After the European Commission Ordered Apple to Pay Back Taxes to Ireland: Ireland's Future in the New Global Tax Environment

Indiana Journal of Global Legal Indiana Journal of Global Legal

Studies Studies

Volume 25 Issue 1 Article 21

2-15-2018

After the European Commission Ordered Apple to Pay Back Taxes After the European Commission Ordered Apple to Pay Back Taxes

to Ireland: Ireland's Future in the New Global Tax Environment to Ireland: Ireland's Future in the New Global Tax Environment

Boyu Wang

Indiana University Maurer School of Law

, [email protected]

Follow this and additional works at: https://www.repository.law.indiana.edu/ijgls

Part of the Comparative and Foreign Law Commons, Taxation-Transnational Commons, and the Tax

Law Commons

Recommended Citation Recommended Citation

Wang, Boyu (2018) "After the European Commission Ordered Apple to Pay Back Taxes to Ireland: Ireland's

Future in the New Global Tax Environment,"

Indiana Journal of Global Legal Studies

: Vol. 25: Iss. 1, Article

21.

Available at: https://www.repository.law.indiana.edu/ijgls/vol25/iss1/21

This Note is brought to you for free and open access by

the Maurer Law Journals at Digital Repository @ Maurer

Law. It has been accepted for inclusion in Indiana Journal

of Global Legal Studies by an authorized editor of Digital

Repository @ Maurer Law. For more information, please

contact [email protected].

After

the

European

Comnmission

Ordered

Apple

to

Pay

Back

Taxes

to

Ireland:

Ireland's

Future

in

the

New

Global

Tax

Environment

BoYU

WANG*

ABSTRACT

On

August

30,

2016,

the

European

Commission

ordered

Ireland

to

collect

$14.5

billion

plus

interest

in

unpaid

taxes

between

2003

and

2014

from

Apple

Inc.

The

European

Union

suggested

that

Ireland

made

"sweetheart

deals"

with

Apple

in

exchange

for

bringing

more

jobs

into

the

country

and

concluded

that

these

deals

constituted

illegal

tax

benefits,

contrary

to

the

European

Union's

prohibitions

against

"state

aid."

Profit

shifting

and

transfer

pricing

manipulation

dominate

the

analysis

of the

corporate

tax

structure

in

Ireland

and

its

position

in

the

context

of

global

tax

policy.

This

note

explains

the

European

Commission's

Apple

decision

and

analyzes

how

this

decision

will

affect

Ireland's

international

relations

and

its

law

reform,

so

that

Ireland

could

comply

with

the

European

Union

and

international

tax

law.

The

European

Commission's

Apple

decision

helped

the

United

States,

the

European

Union,

and

Ireland

start

a

conversation

on how

to

work

together

to

regulate

tax

evasion

on

a

global

scale.

I

conclude

that

tax

system

reforms

on

an international

scale

will

happen

in

the

future

to

combat

"illegal

deals"

between

multinational

companies

and

specific

countries.

Boyu

Wang

is

a

Managing

Editor

for

the

Indiana Journal

of

Global

Legal

Studies,

Volume

25.

She

is

a

Juris

Doctor

Candidate

at

Indiana

University

Maurer

School

of

Law

and

received

her

Bachelor

of

Arts

degree

from

China

University

of

Political

Science

and

Law

in

2013

and

Master

of

Laws

degrees

from

Montreal

University

in

2014

and

from

Indiana

University

in

2015.

Boyu

is

immensely

grateful

to

her

family,

friends,

and

advisors

for

their

unyielding

support.

Indiana

Journal

of

Global

Legal

Studies

Vol.

25

#1

(Spring

2018)

@

Indiana

University

Maurer

School of

Law

539

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

INTRODUCTION

On

August

30,

2016,

the

European

Commission

(EC)

ordered

Ireland

to

collect

$14.5

billion

plus

interest

in

unpaid

taxes

between

2003

and

2014

from

Apple

Inc.

1

After

massive

media

coverage

of

the

European

Commission's

ruling,

the

public

became

aware

of

the

corporate

tax

avoidance

issue

on

a

global scale.

2

The

European

Commission's

ruling

focuses

on

Apple's

structure

in

Ireland;

the question

at

the

heart

of

the

dispute

is

whether

Apple's

tax

agreements

constitute

"state

aid." Apple

based

a

major

international

division,

Apple

Sales

International,

in

an

office

in

Cork,

Ireland.

In

2011,

this

division

generated

more

than

C16

billion

($22

billion)

in

pretax

profit

but

paid

Ireland

less

than

£10

million

in

income

taxes,

which

represents

an

effective

tax

rate

of

0.05

percent

and

is well

below

Ireland's

12.5

percent

corporate

tax

rate.

3

How

did

Apple

manage

to

pay

such

a

low

tax?

Apple

made

two

agreements

with the

Irish

Revenue

Commissioners

in

1991,

updated

in

2007,

concerning

profits

allocation

among

Apple's

subsidiaries

in

Ireland.

4

According

to

these

agreements,

only

C50

million

of

the

£16

billion

pretax

profits

in

2011

were

considered

taxable

in

Ireland.

The

European

Commission

concluded

that

these

two

tax

agreements

constituted

illegal

tax

benefits,

contrary

to

the

European

Union's

prohibitions

against

"state

aid."

5

The

European

Union

suggested

that

Ireland

made

"sweetheart

deals"

with

Apple

in

exchange

for

bringing

more

jobs

into

the

country.

6

This

note

explains

the

European

Commission's

Apple

decision

and

analyzes

how

this

decision

will

affect

Ireland's

international

relations

1.

James

Kanter

&

Mark

Scott,

Apple

Owes

$14.5

Billion

in

Back

Taxes

to

Ireland,

E.

U.

Says,

N.Y.

TIMEs

(Oct.

30,

2017),

http://www.nytimes.com/2016/08/31/technology/

apple-tax-eu-ireland.html;

Letter

from

European

Commission

to

the

Republic

of

Ireland,

State

Aid

SA.

38373

(2014/C)

(ex 2014/NN)

(ex 2014/CP)

-

Ireland

Alleged

Aid

to

Apple,

21-22

(June

11,

2014)

(discussing

unpaid

taxes

Ireland

had

not

collected

from

Apple),

http://ec.europa.eulcompetition/state-aid/cases/253200/253200_1582634_87_2.pdf

[hereinafter

Letter

from

EC

to

Ireland].

2.

Kanter

&

Scott,

supra

note

1;

Letter

from

European

Commission

to

the

Republic

of

Ireland,

supra

note

1.

3.

Stu

Woo &

Sam

Schechner, At

Issue

in

Apple-EU

Tax

Case:

Did

Ireland

Take

Enough?,

WALL

ST.

J.

(Aug.

30,

2016,

1:09 PM),

http://www.wsj.comlarticles/at-issue-in-

apple-eu-tax-case-did-ireland-take-enough-1472576989.

4.

Id.;

Letter

from

European

Commission

to

the

Republic

of

Ireland,

supra

note

1,

at

2.

5.

Woo

&

Schechner,

supra

note

3.

6.

Natalia

Drozdiak,

Viktoria

Dendrinou

&

Sam

Schechner,

EU

Set

to

Rule

Apple

Tax

Deal

with

Ireland

Illegal,

WALL

ST.

J.

(Aug.

30,

2016, 12:39

AM),

http://www.wsj.com

/articles/eu-set-to-rule-as-soon-as-tuesday-apple-tax-deals-with-ireland-illegal-1472494231?mod

-whatnext&cx

navSource=cx

picks&cx-tag-contextual&cx

artPos-3#cxrecss.

540

AFTER

THE

EUROPEAN

COMMISSION

ORDERED APPLE

and

its

law

reform,

so

that

Ireland

could comply

with

the European

Union

and

international

tax

law.

7

Profit

shifting

and

transfer

pricing

manipulation

dominate

the analysis

of

the

corporate

tax structure

in

Ireland

and

its

position

in the

context

of global

tax

policy.

8

Although

bilateral

and

multilateral

tax

treaties

address

some

issues

of

the

sovereignty

of

tax

policies

in

the

context

of

an

increasingly

globalized

and

cross-jurisdictional

economic

system,

9

loopholes

between

the

various systems

provide

corporations

with

abundant

opportunities

to

minimize

their

tax

liability.1

0

Part

II

of

this

paper

explains

how

tax

evasion

became

a

global

issue

due

to

technological

developments

that

enhanced

international

mobility.

