opinion

Apple’s rotten appeal

Rather than addressing the merits of the case, the tech giant is playing the pity card.

On Monday, an angry Apple appealed against an August ruling by the European Commission ordering the company to pay Ireland some €13 billion in back taxes, plus interest. Disappointingly, the Silicon Valley tech giant failed to address the fundamentals of the case, relying instead on a series of ad hominem attacks and procedural objections. If this is the best the company has to offer, it deserves to lose its case and pay its bills in full.

While the Commission has often been wrong on other issues, in this case it acted correctly.

The key point rests on language in Article 107 of the 2007 Treaty on the Functioning of the European Union, which provides that “any aid granted by a member state or through state resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall … be incompatible with the internal market.”

It is important to note that the words “any aid” covers not only one-off deals between Ireland and Apple, but also any general provision of the Irish Tax Code that would encourage favorable treatment.

In this instance, the smoking gun that something is amiss is the ridiculously low tax rate that Apple’s local subsidiary, Apple Sales International (ASI) pays Ireland: 0.005 percent, a number that looks more like a rounding error than a tax.

What is so disappointing about the statements made by both Apple and Ireland is that they do not address the arguments against this tax shelter. Instead, Apple’s General Counsel Bruce Sewell and its Chief Financial Officer Luca Mastri play the pity card in an effort to deflect attention from the tax fundamentals of the case, complaining that Apple is being singled out for its success.

Indeed, it got very personal when Sewell stated that “Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines. It allows the commissioner [Margrethe Vestager] to become Dane of the year for 2016.”

Meanwhile, most of the procedural objections raised to the decision seem frivolous; it’s hard to believe the Commission’s huge report was prepared with insufficient attention to Irish tax law. In order to make this claim stick, Apple would have had to show, as it has not, that there are some serious substantive flaws associated with the decision.

Nor should it suffice for Apple to note that, if the opinion “is allowed to stand, Apple would pay 40 percent of all the corporate income tax collected in Ireland, which is unprecedented, and, far from leveling the playing field, selectively targets Apple.” The obvious reason why Apple would have to pay such a large fraction of the total Irish corporate tax is that it has insisted on bringing income that should have been charged to other EU nations to Ireland, which is itself an unprecedented move that casts doubt on Apple and not the EU.

The only reason why Apple is selected for special treatment is it is the only company that has had the audacity to create a tax shelter of that magnitude. It is hard to look at the language found in Article 107, and see any escape for Apple, whose lack of legal imagination only shows the weakness in its basic case.

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The same can be said about the argument that Ireland made in its parallel appeal. In essence, its argument is that Apple paid to Ireland all the tax that was owed to it under Irish law. “Ireland did not give favorable tax treatment to Apple — the full amount of tax was paid in this case and no state aid was provided.”

Again, this argument misses the point. The question is not whether Apple was in compliance with Irish law. The question was whether Irish law was in compliance with the requirements of Article 107.

Brussels deserves criticism when it meddles in national affairs, imposing economic regulations that stifle competition in the name of harmonization. But that’s not what’s happening here.

Richard A. Epstein is the Laurence A. Tisch professor of law at New York University, the Peter and Kirsten Bedford senior fellow at the Hoover Institution at Stanford University, and the James Parker Hall distinguished service professor emeritus and senior lecturer at the University of Chicago.