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  (Source: EPA)
American gadgetmaker is accused of making profit in Italy, shuffling the money illegally to Ireland

Italy -- Europe's fifth largest economy -- is a lucrative market for U.S. gadgetmaker Apple, Inc. (AAPL), the world's most profitable tech company.  But Apple's Italian profits have come back to haunt it after prosecutors in Milan, Italy filed charges against the gadgetmaker's local subsidiary, accusing it of breaking local taxes laws for at least two of the past three years.  The investigation has not been made public, but was reported on by Reuters this week, citing "two [local] judicial sources with direct knowledge of the matter."
 
I. Apple Gets Hammered Again, Faces Italy's Biggest Tax Dodging Accusations Yet
 
Local newspaper L'Espresso was actually the first to report the potential charges, which it learned of from its own sources.  L'Espresso, a sub-brand of the Italian newspaper Repubblica, cites sources as saying the case involves $1.34B+ USD in profits which Apple shuffled out of the EU nation over the course of 2010 and 2011
 
This isn't the first time Apple has faced these kinds of accusations.
 
Ever since a 2012 report in The New York Times accused Apple of dodging billions in U.S. taxes, the electronics giant has been on the defensive, trying to fend off accusations of tax dodging in the U.S. (where CEO Tim Cook was grilled by Congress), in the UK, and elsewhere.

Apple profit
[Image Source: Today's iPhone]

To be fair, Apple's strategy -- the so-called "double Irish" tax avoidance tactic -- is hardly unique. Google Inc. (GOOG) and other top tech earners almost all heavily lean on this strategy or sheltering income in the Caribbean islands (e.g. the Cayman Islands).
 
On-paper, the general corporate tax rate in the U.S. is 35-percent, however, that figure is misleading as the convoluted U.S. tax code typically leaves a wealth of loopholes available for big businesses to lower their rates.  Consequently, the average rate for Fortune 500 tech companies was around 16 percent in 2012 [source].
 
Apple's tax avoidance was on the more flagrant side of the spectrum, though as it only paid a 1.9 percent effective tax rate on foreign earnings, which it shuffled the bulk of its profits into.  The numbers appear especially glaring given Apple's top ranking in profitability and the fact that the company has done some lobbying in the U.S. (a common route to getting "legal" tax handouts from Congress) -- but not as much as other firms like Google.
 
As an old Japanese proverb goes, "The nail that sticks out gets hammered down."
 
II. Apple Reportedly Paid No Taxes on $1.1B USD in Italian Profit
 
Apple defined itself with record setting earnings, boosted even higher with aggressive money shuffling to low tax regions -- now it's getting hammered hard.  According to both Reuters and L'Espresso's sources, Italian authorities have alleged behind closed doors that in 2010 Apple shuffled €206M ($277.4B USD) in profit out of its Italian subsidiary towards a low tax subsidiary in Ireland.  Had it abided by the law and disclosed the money it likely would have had to pay Italy's 27.5 percent corporate tax rate [source].  In 2011 Apple appeared even more emboldened, illegally shuffling €853M ($1.148B USD) out of the country, according to prosecutors.
 
The American firm refused to directly comment on its behavior in 2010 and 2011, instead saying that it always tries to follow the law and pointing out that at least it hadn't been accused of breaking the law prior to 2010.  A spokesperson remarks:

Apple pays every dollar and euro it owes in taxes and we are continuously audited by governments around the world.  The Italian tax authorities already audited Apple Italy in 2007, 2008 and 2009 and confirmed that we were in full compliance with the OECD documentation and transparency requirements. We are confident the current review will reach the same conclusion.

Apple Pizza
Apple is on Italy's cutting block over tax dodging. [Image Source: EPA]

According to the allegations, Apple's Chinese manufacturer partners ship orders to subsidiary Apple Supply International (ASI), which then sells the devices at close to the MSRP value to local retail subsidiaries in Italy, the UK, France, Germany, and other markets.  As the subsidiaries are buying the tablet at close to full price, they earn only a small cut of the profit, while the Irish company pockets most of the profit.
 
Apple's 2012 earnings have not yet been audited by Italian officials -- it is probable they may feature similar "irregularities".
 
III. The Man Who Helped Facebook, Apple, and Google Dodge Their Bills
 
Again, Apple is hardly alone here.  Italian fashion icons Domenico Dolce and Stefano Gabbana were sentenced to 20-months in prison for hiding €343.3M ($462.0M USD) in profits.  So far neither fashion executive has served any prison time, as their defense has appealed the conviction arguing in essence that the pair had no idea how their business was being run, from a financial perspective.
 