The

section

lays

out

some of

the

benefits

for

choosing

Ireland,

instead

of

a

corporation's

home

country,

as

the

state

of

incorporation.

Part

III

explains

the

"double

Irish"

structure

used

by

some

multinational

corporations

to

lower

their

corporate

tax

liability,

some

basic

tax

rules,

and

Apple's

structure

in

Ireland.

Part

IV

introduces

the

European

Commission's

decision

by

explaining

the

basis

of

the European

Commission's

ruling and

why

the European

Commission

has

the

authority

to

regulate tax

arrangements

between

Apple

Inc.

and

the

Irish

Government.

Specifically,

the European

7.

In

the

customary

method

of

the study

of

international

relations

and

international

law,

the

stress

is

on

the

state

or

nation

factor.

PHILIP

C.

JESSUP,

TRANSNATIONAL

LAW

11

(1956).

8.

See

E.

U.'s

Apple

Ruling

Is

No

Precedent

for

Future

Tax

Cases,

FORTUNE

(Sept.

26,

2016),

http://fortune.com/2016/09/26/apple-no-precedent-tax-cases/;

see

also

Stephen

C.

Loomis,

The

Double

Irish

Sandwich:

Reforming

Overseas

Tax Havens,

43

ST.

MARY'S

L.J.

825,

826

(2012);

Tom

Fairless,

EU

Regulators

to

Require

Starbucks,

Fiat

Pay

Millions

of

Euros in

Back

Taxes,

WALL

ST.

J.

(Oct.

21,

2015,

12:41

PM),

http://www.wsj.com/articles

/eu-rules-that-starbucks-fiat-benefited-from-illegal-tax-deals-1445419279;

Simon

Bowers,

Starbucks

and

Fiat

Sweetheart

Tax

Deals

with

EU

Nations

Ruled

Unlawful,

GUARDIAN

(Oct.

21,

2015),

https://www.theguardian.comlbusiness/2015/oct/21/starbucks-and-fiat-tax-

deals-with-eu-nations-ruled-unlawful.

9.

United

States

and

Ireland

have

bilateral

treaties.

See,

e.g.,

Convention

for

the

Avoidance

of Double

Taxation and

the

Prevention

of

Fiscal

Evasion

with

Respect

to

Taxes

on

Income

and

Capital

Gains,

U.S.-Ir.

Sept.

24,

1997,

39

U.S.T.

112;

see

also

Nelson

D.

Schwartz

&

Charles

Duhigg,

Billions

in

Taxes Avoided

by

Apple,

U.S.

Inquiry

Finds,

N.Y.

TIMES,

May

21,

2013,

at

Al

(discussing

the

Congressional

hearings

held

to uncover

the

scope

of

the

tax

avoidance

schemes

employed

by

Apple,

as

well

as

numerous

other

multinational

companies).

10.

For

example,

Google

has

created

four

separate

subsidiaries

and

has

used

conflicting

tax

codes,

as

well

as

bilateral

tax

agreements

to

avoid

paying

almost

any

U.S.

taxes.

Starbucks

has

for

years

made

Amsterdam

the

heart

of

its

European

operations.

See

Jesse

Drucker,

Google

2.4%

Rate

Shows

How

$60

Billion

Lost

to

Tax

Loopholes,

WASH.

POST

(Oct.

21,

2010,

6:00

AM),

http://www.washingtonpost.comlwp-dyn/content/article

/2010/10/22/AR2010102203253.html;

ERNST

&

YOUNG

LLP,

COMMON

CONSOLIDATED

CORPORATE

TAx

BASE:

A

STUDY

ON

THE

IMPACT

OF

THE

COMMON

CONSOLIDATED

CORPORATE

TAx

BASE

PROPOSALS

ON

EUROPEAN

BUSINESS

TAXPAYERS,

7-12

(2011),

http://taxinstitute.ie/Portals//EY%20CCTB.pdf.

541

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

Commission

stated

that

its

decision

was

not

based

on

the

general

"double

Irish"

structure

or

the

lower

Irish

corporate

tax

rate,

but

rather,

it

was

about

Apple's

"illegal

deals"

with

the

Irish

government,

which

allowed

Apple

to

pay

virtually

nothing

on

its

European

business

for

years."

Part

V

analyzes

the

European

Union's

position

in

intervening

in

Apple's

tax

arrangements

with

Ireland

and

the

ramifications

of

the

European

Commission's

decision

to

Ireland.

Ireland's

governmental

representatives

expressed

that

they

were

going to

support

Apple

and

appeal

the

decision.12

This

position

is

not

surprising

since

Ireland

would

like

to

maintain

its reputation

as

being

tax

friendly

and

keep

attracting

significant

foreign

investment.

However,

with

the

global

awareness

of

tax

evasion

problems,

especially

after

the

Apple

decision,

Ireland

has

to

be

more

cautious

when

entering

into

private

deals

with

multinational

corporations

because

the

private

arrangements

could

be

investigated

by

the

European

Commission,

which

might

affect

Ireland's

reputation

as

being

tax

friendly.

I

conclude

that

tax

system

reforms

on

an

international

scale

will

happen

in

the

future

to

combat

"illegal

deals"

between

multinational

companies

and

specific

countries,

like

Ireland

in

Europe.

13

The

European

Commission's

Apple

decision

helped

the

United

States,

the

European

Union,

and Ireland

start

a

conversation

on

how

to

work

together

to

regulate

tax

evasion

on

a

global

scale. The

Organization

for

Economic

Cooperation

and

Development

(OECD)

also

tried

to

implement

projects

to combat

the

global

tax

evasion

problem.

While

Ireland

will

have

to

pay

close

attention

to

internationally

agreed

upon

standards

established

by

the

OECD,

Ireland

will

try

to

stay

competitive

and attractive

in

the

global

market

by

maintaining

its

lower

tax

rate

and

supporting

foreign

companies

in establishing

business

in

Ireland.

11.

Kanter

&

Scott,

supra

note

1.

12.

Ireland

to

Change

Company

Tax

Laws,

but

12.5%

Corporation

Tax

Rate

to

Stay,

RTE

NEWS

(Oct.

15,

2013,

7:01

PM), http://www.rte.ie/news/business/2013/1015/480547-

government-committed-to-12-5-corporation-tax-rate/;

Andrew

P.

Kummer,

Pro-Business

but

Anti-Economy?:

Why

Ireland's

Staunch

Protection

of its

Corporate

Tax

Regime

is

Preventing

a

Celtic

Phoenix From

Rising From

the Ashes

of

the

Celtic Tiger,

9

BROOK

J.

CORP.

FIN.

&

COM.

L.

284,

301-02

(2014).

13.

See

Jerald

David August,

Update

on

OECD

Base

Erosion

and

Profit

Shifting

Project,

KOSTEIANETZ

&

FINK,

LLP

(Aug.

17,

2016),

http://www.kflaw.com/update-on-oecd

base

erosion-and_profit-shifting-project.

542

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

I.

BACKGROUND

A.

Global

Economy

and

Scale

According

to

one

theory,

"[t]he

modern

state

is based

on

the

assumption

that

law

operates

on

a

single scale,

the

scale

of

the state."

14

"[Tihe

fixed

location

of

tangible

property

tend[s]

to

restrict

corporate

wealth

and

identity

to

fairly

defined

boundaries."

15

Thus,

for

a

long

time, corporations

have

primarily

been

linked

to

their

home

countries.

16

However,

with

increased

mobility

of

capital,

labor,

and

property,

political

barriers

continued

to

decline

and

multinational

corporations

inevitably

began

to

emerge.

17

With

the

explosion

of

globalization,

global

companies

tend

to

take

advantages

of

different

countries'

political

economies,

laws,

and

governments

to

achieve

wealth

concentration.

18

From

the

tax

perspective,

multinational

companies

have

a

financial

incentive

to

allocate

as much

profit

as

possible

to

low

tax

jurisdictions

by

taking

advantages

of

the

inconsistencies

of

the

international

taxation

rules.'

9

This

problem

is

further

emphasized

in

the

"case

of

global

technology

companies," whose

"primary

asset

and

source

of

income

is

intellectual

property

that

may

be

easily shifted

to

tax-friendly

countries."

