Tech media has the Apple EU tax story wrong - it matters to buyers

Profile picture for user gonzodaddy By Den Howlett August 31, 2016
Summary:
Incorrect, inaccurate and superficial reporting of the EU decision around Apple's taxes is creating the wrong impression. Its dangerous because we are all impacted.

tim-cook
Tim Cook, CEO Apple in happier days

At the risk of boring everyone to death, it is important to note that well known elements in the tech media circus have got critical parts of the EU's tax decision that hits Apple with $14.5 billion in back taxes, wrong, selectively wrong or are inaccurate.

The result is that a good number of readers are being misled or confused.

This matters for buyers because if you take the view that the EU decision is correct (and I do), then the long term potential impact is significant. Here are some examples:

BusinessInsider was early out the gate with this in an email blast to its BI Intelligence readers:

"It will have a profound and harmful effect on investment and job creation in Europe."  (said Apple)

The message there is clear: Apple says you can have taxes or jobs, but not both.

Apple struck a legal tax deal with Ireland in 1991, and by 2015 the tech giant had created 5,000 jobs within the nation. It has another 1,000 jobs ready to be created when it opens its headquarters in Cork, Ireland.

Apple is currently the largest taxpayer in Ireland, so it has significant negotiating power as this situation unfolds.

What's wrong with this?

Apple's threats are empty. In the same letter, Apple said:

We are committed to Ireland and we plan to continue investing there, growing and serving our customers with the same level of passion and commitment.

(My emphasis added)

It is far from clear whether Apple is the largest taxpayer in Ireland and in any event, its size does not give it negotiating power. This was a decision taken at a European level. Apple changed the way it accounts in Ireland once the investigation was opened in 2014. This had a massive impact on Ireland's tax take that contributed to a reported rise in GDP of 26% in 2015.

Wired blundered into the arguments with some spectacular errors, describing the decision as a 'penalty' which it is categorically not. It then goes on to say:

For sheer ingenuity, you can’t beat Silicon Valley—especially at outsmarting the tax man.

It then goes on to describe a well-known and understood method by which large companies are able to use Ireland's benign tax laws to pretty much avoid as much tax as they want.

The method by which companies avoid tax is well known and tech companies are far from unique in using it. It is said there are more than 700 multi-national companies using Ireland as a domicile for tax purposes. The headlines may mention Apple, Facebook and Google but they ignore numerous others. This is pure hubris on Wired's part but then what do you expect for a story which is a rehash of one they wrote in 2014. So much for digital repurposing of content and fact checking

VentureBeat did a much better job but missed important aspects of the decision.

Apple will no doubt fight the ruling hard, given not only the financial stakes but also the potential hit this ruling could deliver to its corporate image. The U.S. government has also hinted that it could take retaliatory measures against European companies if it felt the EC’s actions were excessive.

The financial stakes are known and, as I pointed out, Apple has already made provision for the outcome per the FAQ it offered on its investor website homepage. The reputational damage is very important and we have yet to see how Apple plans to work that one out. The US has not threatened anything of the sort and will not retaliate. To do so would fly in the face of internal tax competition that exists in the US and which the Fed encourages. Anyone check the amount Elon Musk gets in tax concessions and other government related hand outs?

VentureBeat also says:

Moving forward will be tricky for Ireland, which has used tax deals to paint itself as an attractive haven for tech companies.

I quite liked this because the last thing Ireland wishes to do is position itself as a tax haven, even though in tax planning circles that is precisely how it is viewed. That expression is normally reserved for countries with pariah status.

What's up doc?

The basic problem in most of the tech media reporting is that it is restricted to headline grabbing statements rather than offering a careful dissection of what was said and its broader context. I've already proven that there are contradictions in Apple's statements and that alone should be cause for concern.

The other problem is that the Apple narrative is confusing many people into believing the wrong things. I have seen numerous comments that refer to the decision as a 'penalty' and that it is 'unfair' when neither statement is true. There can be no question that the EU's competition ministry has chosen to take on Apple but it has been a long time a-coming and is unusual because Apple's tax strategies are almost uniquely aggressive. It is also interesting that the EU is demonstrating that contrary to the way individual states and much of what passes as tech media hold Apple in thrall, they are not afraid of the company.

In short, Apple may be positioned as one of the most powerful companies on earth, but it isn't invincible or exempt from criticism.

The buyer problem

The amounts companies pay in corporate taxes levied on profits has long been a sore point among competing nation states and a bone of contention among those who want to see wholesale reformation of the global taxation systems on the one side and those who view corporate taxes as a cost of doing business that can be legitimately minimized.

When you position corporate tax as a cost then it becomes fair game for developing tax strategies that to the layman are incredibly complex but which in reality have no commercial purpose beyond reducing the corporate tax take.

Implicit in that argument is the very thing that Apple implies - higher taxes means adverse investment decisions that impact jobs. That in itself is a hot political potato but the other, unspoken aspect, relates to the actual cost of goods and services that a company supplies.

Inherent in these debates is the idea that by supporting what are artificial entities, the public is encouraged to support a lower cost environment. Gotta pay more corporate tax? Gonna push up prices. That argument is a powerful ideological position with which many have sympathy and especially so in the context of a climate where the crony capitalism is a much higher agenda item in the public discourse.  Check Brexit for more on that one. But these positions have consequences.

The difficulty with the Apple argument relates to the massive social impact such strategies have on people's lives. In the Apple case, pundits have been quick to evaluate what a $14.5 billion windfall might mean to the Irish people. Quartz came up with an interesting list:

For their part, social activists regard Ireland's decision to appeal (and implicitly refuse to levy the taxes the EU decision calculates) as corrupt. Can you blame them?

But beyond the rhetoric, it is at least important to understand what's at stake. The tech media is ignoring that through a combination of ignorance and lazy reporting.

My take

Several of diginomica's core team are politically active. I am not among that group although recent global events have pushed me into making a number of comments that are political in nature. Even so, we endeavor to maintain a relatively neutral stance on issues that have a significant political component except to the extent it impact buyers and citizens. We should take a position. This is mine.

In this case, Apple's extraordinary appeal to the court of public opinion is wrong headed and potentially damaging to both itself and its customers.

Unfortunately, important parts of tech media have fallen into the trap of parroting Apple's statements without understanding or attempting to contextualize the potential impact. That's exactly what Apple wants, yet it contradicts itself. I find it perplexing that media titles that normally pride themselves on reach and output are failing to put the resources into understanding this topic at a very basic level. Why?

If Apple follows through on some of its implied threats then everyone pays the price. Not Apple.

That matters.