You wouldn't think we'd be taking sides against a cool, innovative, imaginative tech corporation, Apple Inc., and standing with one of the world's most opaque bureaucracies, the European Commission. But we are. And you should too.
Apple's deserved success doesn't depend – and never depended – on complex income-shifting and income-tax-fleeing arrangements, including income-tax enticements in Dublin that seemed mutually convenient, back in 1991. But its bottom line was helped by them.
On general principles, a company's profit is taxed according to where its value is generated. However, Apple created a number of internal arrangements that moved profits around within the company, and across geographies. For example, it stated that much of its intellectual property rights resided in Ireland, and that subsidiaries around the world were required to pay some share of their profits to the Irish subsidiary, as compensation for using Apple's intellectual property.
But Apple also had an arrangement with the Irish government under which nearly all of those profits notionally sent to Ireland ended up untaxed in Eire, or anywhere else.
The Irish government was quite happy with all this. It levied very little tax on Apple but, without this deal, it might not have collected any tax at all from Apple. The EU, however, says this accounting sleight of hand, and the special tax break thereby given to Apple, weren't acceptable under European law. It says the deal cost the Irish government 13 billion euros in unpaid taxes. And it has ordered Apple to pay up.
The Irish government seems at least as angry at the European Commission as Tim Cook, the CEO of Apple Inc. But Margrethe Vestager, the competition commissioner of the EU, is surely correct. Her job is to prevent EU countries from giving special advantages to particular companies. Aside from being anti-competitive, such special deals are pointless. Rather than creating economic activity and jobs, they merely shift them from one place to another, with taxpayers in the receiving place picking up the tab.
When it comes to innovation and marketing, Apple has a history marked by genius. But Apple is also one of many multinationals that has devoted considerable effort to, and shown a comparable genius for, tax-code alchemy. The EU was right to call it out.