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Speaker 1: In August, the European Unions Competent competitition excuse me, competition

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Speaker 1: investigators determined that Iron Ireland had given Apple unfair tax

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Speaker 1: deals and that Apple oh is thirteen billion euros or

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Speaker 1: about thirteen point six billion dollars in additional taxes. Now

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Speaker 1: Apple is fighting back, and so is the Government of Ireland,

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Speaker 1: appealing the decision to the European Unions General Court and

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Speaker 1: setting up a legal battle that may take years to resolve.

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Speaker 1: Here with us today and Bloomberg Law to talk about

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Speaker 1: Apple and Ireland's fight against the European Union's tax ruling

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Speaker 1: are Edward Kleinbart, a professor at the USC Gould School

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Speaker 1: of Law, and Samuel Brunson, a professor at Loonla University Chicago. Sam,

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Speaker 1: can you, uh, can you explain to us what it

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Speaker 1: is that the that the European Union is saying Apple

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Speaker 1: and Ireland did wrong here? Sure, so, over the course

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Speaker 1: of the last um years, starting in UM, Ireland started

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Speaker 1: giving special gave a handful of special rulings to Apple

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Speaker 1: telling how they should be taxed. Now, that's not unusual

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Speaker 1: and that's not out of line. Um. It's a way

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Speaker 1: that a company or a taxpayer can get some sort

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Speaker 1: of certainty. Um. This case was a little bit strange though.

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Speaker 1: Apple had two subsidiaries that were incorporated in Ireland, but

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Speaker 1: under Irish law, they weren't actually treated as Irish. Under

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Speaker 1: Irish law, if they were Irish taxpayers, they would pay

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Speaker 1: taxes on all the income they earned from wherever in

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Speaker 1: the world they earned it. But because they weren't treated

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Speaker 1: as um Irish taxpayers, they were instead just taxed on

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Speaker 1: the money attributable to Ireland to what the Commission calls

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Speaker 1: they're Irish branch. So, Sam, is this any big revelation?

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Speaker 1: The Senate's Permanent Subcommittee on Investigations may have said that

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Speaker 1: Apple had shifted tens of billions of dollars in profit

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Speaker 1: into stateless affiliates based in Ireland were paid an effective

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Speaker 1: tax rate of less than two percent. Right, I don't.

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Speaker 1: I don't think that this is a big revelation at all.

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Speaker 1: I think it gives us some additional transparency into how

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Speaker 1: this worked. Um. And you know they the the way

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Speaker 1: that it worked, is it? It is is troubling, I

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Speaker 1: have to say, um, because under these rulings, essentially the

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Speaker 1: Irish government said that the subsidiaries that branches in Ireland

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Speaker 1: could be taxed on a small percented there could be

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Speaker 1: taxed on a small percentage of their operating costs in Ireland.

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Speaker 1: UM that I think it was roughly twelve ten to

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Speaker 1: twelve of um they're operating costs. So everything in excess

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Speaker 1: of that, all the profit they made in excessive at

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Speaker 1: was treated as profit to what the opinion calls the

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Speaker 1: head office, which is this stateless entity that is incorporated

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Speaker 1: in Ireland. So it's not a US company, it's not

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Speaker 1: any other nations company, but Ireland is not treating it

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Speaker 1: as an Irish company, so effectively it manages to not

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Speaker 1: pay any taxes on anything. Well, but it is an

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Speaker 1: Apple's position that eventually this money does get taxed in

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Speaker 1: the United States, so it's not as though it's not

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Speaker 1: getting taxed at all. So Apple's position is, yes, that eventually,

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Speaker 1: once the Irish company pays it to the US parent,

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Speaker 1: then it will be taxed by the U S under

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Speaker 1: current US law. UM. So Apple's position is not that

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Speaker 1: it will never be taxed, just that it hasn't been

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Speaker 1: taxed yet. And and it depends on when it declares that.

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Speaker 1: I mean, it could be years and years and years.

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Speaker 1: It could be years and years and years. It could

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Speaker 1: be never. If Apple is sitting on enough money to

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Speaker 1: operate in the u US and doesn't need extra money

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Speaker 1: to pay dividends, to buy back shares or anything like that,

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Speaker 1: there is no reason that it ever has to pay

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Speaker 1: that money back to the US and repatriated to the

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Speaker 1: U S. Well, Sam, it sounds like your your thought

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Speaker 1: on this that this is kind of a just a

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Speaker 1: way to avoid taxes. Is that right? I think by

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Speaker 1: and large it is. Yeah, we're talking about this dispute

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Speaker 1: with Samuel Brunson, a professor at Loyoni Loyola University, Chicago

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Speaker 1: School of Law. Sam as June pointed out earlier in

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Speaker 1: the show, this thirteen billion euros is a huge amount

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Speaker 1: of money to the Republic of Ireland, and yet Ireland

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Speaker 1: is standing with Apple to fight the European Union on this.