20

B.

Benefits

for

Multinational

Corporations

to

Establish

Business

in

Ireland

Historically,

cities

became

places

where

people

of

different

origins

clustered

together

on

a

semi-permanent

basis out

of

mutual

interest.

2

1

Beginning

in

the

1980s,

the

Irish

government played

an

active

role

in

14.

Boaventura

de

Sousa Santos,

Law:

A

Map

of

Misreading.

Toward

a

Postmodern

Conception

of Law,

14

J.L.

&

SoC'Y,

279,

287

(1987).

15.

Steven

A.

Bank,

The

Globalization

of Corporate

Tax

Reform,

40

PEPP.

L.

REV.

1307,

1307

(2013).

16.

Id.

17.

Id.

at

1308.

18.

See

SASKIA

SASSEN, EXPULSIONS: BRUTALITY

AND

COMPLEXITY

IN

THE

GLOBAL

ECONOMY

14-15

(2014).

19.

See

CHARLES

H.

GUSTAFSON

ET

AL.,

TAXATION

OF INTERNATIONAL

TRANSACTIONS:

MATERIALS,

TAX

AND

PROBLEMS

710

(4th

ed.

2011)

(describing

the

setting

of

prices

on

all

types of

transactions

between

see

also

Brian

Mistler,

Taking

Action

Against

Base

Erosion

Profit

Shifting,

32

ARIZ.

J.

IN'L

&

COMP.

L.

903,

904

(2015).

20.

Bank,

supra

note

15,

at

1310.

21.

GREG

CLARK,

GLOBAL

CITIES

12

(2016).

543

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

promoting

foreign

direct

investment

(FDI)

from

large

multinational

corporations.

22

Ireland's

economy

developed

tremendously

ever

since.

One

of

the

reasons

that

foreign

corporations

chose

to

locate

in

Ireland

is

the

12.5

percent

corporate

tax

rate,

23

which

is

one

of

the

lowest

corporate

tax

rate

regimes

in

the

world.

24

By

comparison,

the

United

States

has

a

much higher

corporate

tax

rate

of

35

percent.

25

This

means

that

when

a

company

generates

$10

million

in

profit,

it

needs

to

pay

$3.5

million

U.S.

tax

if

the

company

were

built

in

the

United

States,

while

it

only

pays

$1.25

million

if

the

factory

were

built

in

Ireland.

In

addition

to

the

12.5

percent

tax

rate,

Ireland

provides

tax

subsidies

for

research

and

development

and

other

activities.

26

However,

it

is

22.

Foreign

direct

investment

has

long

been

regarded

as

a key

component

in

Ireland's

economic

development.

Since

the late

1950s,

the

government

moved

away

from

import

substitution

strategies,

protectionism,

and

foreign

ownership

restriction

to

allow

nearly

unrestricted

access

to

the

Irish

economy.

Org.

for Econ.

Co-Operation

and

Dev.

[OECD],

OECD

REVIEWS

OF

FOREIGN

DIREcT

INVESTMENT:

IRELAND,

at

7-10

(1994),

https://www.oecd.org/ireland/34383945.pdf;

see

also

Michael

Mikiciuk,

Foreign

Direct

Investment

Success

in

Ireland-

Can

Poland

Duplicate

Ireland's

Economic Success

Based

on

Foreign

Direct

Investment

Policies?,

14

U.

MIAMI

INT'L

&

COMP.

L.

REV.

65,

95

(2006);

Apple

Tax

Case:

Why

is

Ireland

Refusing

Billions?,

BBC

(Sept.

7,

2016),

http://www.bbc.

com/news/world-europe-37299430.

23.

See

Ireland

Corporate

Tax

Rate

1981-2016,

TRADING

EcON.,

http://www.tradingeconomics.com/ireland/corporate-tax-rate

(last

updated

Oct.

2017);

CORPORATE

TAX

RATES

TABLE,

KPMG,

https://home.kpmg.com/xx/en/home/services/tax/

tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html

(last

visited

Oct.

30,

2017);

Conor

O'Brien,

Is Ireland's

Corporation

Tax

Regime

Fit

for

Purpose?,

IRISH

TIMES

(June

11,

2013,

1:00 AM),

http://www.irishtimes.comlbusiness/economy/is-ireland-s-

corpbration-tax-regime-fit-for-purpose-1.1423602.

24.

According

to

a

corporate

tax

rate table

published

by

KPMG,

the

tax rate

of

some

other

countries

in

Europe

is

as

follows:

Belgium:

33.99%;

France:

33.3%;

Germany:

29.72%;

Iceland:

20%;

Italy:

31.4%;

Netherlands:

25%.

See

CORPORATE

TAX

RATES

TABLE,

supra

note

23;

Vincent

Boland,

Dublin

Ditches

Double

Irish

to

Save

Low

Tax

Regime,

FIN.

TIMES

(Oct.

14,

2014),

https://www.ft.com/content/1f740b46-539b-11e4-929b-00144feab7de.

25.

I.R.C.

§

11(b)(1)

(2016);

CORPORATE

TAX

RATE

SCHEDULE

2014,

TAX

POLIcY

CENTER

(Jan.

20,

2015),

http://www.taxpolicycenter.org/sites/default/fileslegacy/taxfacts/

content/pdf/corporaterates.pdf-

Anton

Aurenius, How

the

U.S.

Corporate

Tax Rate

Compares

to

the

Rest

of

the

World,

TAX

FOUNDATION

(Aug.

22,

2016),

http://taxfoundation.org/blog/how-us-corporate-tax-rate-compares-rest-world.

Effective

as

of

December

21,

2017,

the

United

States

changed

Section

11

of

the

Internal

Revenue

Code,

and

the

new

corporate

tax

rate

is

twenty-one percent.

I.R.C.

§

11

(2017).

This

note

only

discusses the

effects

and

implications

of

the

Apple

decision

in

the

context

of

structures

in

the

United

States

and in

Europe.

26.

"Ireland

has an

R&D

[Research

and

Development]

Tax

Credit

scheme since

2004.

Qualifying

R&D

expenditure generates

a

25%

tax

credit

for

offset

against

corporation

tax,

in

addition

to

the

tax

deduction

. . .

."

IDA

IRELAND,

TAXATION

IN

IRELAND

2016

(2016),

http://www.idaireland.com/docs/publications/Taxation_2016.pdf;

Kummer,

supra

note

12.

544

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

generally

asserted

that

no

preferential

treatment

exists

under

Ireland's

corporate

tax

structure.

27

Other

factors

that

help

a

corporation

decide

whether

to

establish

business

in

Ireland

include

the

quality

and

flexibility

of

the

English-

speaking

workforce,

availability

of

a

multilingual

labor

force,

cooperative

labor

relations,

political

stability,

pro-business

government

policies

and

regulators,

a

transparent

judicial

system,

transportation

links,

proximity

to

the

United

States

and

Europe,

and

the

drawing

power

of

existing

companies

operating

successfully

in

Ireland.

28

II.

THE

DOUBLE

IRISH

PROBLEM

AND

APPLE'S

STRUCTURE

IN

IRELAND

The

setting

of

prices

for

the

transfer

of goods

or

services

from

one

company

to

another

is

called

"transfer

pricing"

and

is

used

to

reduce

tax

liabilities

in

relatively

high-tax

countries.

29

The

problem

of

transfer

pricing

is

that

it

gives

an

advantage

to

a

company

if

it

can

artificially

allocate

profits

between

associate

companies

in

different

jurisdictions.

30

Lenient

U.S.

transfer

pricing

rules

allow

Irish

factories

to

generate

excessive

profits

that

should

have

been

taxed

in

the

United

States.

For

example,

if

a

company

generates

$30

million

profits,

when

it

shifts

$20

million

of

the

$30

million

profit

from

the

United

States

to

Ireland,

it

reduces

its

U.S.

tax

by

$7

million.

31

27.

Rashid

Raiyan,

What

the

Apple

Tax

Dispute

Means

for

the

EU-US

Relationship,

MKT.

MOGUL

(Sept.

6,

2016),

http://themarketmogul.com/what-the-apple-tax-dispute-

means-for-the-eu-us-relationship/.

But

there

are

special

deals

for

certain

companies

on

an

individualized

basis.

O'Brien,

supra

note

23.

28.