In the tech sphere Google and Amazon.com, Inc. (AMZN) are also being probed or charged with tax dodge by Italian regulators.  Google allegedly hid [translated] €240M ($323.3M USD) in profits.  Charges have not yet been filed against Amazon, although Reuters sources said it is also under investigation.
 
This is hardly a coincidence.  According to a piece by Bloomberg, Apple, Google, and other top firms all rely on Feargal O’Rourke, an executive whom it bills as "the scion of a political dynasty who heads the tax practice at PricewaterhouseCoopers in Ireland."

Feargal O'Rourke
Feargal O'Rourke, head of tax services for PricewaterhouseCoopers LLP in Dublin, claims, "Under no circumstances is Ireland a tax haven." [Image Source: Bloomberg]

Mr. O'Rourke is cousins with Ireland's finance minister and has heavily lobbied the local government not to crack down on companies shuffling profit into the country and to keep rates low, even as international criticism mounted.  Some companies like Apple push profit to Ireland and simply register their locations as "nowhere", hence paying no taxes to Irish collectors.  

Others register in ultra-low tax rate Island nations, which Irish subsidiaries are legally allowed to shift profits to, untaxed.  Google sends most of its Irish earnings to Bermuda, allegedly.  LinkedIn Corp. (LNKD) sends its earnings to the Isle of Man.  And Facebook.com, Inc. (FB) sends its profits to the Grand Cayman island.  Either way, these approaches cut a company's tax rate to around 2 percent overall.

Google money bags
Google also dodges a lot of its tax load. [Image Source: OMG Droid]

Adding to the complexity, many companies -- Apple included -- don't even report these earnings as profits, hence their effective global tax rate appears more "fair" to members of the media in the U.S. and EU (unless you dig deep into the numbers and how the company's finance department is defining them).
 
IV. Pressure From Taxpayers and Media Grows
 
But a number of factors could put these company's days of trying to avoid paying their fair share at an end.  Italy's government has become much more aggressive in terms of tax code enforcement as the nation's fiscal situation deteriorates.  The nation's centrist Partito Democratico (PD) -- which gained a majority in recent elections -- has focused on cracking down on tax dodging as a way of fixing the nation's debt crisis.
 
In Ireland officials are facing pressure from their EU and U.S. counterparts.  A growing coalition of academics, small business owners, the media, and taxpayers at large in the U.S. and EU are growing outraged at the tax dodging by many top firms.  As Robert B. Reich, a professor of public policy at the University of California at Berkeley puts it in a comment to Bloomberg:

[Lost tax revenue] has to be made up by you and me and every other taxpayer who can't afford high-flying attorneys and accountants to shift our income into places with low taxes.

In other words, you might be paying 30 cents out of every dollar to the federal government in the U.S., but Apple only paid 3 cents.
 
One of the biggest problems about that is that it creates a massive barrier for market entry, as new firms have to try to compete against veteran companies like Apple while the government strips away a far bigger chunk of their profit.  

Bribe under table
Lobbying payoffs to politicians has resulted in small companies having to pay much more than their large competitors, making the "free market" not so free. [Image Source: i-Sight]

In other words, the free market is not so free; in the U.S. and EU it's perhaps but a rosy political fantasy, as the true market creaks under the weight of rampant manipulation by special-interest funded politicians.

There is some desire for change -- particularly in cash-strapped EU states, who can't just keep borrowing more money (like the U.S. does).  But even if these jurisdictions like Italy finally do try to shake down Apple and its peers for taxes, it's unclear whether they will succeed.

Italy is considering a so-called "Google Tax" law, which will force internet advertisers to operate local business units, which will be tax fully.  But the law has been condemned by even some critics of Irish tax dodging, who argue it overreaches by interfering with free trade.  Forbes' columnist Tim Worstall called the law "entirely illegal".

The bill has yet to become law and is currently only in the draft stage.  As Ireland is refusing to relent on its controversial policies, for now authorities in Italy and other jurisdictions can only look to use existing laws to try to force more of the profits Apple, Google, and others make off their citizens back into the country.

Sources: L'Espresso, Reuters



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RE: Ay!
By retrospooty on 11/15/2013 9:19:13 AM , Rating: 2
Seriously? Are you going to insult everyone here by denying who are/were before you were banned twice? Give it up, WE KNOW.