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Speaker 1: What what's their position on the European Unions interpretation here? Um,

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Speaker 1: It is interesting that they're fighting getting the money, and

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Speaker 1: I think there are probably three main reasons why they

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Speaker 1: don't want it. And my understanding is it's not that

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Speaker 1: everyone in the government doesn't want it, but a significant

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Speaker 1: portion don't. UM. One of the simple reasons is that

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Speaker 1: Apple employees six thousand people give or take in Ireland,

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Speaker 1: and Ireland I would assume is afraid that if they can.

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Speaker 1: If Apple can't get the tax deal it has, it

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Speaker 1: will leave and go to another tax haven country that

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Speaker 1: will be more effective for its tax planning purposes, and

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Speaker 1: those six thousand jobs will disappear um along with that

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Speaker 1: kind of a second reason is Ireland does sell itself

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Speaker 1: as a treaty tax haven jurisdiction, so it almost certainly

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Speaker 1: has other companies that are there for the same kinds

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Speaker 1: of ideas, and if it turns out that it can't

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Speaker 1: offer a sweetheart tax deal, those companies might leave and

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Speaker 1: take their jobs with them. And the third reason, as

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Speaker 1: I read through the Commission's opinion, um is the issue

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Speaker 1: of sovereignty. My understanding is that country these are really

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Speaker 1: really touchy about other other people, other entities dictating how

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Speaker 1: they can establish their tax system. And in fact, under

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Speaker 1: the EC guidelines, countries are supposed to be able, within

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Speaker 1: some bounds, to be able to control their tax system,

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Speaker 1: and in this case, even though the opinion goes a

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Speaker 1: long way to deny this is doing so. It basically

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Speaker 1: says Ireland, you have to apply the tax law in

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Speaker 1: this particular way under the treaty, even though your tax

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Speaker 1: law doesn't require you to do that. So my guess

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Speaker 1: is not that they don't want the money, but they're

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Speaker 1: worried about jobs and they don't like the impingement on

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Speaker 1: their sovereignty. Sam, all these countries, all these companies are

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Speaker 1: headquartered in other countries to avoid taxes. So wouldn't you

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Speaker 1: expect them to be using every kind of loophole they

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Speaker 1: can And in this case saying that it was licensed,

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Speaker 1: it was a licensing and it wasn't that the actual

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Speaker 1: into allectual property was developed there. I mean, wouldn't you

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Speaker 1: expect that absolutely? Um, And especially when we're talking about

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Speaker 1: intellectual property. It's not like you have to have a

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Speaker 1: factory that manufactures your intellectual property. You can through licensing.

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Speaker 1: You can put your i P anywhere in the world.

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Speaker 1: That's advantageous and right now, with its network of treaties

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Speaker 1: and its low tax rate, Ireland is an advantageous place

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Speaker 1: to put intellectual property. So Sam, if Ireland believe it's

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Speaker 1: tax law allows this and it's doing it to create jobs,

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Speaker 1: what is the European Unions reason for saying that you know,

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Speaker 1: you know, Ireland, you can't do that. So the Commission

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Speaker 1: is arguing is saying that UM, this is unfair because

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Speaker 1: it gives a special advantage to UM, to Apple. That

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Speaker 1: essentially that by providing the slower tax rate, Ireland is

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Speaker 1: subsidizing Apple in derogation of the rules of the European

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Speaker 1: Commission treaty UM. So, for example, I'm not completely familiar

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Speaker 1: with European Union law, but it seems to me from

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Speaker 1: what I've read, that Ireland couldn't go to Apple and

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Speaker 1: say we will pay you, UM, I don't know, ten

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Speaker 1: million euro two, we will subsidize you ten million euro,

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Speaker 1: will give you a cash transfer ten million euro. And

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Speaker 1: what the European Commission is saying is because it has

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Speaker 1: reduced Apple's taxes by ten million euro, I mean the

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Speaker 1: thirteen point six but whatever amount that in effect produces

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Speaker 1: the same subsidy, and that UM goes against the fair

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Speaker 1: trade in the European Union. Well, our thanks to Sam Branson,

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Speaker 1: a professor at Loyona Loyola University of Chicago School of Law,

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Speaker 1: for talking to us about the battle between Apple and

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Speaker 1: Ireland on the one hand, and the European union on

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Speaker 1: the other over a thirteen point six billion dollar tax bill,