European commission called unfair in move some say could affect tech industry’s future – but others argue Apple shouldn’t just ‘enrich the 1%’

This article is more than 4 years old

This article is more than 4 years old

Ireland’s cosy relationship with Silicon Valley has been called into question after the European commission slapped Apple with a whopping $14.6bn tax bill.

The commission argued the “sweetheart” tax arrangements Ireland made with Apple between 1991 and 2015 allowed the tech giant to avoid tax on almost all profits from sales of its products across the EU’s single market, booking the profits in Ireland rather than the country where the product was sold.

The reaction in Silicon Valley – which has long used creative accounting to outsmart the tax man – as well as the wider tech community has been one of shock and disappointment.

“Instead of saying ‘going forward, this won’t be allowed’ – which seems more fair – the EU is trying to change the rules of the game retroactively. It makes little sense to me,” said Om Malik of the San Francisco venture capital firm True Ventures.

“If they change the rules going forward, that’s their prerogative. These companies have been complying with the Irish rules. Now a lot of them will have to re-evaluate their relationships with Europe.”

‘This could be a serious problem for the tech industry’

It’s not just big companies that will be affected, says Matt Lerner from the venture capital seed fund and accelerator 500 Startups.

“The world is getting smaller. Every day we see the free flow of talent and capital across borders. Sometimes it’s for a lower cost of living, or to reach talent or for tax breaks. Even startups are doing this stuff,” he said.

The EU is trying to change the rules of the game retroactively Om Malik, True Ventures

“What concerns founders and their investors is if there’s a lack of predictability. Apple has been doing this since 1991, thinking it was following the law, and now suddenly it’s a problem.

“Intellectually, this concerns me a lot. For this to suddenly happen could be a serious problem for the tech industry,” he said. “But the public markets aren’t too panicked about this, which leads me to believe this isn’t the end of it.”

‘Ireland may never see a cent of that €13bn’

For Daire Hickey, the Irish cofounder of Web Summit, a conference for startups, the decision is bad news for his homeland, despite some Irish newspapers reporting the news as if it were a lottery win for the country.

“Ireland has always been transparent in its wish to tax Apple and other multinationals at a low rate. The EU is moving the goalposts by giving a decision on something that has been going on for decades.

“While the country could do with €13bn, we have always been up front about our low tax rate and we absolutely have to defend it.

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“It’s farcical to suggest for the EU to dangle €13bn in front of the Irish people. Between appeals, claims made by other countries, including the US, Ireland may never see a cent of that €13bn. This policy could open the floodgates for chaos.”

But not everyone in the valley is Team Apple.

‘Sales in Europe should be taxed in Europe’

“Neither Apple nor any other company should be allowed to have their cake and eat it too,” said Pratap Chatterjee, of the San Francisco-based watchdog CorpWatch. “Sales in Europe should be taxed in Europe.”

It is wrong that my purchases are used to enrich the 1% rather than support the community in which Apple works Pratap Chatterjee, CorpWatch

“As a San Francisco Bay area resident, I have used Apple computers and phones for 25 years and I think it is wrong that my purchases are used to enrich the 1% rather than supporting the community in which it works.”

Silicon Valley has long had close ties with the Emerald Isle, stemming from the thousands of Irish emigrants who moved to San Francisco in the early 1800s, fleeing a country facing famine in favour of one on the cusp of a gold rush.

In 1854, two newly successful Irish arrivals, Denis Oliver and Dan McGlynn, bought a plot of land to the south of San Francisco and founded a ranch, which they named after a place in Galway where Oliver grew up – Menlo Park, now home to Facebook and the venture capital firms clustered along Sand Hill Road.

In more recent years, Ireland, along with the Netherlands and Luxembourg, have wooed Silicon Valley with attractive tax deals, offering low rates of corporate tax in return for job creation and investment. What this meant for Apple was an effective tax rate of less than 1% of profits.

Today’s ruling is just the start. Tax collectors across Europe will be poring over the business activities of Apple and other multinationals in their markets, wringing their hands at the tantalizing possibility of an EU-sanctioned windfall.

Meanwhile, Silicon Valley’s tech elite prepares to board private jets to Burning Man, wondering what the European Union has against them.