A

survey

released

by

Ernst

&

Young

in

2010

stated

that

the

best

way

for

states

to

stimulate

future

European

attractiveness

is:

(1)

whether

they

support

small

and

medium-

sized

enterprises;

(2)

whether

they

support

high-tech

industries

and

innovation;

and

(3)

whether

they

can

reduce

taxation

and increase

flexibility.

See

Jim

Stewart,

Low

Corporate

Tax

Rates

and

Economic

Development,

in

ENACTING

GLOBALIZATION:

MULTIDISCIPLINARY

PERSPECTIVES

ON

INTERNATIONAL

INTEGRATION

6-7

(Louis

Brennan

ed.,

2014);

BUREAU

OF

ECON.

&

Bus.

AFF.,

U.S.

DEP'T

OF

ST.,

2016

INVESTMENT

CLIMATE

STATEMENTS:

IRELAND

(2016),

http://www.state.gov/e/eb/rls/othr/ics/2016/eur/254375.htm;

Landon

Thomas

Jr.

&

Eric

Pfanner,

Even

Before

Apple

Tax

Breaks,

Ireland's

Policy

Had

Its

Critics,

CNBC

(May

22,

2013,

4:59

AM),

http://www.cnbc.com/id/100756298.

29.

DENNIS

CAPLAN,

MANAGEMENT

ACCOUNTING

CONCEPTS

AND

TECHNIQUES,

ch.

23

(2010).

30.

See

E.

U.'s

Apple

Ruling Is

No

Precedent

for

Future

Tax

Cases,

supra

note

8.

31.

See

Martin

Sullivan,

If

Ireland Is

Not

a

Tax

Haven,

What

Is

It?,

FORBES

(Nov.

6,

2013,

9:57

AM),

http://www.forbes.com/sites/taxanalysts/2013/1

106/if-ireland-is-not-a-tax-

haven-what-is-it/;

Michael

Hennigan,

How

Apple

Found

a

Bigger Tax

Loophole

than

the

Double

Irish,

FINFACTS

(Aug.

17,

2016),

http://www.finfacts.ie/Irishfinance-news/article

Detail.php?How-Apple-found-a-bigger-tax-loophole-than-the-Double-Irish-681.

545

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

A.

The

Double

Irish

Structure

The

common

arrangement

in

Ireland

is

a

structure

called

"Double

Irish."

32

It

is

developed

by

using

a

twist

in

Irish

law

by

sending

royalty

payments

for

intellectual

property

from

one

Irish-registered

subsidiary

to

another

that

resides

in

a "tax

haven."

33

Apple

Inc.

used

the

legal

loophole

created

by

the

difference

between

the

U.S.

and

Irish

tax

laws

to

determine

the

basis

of

taxation,

and

developed

a

unique

structure

that

is

similar

to

the

double

Irish

scheme to

lower

its

tax.3

The

purpose

of

the

structure

is

to

trigger the deferral

provisions

of

the

U.S.

tax

code

for

profits

earned

outside

the

United

States.

35

The

earnings

of

foreign

corporations

will

not

be

taxed

in

the United

States

until

the

foreign

corporation

repatriates

its

earnings

through

the

distribution

of

dividends.

36

This

deferral

is

maintained

as

long

as

the

profits are

retained

in

the

non-U.S.

incorporated

affiliates

and

not

repatriated

to

the

U.S.

parent.

37

32.

See

Loomis,

supra

note

8,

at

828;

Vanessa

Houlder,

Q&A-

What

is

The

Double

Irish?

European

Commission

Has

Threatened

to

Launch

a

Formal

Investigation,

FIN.

TIMES

(Oct.

9,

2014),

https://www.ft.com/content/f7a2b958-4fc8-11e4-908e-00144feab7de.

33.

See

Scott DeAngelis,

If

You

Can't

Beat

Them,

Join

Them:

The

U.S.

Solution

to

the

Issue

of

Corporate

Inversions,

48

VAND.

J.

TRANSNAT'L

L.

1353,

1369 (2015);

see

also

Sam

Schechner,

Ireland

to Close

"Double

Irish"

Tax

Loophole:

Change

to

Come

Slowly,

Particularly

Affecting

U.S.

Tech

Firms

Like

Google

and

Facebook,

N.Y.

TIMES

(Oct.

14,

2014,

4:48

PM),

http://www.wsj.com/articles/ireland-to-close-double-irish-tax-loophole-

1413295755.

34.

See

EU

Releases

World

Tax

Havens

Blacklist,

EUBUSINESS

(June

18,

2015,

9:53

CET),

http://www.eubusiness.com/news-euleconomy-politics.

120n;

see

also

Enzo Miraslov

et

al.,

Apple

Inc's

Dubious

Tax

Evasion

Strategy:

Double

Irish

with

a

Dutch

Sandwich,

YONSEI

UNDERWOOD

GItNIES

L.

REV.

(May

15,

2016),

https://yonseiuiclawreview.wordpress

.com/2016/05/15/apple-incs-ingenious-tax-evasion-strategy-double-irish-with-a-dutch-

sandwich/.

35.

Seamus

Coffey,

Exaggerating

the

Irish-US

Economic

Relationship,

ECON.

INCENTIVES

(Mar.

5,

2015),

http://economic-incentives.blogspot.com/2015/03/exaggerating-

irish-us-economic.htmL

36.

Andrew

Mitchel

&

Ryan

E.

Dunn,

Subpart

F

Income,

INT'L

TAX

BLOG

(Nov.

14,

2011),

http://intltax.typepad.com/intltax-blog/2011/11/subpart-f-income.html.

37.

Coffey,

supra

note

35.

From the

U.S.

perspective,

the

operating

subsidiary

is

disregarded

under

the

check-the-box regime

so

that

the

cash

flowing

into

the

holding

company

does

not

trigger

subpart

F

inclusions

to

the

U.S.

parent.

Joseph

P.

Brothers,

Featured

Perspectives:

From

the

Double

Irish

to

the

Bermuda

Triangle,

TAX ANALYSTS

2014,

at

687

(Nov. 24,

2014),

http://www.sven-giegold.de/wp-content/uploads/2015/03/

From-Double-Irish-to-Bermuda-Triangle-2014.pdf.

The

subpart

F

rules

attempt

to

prevent

deflection

of

income,

either

from

the

United

States

or

from

the

foreign

country

in

which

earned,

into

another

jurisdiction

which

is

a

tax

haven

or

which

has

a

preferential

tax

regime

for

certain types

of income.

OFF.

OF

TAX

POL'Y,

DEP'T

OF

THE

TREASURY,

THE

DEFERRAL

OF

INCOME

EARNED

THROUGH

U.S.

CONTROLLED

FOREIGN

CORPORATIONS:

A

546

AFTER

THE

EUROPEAN

COMISSION

ORDERED

APPLE

The

"double

Irish"

structure

needs

at

least

three

companies

to

work.

38

The

first

company

is

a

U.S.

company

(U.S.

Co.),

which

licenses

its

intellectual

property

(IP)

to

a

subsidiary

based

in

Ireland

(Irish

Co.

1).39

Irish

Co.

1

then

licenses

the

patent

rights

to

a

second

Irish

company

(Irish

Co.

2),

which receives

income

from

Irish

Co.

1,

but

has

to

pay

royalties

and

fees

to

Irish

Co.

1.40

Thus,

Irish

Co.

2's

taxes

are

lower

because

the

royalties

and

fees

paid

to

Irish

Co.1.

are

deductible

expenses.

The

U.S.

company

doesn't

pay

any federal

taxes

on

the

income

from

the

Irish

companies

because

the

earnings

were

not

made

in

the

United

States.

41

The

combined

company's

global

profits

are

reported

in

Ireland,

regardless

of

where

they

are

earned.

4

2

B.

Inconsistence

of

Taxation

System

in

Ireland

and

in

the

United

States

There

are

two

major

types

of

taxation

systems

for

taxing

international

income:

the

territorial

system

and

the

worldwide

system.

43

Under

a

territorial

tax

system,

only income

derived

within

the

country

would

be

taxed,"

and

most

or

all

foreign

income

would

be

exempted.

45

POLICY

STUDY,

at

xii

(2000),

https://www.treasury.gov/resource-center/tax-policy/Docu

ments/Report-SubpartF-2000.pdf

38.

