 - According to foreign media reports, former Apple executives and Irish officials revealed that since 1980, Apple has enjoyed a nearly tax-free operating status in Ireland. At that time, Ireland was one of the poorest countries in Europe, and the government was eager to welcome companies like Apple to bring job opportunities to the country.
Last Tuesday, Apple CEO Tim Cook was criticized by a U.S. Senate subcommittee (hereinafter referred to as the "Committee") regarding the company's tax practices. Apple has established multiple corporate entities in Ireland that benefit from tax-free policies and have not been subject to comprehensive scrutiny.
Apple denies avoiding billions of dollars in U.S. taxes and states that its arrangements help the company fund research and development in the United States. Apple is one of many multinational corporations worldwide that have established branches in Ireland.
The Committee stated that Apple's Irish companies, which are not tax residents in any jurisdiction, have allowed the company to avoid paying taxes on most of its overseas income in recent years. U.S. Senator and Committee Chairman Carl Levin stated that Apple has been seeking "tax havens."
Former Apple executives and an Irish official told Reuters that the nearly tax-free status dates back 32 years to when Apple first established a presence in County Cork, Ireland.
For Ireland and County Cork, Apple was highly attractive. At the time, Ireland's economy was stagnant, and the economy of Cork was hit hard by the closure of shipyards and a Ford motor plant; by 1986, nearly 25% of the city's population was unemployed.
When Apple first settled in Ireland, it had only a few employees, but now it has 4,000 employees in the country. In the early 1980s, Del Yocam, who served as Vice President of Manufacturing at Apple, stated, "We were able to get tax breaks there, very significant ones."
In fact, the tax benefits companies enjoyed in Ireland were very favorable. A former financial executive who requested anonymity said, "For the first 10 years in Ireland, we enjoyed tax-free status. We didn't have to pay any taxes to the Irish government."
Although Apple was one of the last companies to enjoy such most-favored status, it was not an exception. According to the Irish government's website, from 1956 to 1980, Ireland attracted foreign companies to the country through a zero-tax rate. Qualified companies that entered Ireland in 1980 could enjoy tax-free status until 1990.
Barry O'Leary, CEO of the IDA Ireland, stated, "Any multinational company that settles in Ireland and focuses on export markets can enjoy a zero corporate tax rate."
Apple stated that it pays taxes in accordance with the law in every country where it operates. The company declined to comment on the tax treatment it received during the 1980s.
In 1973, as a condition of joining the European Economic Community (EEC, the predecessor to the EU), Ireland was forced to stop providing tax incentives to export companies.
Starting in 1981, to qualify for production, companies settling in Ireland had to pay taxes, but the rate was less than 10%.
Economic Success
For Ireland, Apple's investment was crucial. At the time, Ireland was mired in difficulties, with high and rising unemployment, double-digit inflation, and the emigration of highly educated young people.
John Sculley, who served as Apple CEO from 1983 to 1993, said, "We were the first technology company to set up a production facility in Ireland." He noted that government subsidies were also a factor behind Apple's decision to establish a company in Ireland.
When companies needed to hire hundreds of people for low-skilled electronic component assembly, Ireland's relatively low wage standards were also very attractive to businesses.
Apple told the Committee that it could not answer questions about why it chose Ireland because documents from that period had been lost.
Apple's company in Cork produced the Apple II computer, and later the Mac and other products. These products were sold to Europe, the Middle East, Africa, and Asia. However, enjoying tax benefits in Ireland did not mean Apple could enjoy tax-free status in those markets.
Economists and tax authorities usually calculate the taxes due on a company's profits based on profits derived from technical intellectual property and product sales, as Apple has done in countries like the United States, France, the United Kingdom, and India.
However, none of these countries offered the same tax incentives as Ireland. The key to Apple's tax minimization was to attribute as much profit as possible to its Irish companies.
Tax Structure Architects
Two former Apple executives revealed that this task fell to Apple's first tax director, Mike Rashkin. One of them referred to Rashkin as the "father of everything." In 1980, Rashkin left the computer pioneer Digital Equipment Corp (DEC) to join Apple. During his time at DEC, Rashkin learned about tax-efficient corporate structures for technology companies.
By the time Rashkin headed to Silicon Valley, Apple had already decided to establish a company in Ireland. Former Apple executives said Rashkin used the experience he gained at DEC to build a tax structure using the company Apple established in that country. Rashkin declined to comment.
A report released by the U.S. Senate subcommittee disclosed the framework of this tax structure. In 1980, Apple reached an agreement with its Irish subsidiary, which would provide funding for Apple's research and development. In return, the Irish branch was able to access Apple's intellectual property to sell products to markets outside the United States.
One executive said Apple was protected by the U.S. tax authority, the Internal Revenue Service (hereinafter referred to as the "IRS"). Previously, the IRS provided Apple with an advance pricing agreement (hereinafter referred to as the "APA"), which outlined how the IRS would handle transactions between subsidiaries for tax purposes.
Many countries' tax authorities provide APAs to companies, which companies say helps them promote WorldWay and investment. Tax advocates say tax authorities have rightfully accepted the pricing proposed by companies applying for APAs.
Last year, The New York Times reported that at least part of the reason for Apple's low tax rate was this confidential technology transfer method. The terms of the agreement and subsequent cost-sharing agreements were favorable to Apple's Irish branch. In effect, the intellectual property usage fees paid by Apple's Irish branch to Apple were far lower than those paid by other Apple subsidiaries.
The U.S. Senate Committee report stated, "Apple's cost-sharing agreement with its Irish-based offshore subsidiaries was designed to shift billions of dollars in U.S. income to a low-tax jurisdiction."
Meanwhile, Apple built a system to minimize the profits of its sales and distribution subsidiaries. Over the years, techniques used by Apple included selling products to subsidiaries at extremely low retail prices or paying sales commissions to subsidiaries that only offset operating expenses.
The work done by Rashkin and the flexible approach of the Irish government brought Apple the results it anticipated. Mike Markkula said in 1981, "We are very, very pleased; Ireland has truly delivered on their promises." The effectiveness of the tax structure can be seen in the early accounts of Apple's Irish branch. The Irish subsidiary had a profit of $317 million and paid $500,000 in income tax, a rate of only 0.2%.
Tax Benefits End
In 1990, Apple's tax benefits came to an end. According to account records from that time, the income tax rate for Apple's Irish branch reached 4% that year. At the same time, as Apple sought to cut costs through outsourcing, its production activities in Ireland were also criticized. In 1992, attracted by tax incentive policies, Apple decided to move some of its Irish operations to Singapore and planned to lay off staff in Ireland.
O'Leary said, "They almost completely left Ireland."
At this point, the European Economic Community banned the tax incentives Ireland had provided to Apple, so Apple negotiated a similar agreement with the Irish government that complied with European regulations. The specific details of the agreement were not disclosed, but Apple's tax director, Phillip Bullock, noted that it related to minimizing taxable profits.
However, this agreement did not stop Apple from moving manufacturing operations to Asia. But Apple still kept some manufacturing capacity in Ireland. An Irish government spokesperson declined to confirm whether they had negotiated with Apple regarding tax rates or related issues.
Since 1996, the Irish government has set the corporate tax rate on trading income at 12.5%, but foreign companies often pay an effective tax rate lower than that by shifting income to "tax havens" like Bermuda.
Last Tuesday, Cook told the U.S. Senate subcommittee that Apple does not keep money in Caribbean island nations, nor does it shift intellectual property abroad and sell products back to the United States to avoid taxes.