Go webstalk elsewhere trollboy. Find a site that wont ban your obnoxious behavior.


RE: Ay!
By Wazza1234 on 11/16/2013 7:23:18 AM , Rating: 1
quote:
Seriously? Are you going to insult everyone here


I am only insulting you. Because you're so deluded you actually hate a company.

quote:
by denying who are/were before you were banned twice?


If I was banned, why am I still here? Whoever this testerguy was who you're so obsessed with, please message him directly instead of showing how angry you are that you think he's still using the site despite being banned, all over every one of my posts. You should address the fact that hating Apple makes you a child, instead of pointing out how ineffective bans are. You keep telling this 'testerguy' he should go and consider his actions, if I was you I'd go and consider why you're so obsessed with him. If you believe I am him, then why would he need to reconsider anything anyway - since I'm posting on the site?

Seems like the biggest loser here is someone who argues against ghost users whilst simultaneously saying they are banned and not banned, and is clearly angry about the fact that he believes any ban didn't work at all.


RE: Ay!
By retrospooty on 11/16/2013 7:56:51 AM , Rating: 2
"I am only insulting you. Because you're so deluded you actually hate a company."

I know its really hard for you, but try to pay attention. That was re-claimer that says that, not me. . Your "insult" (other than your "always on" obnoxious state) that I am referring to is your acting like you aren't Testerguy. We know.

"If I was banned, why am I still here?"

Mental issues? Complete compulsive ass? f$%king loser? All 3 are correct.


RE: Ay!
By Wazza1234 on 11/16/2013 4:37:48 PM , Rating: 2
quote:
Mental issues? Complete compulsive ass? f$%king loser? All 3 are correct.


I don't think you understood the question. Ban means that the person can't continue posting.

If you believe this Testerguy is banned, he can't be me. Either that, or the real fail is someone running a website as a mod who doesn't know how to ban someone properly. It seems to me that the people trying to ban this guy who obviously winds you up have failed and they should be the ones who step back and try to modify their behaviour. If you believe the ban hasn't worked then surely you believe this 'testerguy' character is unaffected?


RE: Ay!
By ritualm on 11/16/2013 4:55:29 PM , Rating: 4
quote:
I don't think you understood the question.

Your deflection attempts are worse than the Obamacare website's failings, testerguy / testerguy2 / Wazza1234.

You can operate under a limitless amount of aliases and anonymous handles, but you only have one posting style applied to all of them. The rest of us are not actively burying our heads into quicksand while arguing with you.

Believe it or not, I can take Tony Swash more seriously than you. That guy actually has a good knowledge re: AGW issues. Meanwhile, you consistently, without fail, act like Argon18: you refuse to accept there is an alternative outside of Cupertino, California.


RE: Ay!
By retrospooty on 11/16/2013 5:56:35 PM , Rating: 1
"Believe it or not, I can take Tony Swash more seriously than you"

LOL, I know right.


RE: Ay!
By Wazza1234 on 11/20/2013 8:11:03 AM , Rating: 2
quote:
Your deflection attempts are worse than the Obamacare website's failings, testerguy / testerguy2 / Wazza1234.


Your whole post is you failing to address my points.

quote:
You can operate under a limitless amount of aliases


Makes banning seem pointless, no? Or no, thats too kind. It makes failed bans failures.

quote:
The rest of us are not actively burying our heads into quicksand while arguing with you.


I have quickly learned that none of you are capable of actually discussing the points I make.

quote:
You can operate under a limitless amount of aliases and anonymous handles, but you only have one posting style applied to all of them


I don't know why you guys think this testerguy character is the only one who doesn't conform to your DailyTech club community delusions. Let me tell you, the rest of the world doesn't even remotely agree with this sites failings.

Either way, aliases are irrelevant. All are anonymous so who cares. You simply can't address arguments so you're trying to label me some other name which is also anonymous. Pointless and 'deflecting'.


RE: Ay!
By retrospooty on 11/16/2013 5:57:31 PM , Rating: 2
Wow... Just wow. /facepalm.


RE: Ay!
By Wazza1234 on 11/20/2013 8:14:46 AM , Rating: 2
wow that you had no answer? Telling, I'd say.


RE: Ay!
By Cheesew1z69 on 11/16/2013 4:55:58 PM , Rating: 2
quote:
You should address the fact that hating Apple makes you a child
ROFL! Um. No.


"There's no chance that the iPhone is going to get any significant market share. No chance." -- Microsoft CEO Steve Ballmer














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