Daniel

Wesley,

Double

Irish

Deception:

How

Google-Apple-Facebook

Avoid

Paying

Taxes,

CREDITLOAN

(Mar.

15,

2017),

https://visualeconomics.creditloan.com/double-

irish-deception-how-google-apple-facebook-avoid-paying-taxes/.

39.

Charles

Duhigg

&

David

Kocieniewski,

How

Apple

Sidesteps

Billions

in

Taxes,

N.Y.

TIMIES

(April

28,

2012),

http://www.nytimes.com/2012/04/29/business/apples-tax-

strategy-aims-at-low-tax-states-and-nations.html;

Jeffrey

L.

Rubinger

&

Summer

Ayers

Lepree,

Death

of

the

'Double

Irish

Dutch

Sandwich"?

Not

so

Fast,

BILZIN

SUMBERG'S

TAXES

WITHOUT

BORDERS

(Oct.

23,

2014),

http://www.taxeswithoutbordersblog.com/2014

/10/death-of-the-double-irish-dutch-sandwich-not-so-fast/.

40.

Wesley,

supra

note

38.

41.

Id.;

see

also

Harriet

Taylor,

How

Apple

Managed

to

Pay

a

0.005

Percent

Tax

Rate

in

2014,

CNBC

(Aug.

30,

2016,

7:24

PM),

http://www.cnbc.com/2016/08/30/how-apples-

irish-subsidiaries-paid-a-0005-percent-tax-rate-in-2014.html.

42.

David

Jolly,

Ireland,

Home

to

U.S.

Inversions,'

Sees

Huge

Growth

in

G.D.P.,

N.Y.

TIMES

(July

12,

2016),

http://www.nytimes.com/2016/07/13/business/dealbooklireland-us-

tax-inversion.html?action=cick&contentCollection=Technology&module=RelatedCover

age&region=Marginalia&pgtype=article.

43.

See

RESTATEMENT

(THIRD)

OF

FOREIGN

RELATIONS

LAW OF

THE

UNITED

STATES

§

411

(1987)

(explaining

the

main

ways

that

people

and

corporations

are

subject

to

tax in

the United States).

44.

John

T.

VanDenburgh,

Closing

International

Loopholes:

Changing

the

Corporate

Tax

Base

to

Effectively

Combat

Tax

Avoidance,

47

VAL.

U.L.

REV.

313,

321 (2012);

see

also

HUGH

J.

AULT

&

BRIAN

J.

ARNOLD,

COMPARATIVE

INCOME

TAXATION:

A

STRUCTURAL

ANALYSIS

347-49

(2d

ed.

2004)

(discussing

how

various

jurisdictions

determine

residency

status

for

taxing).

45.

See

I.R.C.

§

861(a)

(2016);

I.R.C.

§

862(a)

(2016). To

prevent

erosion

of

the

tax

base,

a

territorial

system

could cover

income

from

financial

assets

held

by

a

foreign

547

INDIANA

JOURNAL

OF GLOBAL

LEGAL

STUDIES

25:1

Under

a

worldwide

system,

a

corporation

is

taxed

on

its

worldwide

income,

regardless

of

the

source

of

their

income.

46

The

United

States

employs

a

system

that

combines

both the

territorial

and

the

worldwide

tax

system.

47

When

operations

are

carried

out

through

a

foreign

subsidiary,

the

income

generally

will

not

be

subject

to

the

U.S.

taxation

(except

when

distributed

through

dividends

or

other

financial

alternatives).

48

Ireland

also

employs a

mix

system:

Corporations

in

Ireland

are taxed

on

their

income

wherever

it

derives

from,

like

a

worldwide

tax

system;

49

Ireland

will

not

tax

the

earnings

of

a

nonresident

corporation

(except

on

its

Irish

source

earnings),

like

a

territorial

tax

system.so

The concept of

"resident"

is

very

important

under

the

worldwide

system

because

a

corporation

will

only

be

taxed

when

it

is

a

"resident"

of

that

particular

country.

51

While

the

United

States

uses

the

place

of

incorporation

and

the

principle

place

of

business

as

the

test

for

corporate

residence,

52

Ireland

uses

"manage

and

control"

for

subsidiary

that

could

easily

be

held

by

the

U.S.

company.

Territorial

vs.

Worldwide

Taxation,

SENATE

REPUBLICAN

POLICY

COMM.

(Sept.

19,

2012),

http://www.rpc.senate

.gov/policy-papers/territorial-vs-worldwide-taxation.

46.

Hugh

J.

Ault

&

David

F.

Bradford,

Taxing

International

Income:

An

Analysis

of

the

U.S.

System

and

Its

Economic

Premises

1

(Nat'1

Bureau

of

Econ.

Research,

Working

Paper

No.

3056,

1989),

http://www.nber.org/papers/w3056.pdf

47.

MICHAEL

J.

GRAETZ,

FOUNDATIONS

OF

INTERNATIONAL

INCOME

TAXATION

157-62

(2003)

(explaining

that

the United

States

tax

system

is

referred

to

by

most

as

a

worldwide

system,

because

the

United

States

taxes

foreign

source

income

even

though

it

is

not

quite

a

pure

system).

48.

See

Ault

&

Bradford,

supra

note

46,

at

1-2.

49.

AIDAN

WALSH

&

CHRIS

SANGER,

THE

HISTORICAL

DEVELOPMENT

AND

INTERNATIONAL

CONTEXT

OF

TBE

IRISH

CORPORATE

TAX

SYSTEM

3

(2014),

http://www.budget.gov.ie/Budgets/2015/Documents/EYHistoricalDevInternationalCon

textIrish_%20CorporationTax.pdf

50.

ERNST

&

YOUNG,

WORLDWIDE

CORPORATE

TAX

GUIDE

2013,

at

589

(2013),

http://www.ey.com/Publication/vwLUAssets/EY-worldwide-corporate-tax-guide-

2013/$FILE/EY-worldwide-corporate-tax-guide-2013.pdf (noting

that

only

"[a]

company

resident

in

Ireland

is

subject

to

corporation

tax

on

its

worldwide

profits"

while

"[a]

company

not

resident

in

Ireland

is

subject

to

corporation

tax

if

it

carries

on a

trade

in

Ireland

through a

branch

or agency"

and,

in

that

case,

tax

is

assessed

only on

"trading

profits

of

the

branch

or

agency")

(emphasis

added).

51.

Daniel

Shaviro,

The

Rising

Tax-Electivity

of

U.S.

Corporate

Residence,

64

TAX

L.

REV.

377,

383

(2011)

("A

corporation

is

a

U.S.

resident

if

and

only

if

it

is

'created

or

organized

in

the

United

States

or

under

the

law

of

the

United

States

or of

any State."').

52.

28

U.S.C.

§

1332(c)(1) (2017).

In Hertz,

the

Supreme

Court

developed

the

nerve

center

test

to

determine

the

citizenship

for

diversity

jurisdiction,

which

is

the

place where

the

corporation

has

an

"office

from

which

its

business

was

directed

and

controlled,"

usually

the headquarters.

Hertz

Corp.

v.

Friend,

559

U.S. 77,

89-90

(2010).

548

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

determination

of

residency.

53

This inconsistency

gives

rise

to

the

"nowhere

residence"

problem,M

which

arises

when

companies

do

not

need to

pay

U.S.

taxes

because

a

subsidiary

in

Ireland

earned

the

profits,

while

this

same

subsidiary

claims

that

it

is

not

managed

or

controlled

in

Ireland,

so

the

corporation

doesn't

need

to

pay

the

Irish

tax

either.

5

C.

Apple's

Structure

in

Ireland

Beginning

in

the

late

1980s,

Apple

started

to

create

subsidiaries

in

Ireland.

56

Apple's

companies

incorporated

in

Ireland

are

represented

in

the

chart

below.

Apple

Apple~~~

App

e

Apleaes

Aplcea

Opershons

Operado~ns'

Distrhuio,,

ktmEwpe

Holding*

*iih

tax

rsIen

company

Chart

from

European

Conunission

Decision

of

State

Aid

SA.

38373

(2014/C)

(ex

2014/NN)

(ex

2014/CP)

Ireland:

Alleged

Aid

to

Apple,

C

(2014)

3606

final of

June

11,

2014.

Among

the

companies

on

the

chart,

Apple

Inc.

is

incorporated

in

the

United

States

and

all

other

companies

are

incorporated

in

Ireland.

