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How Apple Took the Tax Game Too Far

Opinion: When tax planning transmutes your company into a citizen of no country at all, you're not being a good corporate citizen.

By Justin Fox | Updated on August 30, 2016

You want your multinational corporation to be seen as a good corporate citizen. But you also feel obliged to your company’s shareholders to keep it from paying a cent more in taxes than it is required to.

So, what’s the dividing line beyond which responsible tax management turns into poor citizenship? Well, for the moment it appears to be somewhere between this:

Apple set up their sales operations in Europe in such a way that customers were contractually buying products from Apple Sales International in Ireland rather than from the shops that physically sold the products to customers. In this way Apple recorded all sales, and the profits stemming from these sales, directly in Ireland.

And this:

Under the agreed method, most profits were internally allocated away from Ireland to a “head office” within Apple Sales International. This “head office” was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings. Only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland. The remaining vast majority of profits were allocated to the “head office,” where they remained untaxed.

Those passages are both from the news release issued Tuesday by the European Commission announcing that it was ordering Apple to pay 13 billion euros ($14.5 billion) in back taxes plus interest.

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