In

compliance

with the

U.S.

transfer

pricing

rules,

Apple

Inc.

entered

into

a

Research

and

Development

Cost

Sharing

Agreement

57

with

its

53.

See

Corporation

Tax

(CT):

Company

Residency

Rules,

REVENUE:

IRISH

TAX

AND

CUSTOMS

(June

22,

2017)

http://www.revenue.ie/en/companies-and-charities/corporation-

tax-for-companies/corporation-tax/company-residency-rules.aspx.

54.

See

DeAngelis,

supra

note

33.

55.

See

Wesley,

supra

note

38.

56.

Schwartz

&

Duhigg,

supra

note

9.

57.

A

cost

sharing

agreement

is

an

agreement

between

companies

of

one

group

to

share

costs

and benefits

of

developing

intangible

assets;

it

is

a

form

of

a cost

contribution

arrangement

described

in

Chapter

VIII

of

the

OECD

Guidelines.

Letter

from

European

Commission

to

the

Republic

of

Ireland,

supra

note

1,

at

8

n.

13;

Cost

Sharing

Agreements:

An

Effective

Tax

Planning

Tool,

VALUATION

RES.

CORP.

(Sept.

2008),

549

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

subsidiaries,

Apple

Operations

Europe

(AOE)

and

Apple

Sales

International

(ASI),

who

are

also

parties

to

this

agreement.

According

to

the

agreement,

Apple,

AOE,

and

ASI

share

research

and

development

costs

and

risks

for

developing

certain

Apple

products

5 8

as

well

as

the

ownership

of

the

IP

rights

to

Apple

goods

sold

offshore.

59

Thus,

the

Irish

subsidiaries

were

allowed

to

receive

all

of

the

profits

from

exploiting

Apple

Inc.'s

IP

rights

abroad

without

paying

U.S.

taxes.co

For

sales

of

Apple

products,

ASI

signs

a

contract

with

an

independent

third-party

manufacturer

in

China

to

assemble

the

Apple

products

and

then

resells

the

products

to

Apple

Distribution

International

for

sales

in

Europe,

the

Middle

East,

Africa,

and

India

(and

to

Apple

Singapore

for

sales

in

Asia

and

the

Pacific

region).

6

'

In

the

end,

about

90

percent

of

Apple's

foreign

profits

are

earned

by

Irish

subsidiaries.

62

Apple

levied

a

big

part

of

the

profits

earned

elsewhere

in

Europe

to

account

for

IP and

used

it

to reduce

the

Irish

tax

on

its

earnings

from

Europe.

63

Unlike

most

other

multinational

corporations

that

use the

double

Irish

structure,

Apple

did

not

put

its

IP

used

in

Europe

and

other

non-U.S.

markets

in

separate

companies.

64

Instead,

ASI

was

split

http://www.valuationresearch.com/sites/default

/files/kb/4_CostSharing.pdf.

The

bigger

advantage

was

that

the

arrangement

allowed

Apple

to

send

royalties

on

patents

developed

in

California

to

Ireland.

The

transfer

was

internal,

and

simply

moved

funds

from

one

part

of

the

company

to

a

subsidiary

overseas.

Duhigg

&

Kocieniewski,

supra

note

39.

58.

Letter

from

European

Commission

to

the

Republic

of

Ireland,

supra

note

1,

at

8

n.13.

59.

Walter

Hickey,

Apple

Avoids

Paying

$17

Million

in

Taxes

Every

Day Through

a

Ballsy

but

Genius

Tax

Avoidance

Scheme,

BuS.

INSIDER

(May

21,

2013,

4:16

PM),

http://www.businessinsider.comlhow-apple-reduces-what-it-pays-in-taxes-2013-5.

60.

Miraslov,

supra

note

34.

Joseph

Stiglitz,

an

economist

from

Columbia

University,

made

the

following

comments:

"The

[U.S.]

tax

law

right

now

says

we

can

keep

that

in

Ireland

or

we

can

bring

it

back

...

we're

not

going

to

bring

it

back

until

there's

a

fair

rate.

There's

no

debate

about

it.

Is

that

legal

to

do

or

not

legal

to

do?

It

is

legal

to

do.

It

is

the

current

tax

law.

It's

not a

matter

of

being

patriotic

or

not

patriotic.

It

doesn't

go

that

the

more

you

pay,

the

more

patriotic

you

are."

Hennigan,

supra

note

31.

61.

Offshore

Profit

Shifting

and

the

U.S.

Tax

Code-Part

2

(Apple

Inc.):

Hearing

Before

the

Permanent

Subcomm.

on

Investigations

of

the

Comm.

on

Homeland

Sec.

&

Governmental Affairs

U.S.

Senate,

113th

Cong.

3

(2013)

(statement

of

Sen.

Carl

Levin,

Chair,

S.

Armed

Serv.'s

Comm.),

https://www.gpo.gov/fdsys/pkg/CHRG-113shrg81657/

pdflCHRG-113shrg81657.pdf

[hereinafter

Statement

of

Sen.

Carl

Levin].

62.

Vanessa

Houlder,

Alex

Barker,

&

Arthur

Beesley,

Apple's

EU

Tax Dispute

Explained,

FIN.

TIMEs

(Aug.

30,

2016),

https://www.ft.comlcontent/3eOl72aO-6elb-11e6-

9acl-1055824ca907.

63.

Cliff

Taylor,

Apple's

Irish

Company

Structure

Key

to

EU

Tax

Finding,

IRISH

TIMES

(Sept.

2,

2016),

http://www.irishtimes.com/business/economy/apple-s-irish-company-struc

ture-key-to-eu-tax-finding-1.2775684.

64.

Id.

550

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

into

an

Irish

branch

and

an

offshore

head

office.

65

All

strategic

decisions

taken

by

ASI,

including

in

relation

to

the

IP,

are

taken

outside

Ireland.

66

This

allows

for

the

profits

derived

on

the

IP

rights

held

by

the

Irish

subsidiaries

to

be

transferred

to

the

offshore

head

office.

Thus,

the

profits

are

subject

to

virtually

no

tax

burden

pursuant

to

the

offshore

island's

tax

laws.

6 7

ASI

is

able

to

claim

that

it

is

managed

and

controlled

outside

of

Ireland

and

thus,

was

not

a

tax

resident

in

Ireland.

68

At

the

same

time,

the

United

States

will

not

treat

the

holding

companies

established

under

the

laws

of

Ireland

as

their

residents

because

for

U.S.

tax

purposes,

residency

is

determined

by

the

"place

of

incorporation"

doctrine.

69

This

results

in

a

nowhere

resident

entity,

and

earnings

of

the

Irish

holding

companies

that

are

a

non-Irish

source

will

be

untaxed.

D.

Apple's

"Special

Arrangements"

With

Ireland

Apple

entered

into

two

agreements

with

the

Revenue

Commissioners

that

allowed

Apple

to

allocate

profits

between

the

Irish

branch

and

the

headquarters

of

ASI.

These

arrangements

were

the

center

of

the

European

Commission's

decision.

One

of

the

advance

transfer

pricing

arrangements

between

Apple

and

Ireland

is

for

Apple

Operations

Europe

(AOE).

In

1991,

Apple

and

the

Irish

Revenue

agreed

that

the

basis

for

determining

its

net

profit

would

be

calculated

as

65

percent

of

operating

expenses

up

to

an

annual

amount

of

sixty

to

seventy

million

dollars

and

20

percent

of

operating

expenses

in

excess

of

sixty

to

seventy

million

dollars.

7

0

Operating

expenses

included

in the

formula

were

all

operating

expenses

incurred

by

AOE's

Irish

branch,

including

depreciation,

but

excluding

materials

for

resale

and

cost-share

for

intangibles

charged

from

Apple-affiliated

companies.

71

In

2007,

a

revised

approach

for

remunerating

the

Irish

branch

of

AOE

was

agreed

which

was

based

on

a

10

to

20

percent

65.

See

id.;

see

also

Doron

Narotzki,

Corporate

Social

Responsibility

and

Taxation:

The

of the

Evolution,

16

Hous.

Bus.

&

TAX

L.J.

167,

189

(2016).

66.

See

generally

Statement

of

Sen.

Carl

Levin,

supra

note

61

(discussing

strategic

decisions

to

evade

tax

liability).

67.

See

id.

68.

The

Apple

Operations

International

(AOI)

has

no

physical

presence

and

has

not

had

any

employees

for

thirty-three

years.

It

has

two

directors

and

one

officer.

Most

of

the

AOI

board

meetings

were

held

in

Cupertino

rather

than

Cork.

Hickey,

supra

note

59;

see

also

Statement

of

Sen.

Carl

Levin,

supra

note

61;

Narotzki,

supra

note

65,

at

189.

69.

ERNST

&

YOUNG,

supra

note

50,

at

1421.

70.

This

was

subject

to

the

provision

that

if

the

overall

profit

from

the

Irish

operations

was

less

than

the

figure

resulting

from

this

formula,

that

lower

figure

would

be

used

for

determining

net

profits.

71.

Letter

from

European

Commission

to

the

Republic

of

Ireland,

supra

note

1,

at

29.

551

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

margin

on

branch

operating

costs,

excluding

costs

not

attributable

to

the

Irish

branch,

and

an

IP

return

of

1

to

9

percent

of

branch

turnover

with

respect

to

the

accumulated

manufacturing

process

technology

of

the

Irish

branch.

As

for

ASI,

Apple

and

the

Irish

government

agreed

in

1991

that

the

net

profit

attributable

to

the

ASI

branch

would

be

calculated

as

12.5

percent

of

all

branch

operating

costs,

excluding

material

for

resale.

A

modified

basis was

agreed

in

2007

with

an eight

to

eighteen

percent

margin

on

branch

operating

costs,

excluding

costs

not

attributable

to

the

Irish

branch.

72

III.

Tm

EUROPEAN

COMMISSION'S

DECISION

Tax

agreements

between governments

and

companies

are

certainly

not unique

to

Ireland

and

Apple.

7

8

For

many

years,

Competition

Commissioner

Margrethe

Vestager

74

analyzed

and

criticized

"sweetheart

deals"

between

specific

European

Union

(EU)

countries

and

multinational

corporations.

75

On

June

11,

2014,

EU

regulators

opened

a

formal

investigation

into

corporate

tax

regimes

in

Ireland,

Luxembourg,

and

the

Netherlands.

This

investigation

was

prompted

by

concerns

that

several

major

multinational

corporations-Apple,

Amazon,

Google,

and

Starbucks-were

receiving

beneficial

tax

deals

greater

than

what

is

allowed

under

EU

law.

7 6

Vestager

argued

that

it

is

a

competition

issue

because

smaller

companies suffer

when

corporations

like

Apple

get

special

treatment.77

A

Why

Agreements

Between Apple

and

the

Irish

Government

are

Problematic

and

Why

the

European

Union

has

the

Authority

to

Regulate

Ireland's

Tax

Decisions

Given

the

multinational

nature

of

the

corporate

income

tax

problem,

it

is

not

surprising

that

the

search

for

a

solution

has taken

place

on

a

multinational

level.

Although

no

treaty

specifically

provides

the

EU

72.

Id.

73.

See

Taylor,

supra

note

41.

74.

Margrethe

Vestager

is a

member of

Denmark's

social

liberal

party.

See Dan

Bobkoff,

What

Just

Happened

to

Apple,

Explained,

Bus.

INSIDER

(Aug.

30,

2016,

5:28

PM),

http://www.businessinsider.com/what-just-happened-to-apple-explained-2016-8.

75.

See David

Meyer,

Here's

What

You

Need

to

Know

About

Apple's

$14.5

Billion

EU

Tax

Bill,

FORTUNE

(Aug.

30,

2016),

http://fortune.com/2016/08/30/apple-tax-ireland-

ruling/;

see

also

Loomis,

supra

note

8;

Drucker,

supra

note

10;

Fairless,

supra

note

8;

Bowers,

supra

note

8.

76.

See

DeAngelis,

supra

note

33,

at

1377.

77.

See

Meyer,

supra

note

75.

552

AFTER

TiE

EUROPEAN

COMMISSION

ORDERED

APPLE

with

the authority

to

interfere

with

individual member

states'

domestic

corporate

tax

schemes,

a

variety

of

directives

have been advanced

"to

minimi[z]e

corporate

tax

factors

as

an

obstacle

to

doing

business

in

the

Single

Market."

78

The

goals

and

tasks

of

the

European

Commission

(EC)

are aimed

at

the

dynamic

integration

of

member

states.

Since

"the

dynamics

[were]

built

into

the integration

process,

the

EC

has

[had]

potentially

comprehensive

jurisdiction

over

all

areas

of

economic,

social,

and

cultural

activities

within

the

EC

territory."

79

Specifically,

article

107(1)

of

the

Treaty

on

the

Functioning

of

the

European

Union

(TFEU)

forbids

"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."

80

According

to

the

TFEU,

the

European

Court

of

Justice

(ECJ)

prohibits

providing

domestic

individuals and

products

with

more

favorable

tax

treatment

than

foreign

individuals

and

taxpayers,

81

and the

EC8

2

may

at

any

time,

following

a

complaint

or

on

its

own

initiative,

examine

possible

unlawful

aid.

83

78.

ALISTAIR

CRAIG,

EU

LAw

AND

BRITISH TAx:

WHICH

COMES

FiRST?

11

(2013);

see

also

STEVEN

A.

BANK,

ANGLO-AMERICAN

CORPORATE

TAXATION

241 (2011).

79.

Jost

Delbruck,

Globalization of

Law,

Politics,

and

Markets-Implications

for

Domestic

Law-A

European

Perspective,

1

IND.

J.

GLOBAL

LEGAL

STUD.

9,

25

(1993);

see

also

Consolidated Versions

of

the

Treaty

on

European

Union

and

Treaty

on

the

Functioning

of

the European

Union,

art.

26(2),

Sept.

05,

2008,

2008

O.J.

(C

115)

59

[hereinafter

TFEU];

Treaty

of

Amsterdam

Amending

the

Treaty

on

European

Union,

the

Treaties

Establishing

the

European

Communities

and

Certain

Oct.

2,

1997,

1997 O.J.

(C

340)

6;

William J.

Davey,

European Integration:

Reflections on

Its Limits

and

Effects,

1

IND.

J.

GLOBAL

LEGAL

STUD.

185,

187-95

(1993)

(analyzing

major

characteristics

of

EC).

80.

TFEU,

supra

note

79,

art.

107(1);

see

also

Richard

Lyal,

Transfer

Pricing

Rules

and

State

Aid,

38

FORDHAM INT'L

L.J.

1017,

1027

(2015).

If

France taxed

companies

in

the

north

less

than

those

in

the

south,

that

is

generally

state

aid

in

the

EU's

view.

It

is

the

same

with

trying

to

get

a

German

company

to

move

to

Denmark

by

abating

property

taxes

for

a

new

headquarters.

Bobkoff,

supra

note

74.

81.

This

same principle

was

applied

in

the

EU's

so-called

"Parent/Subsidiary

Directive,"

which focused

on

outlawing

the

double

taxation

of

dividends

paid

by

a

subsidiary

of

one-member

state

to

its

parent

company

located in

another

member

state.

See

Kummer,

supra

note

12.

82.

The

European

Commission

is

EU's

executive

arm

and

not

a

tax authority.

See

Bobkoff,

supra

note

74.

The

European

Commission's

job

is

to

maintain

fairness

between

the

EU

member

states.

Id.;

see

also

Directorate-General

for

International

Cooperation

and

Development:

Main

Missions

of

DEVCO

Directorates

&

Units,

Dec.

22,

2015,

http://ec.europa.eu/europeaid/sites/devco/files/mission-statement-december-2015_en.pdf.

83.

TFEU,

supra

note

79,

art.

108(3)

(requiring

Member

States

to

notify

non-exempted

State

aid

measures,

including

in

the

form of

tax

measures,

to

the

Commission

before

their

implementation,

and

to

await

the

Commission's

approval

before

implementing

such

measures.

If

either

of

those obligations

is

not

fulfilled,

the

State

aid

measure

is

considered

to

be

unlawful.);

see

also

Jay

Modrall

&

Dominic

Stuttaford,

Tax

Rulings

on

Transfer

553

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

B.

The

Essence

of

the

European

Commission's

Decision

The

EC

said

its

Apple

decision

was

not

about

Ireland's

tax

rate,M

but

about

Apple's

special

deal

with

Ireland

under

which

it

paid

far

less

than

Ireland's

statutory rate

on

EU

sales

income.

85

The

two

advanced

pricing agreements

between

Apple

and

the

Irish

Revenue

Commissioners

were

obtained

in

1991

and

2007.86

These

agreements

allowed

Apple

to allocate

profits between

the

Irish

branch and

its

headquarters

all

within

one

company.

However,

to

avoid

the

advantage

brought

by

the

"transfer

pricing,"

an

"arm's length

principle

was

internationally

agreed

upon,

setting

commercial

conditions

for

the

allocation

of

profit.

87

The

arm's

length

principle

applies

not

only

to

Pricing

May

Violate

EU

State

Aid

Rules,

LEXOLOGY

(Oct.

10,

2014),

http://www.lexology.com/library/detail.aspx?g-8elc8105-6020-4268-843e-e6Oflb825ec.

The

ECJ

had

"decided

more

than

a hundred

cases

involving Member

States'

income

tax

systems"

as

of

2007.

Michael

J.

Graetz

&

Alvin

C.

Warren,

Jr.,

Dividend

Taxation

in

Europe:

When

the

ECJ

Makes

Tax

Policy

(Yale

Law

Sch.

Pub.

Law Working

Paper

No.

143,

2007);

see

also

Bank,

supra

note

15,

at

1313-14.

84.

EC

lacks

the

legal

authority

to

challenge

Ireland's

corporate

rate,

and

the

national

governments

are

responsible

for

raising

taxes

and setting

tax rates.

Taxation,

EUROPEAN

UNION,

https://europa.eu/european-union/topics/taxation-en

(last

visited

Nov.

1,

2017).

85.

See

Thomas

Jr.

&

Pfanner,

supra

note

28

("[A]

special

corporate

tax

rate

of

only

2

percent

that

Senate

investigators

say

Apple

worked

out

with

Irish

tax

authorities");

see

also

Jenni

Ryall,

A

Deep

Dive into

Apple's

'Sweetheart

Deal'

with

Ireland,

MASHABLE

(Aug.

30,

2016),

http://mashable.com/2016/08/30/apple-sweetheart-deal-ireland/#i8HbxA5XDE

qm.

86.

See

Statement

of

Sen.

Carl

Levin,

supra

note

61.

See

generally

George

Pagano,

The

United

States

Went

to

War

to

Avoid

the

Red

Coats'

Taxes-Now

Corporations

are

Sprinting

to

the United

Kingdom's Tax Rate,

39

SUFFOLK

TRANSNAT'L

L.

REV.

427

(2016)

(discussing

how

captive

insurance

companies

and

offshore

tax

shelters

give

U.S.

companies

the

ability

to

shift

taxable

income);

Katie

Benner,

Fact-Checking

Apple's

Claims

on

E.

U.

Tax

Ruling,

N.Y.

TIMES

(Aug.

30,

2016),

http://www.nytimes.com/2016/08/31/technology/tax-experts-check-out-

arguments-from-apple-over-ruling.html?actionclick&contentCollection--Technology&module

RelatedCoverage&region=EndOfArticle&pgtype=article;

Duhigg

&

Kocieniewski,

supra

note

39.

See

also

Kanter

&

Scott,

supra

note

1;

Angelo

Young,

Welcome

to

Tax

Haven,

U.SA:

Apple,

Ireland

and

the

American

Corporate

Tax

Giveaway,

SALON

(Sept.

6,

2016,

5:59

AM),

httpI/www.salon.com/2016/09/06/welcome-to-tax-haven-usa-apple-ireland-and-the-american-

corporate-tax-giveaway/; Taylor,

supra

note

41

("Apple

makes

an

assumption,

for

accounting

purposes,

that

it

will

repatriate

all

the

taxes

recorded

in

Ireland

to

the

United

States.

The

company

reports a

very

high

tax

rate

of

around

26

percent,

but

in

reality

pays

around

just

2

or

3

percent.").

The

Office

of

the

Revenue Commissioners was

established

by

Government

Order

in

1923.

The

Mission

Statement

of

Revenue

is:

'To

serve

the

community

by

fairly

and

efficiently

collecting

taxes

and

duties

and

implementing

Customs

controls." Role

of

Revenue,

REVENUE:

IRISH

TAX

AND

CUSTOMS,

http//www.revenue.ie/en/about/index.html

(last

visited

Nov.

1,

2017).

87.

See

Org.

for Econ.

Co-Operation

and

Dev.

[OECD],

REVIEW

OF COMPARABILITY

AND

OF

PROFIT

METHODS:

REVISION

OF

CHAPTERS

I-III

OF

THE TRANSFER

PRICING

GUIDELINES,

at

4-20

(July

22,

2010),

http://www.oecd.org/ctp/transfer-pricing/45763692.pdf

[hereinafter

554

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

transactions

between

separate

companies

within

the

same corporate

group,

but

also

to

transactions

between

a company

and

its

permanent

establishments.

8 8

The

EU

is

worried

that

if

the

method

of

taxation

for

intra-group

transfers

does

not

comply

with

the

arm's

length

principle,

it

could

provide

a

selective

advantage

to

the

company

concerned.

89

In

Apple's

case,

the

EC's

view

is

that

Apple's

arrangement

with

Ireland

was

artificial

and

conferred

a

selective

benefit

to

Apple,9o

and

the

advanced

price

fixing

agreements

(APAs)

constitute

"state

aid"

that

is

incompatible

with

Article

107(1)

of

the

TFEU.

9

e

The

EC

argued

that

Apple's

head

office

in

Ireland

exists

only on

paper

and

was

created

for

the

sole

purpose

of

allowing

Apple

to

pay

low

taxes

in

Ireland

in

exchange

for

Apple's

agreement

to

invest in

the

country and

to

employ

a

OECD].

The

authoritative

statement

of

the

arm's

length

principle

is

found

in

paragraph

1

of Article

9

of

the

OECD

Model

Tax Convention:

(a)

an

enterprise

of

a

Contracting

State

participates

directly

or

indirectly.

in

the

management,

control

or

capital

of

an enterprise

of

the

other

Contracting

State,

or

(b)

the same

persons

participate

directly

or

indirectly

in

the

management,

control

or

capital

of

an

enterprise

of

a

Contracting

State

and

an

enterprise

of

the

other

Contracting

State,

and

in

either

case

conditions

are

made

or

imposed

between

the

two

enterprises

in

their

commercial

or

financial

relations

which

differ

from

those

which

would

be

made

between

independent

enterprises,

then

any

profits

which

would,

but

for

those

conditions,

have

accrued

to

one

of the

enterprises,

but,

by

reason

of

those

conditions,

have

not

so

accrued,

may

be

included

in

the

profits

of

that

enterprise

and

taxed

accordingly.

ORG.

FOR ECON.

Co-OPERATION

AND

DEVELOPMENT

[OECD],

MODEL

TAX

CONVENTION

ON

INCOME

AND

ON

CAPITAL

art.

9(1)

(2014),

http://www.keepeek.com/Digital-Asset-

Management/oecd/taxation/model-tax-convention-on-income-and-on-capital-2015-full-

version_9789264239081-en#.Wfoo7ltSxpg#pagel.

88.

See

Statement

of

Sen.

Carl

Levin,

supra

note

61,

at

6-10.

89.

See

Philip

Andrews

&

McCann

FitzGerald,

Uncle

Sam

Is

Right:

The

EU

Probe into

Ireland's

Tax

Treatment

of

Apple

Is

Overreach,

KLUWER

COMPETITION

L.

BLOG

(June

30,

2016),

http://kluwercompetitionlawblog.com/2016/06/30/uncle-sam-is-right-the-eu-probe-

into-irelands-tax-treatment-of-apple-is-overreach/.

90.

See

Taylor,

supra

note

63.

The

Government of

Ireland

has

calculated

Apple's

taxable

income

in such

a

way

as

to

produce

an

effective

rate

in

the

low

single digits.

The

rate

has

varied

from

year

to

year,

but

an

estimation

revealed

tax

rate

ranging

between

1%

in

2003

to

0.005%

in

2014.

See

Lee

Sheppard,

The

EU

Case

Against

Apple's

Irish

Tax

Deal,

FORBES

(Sep.

5,

2016, 7:02

PM),

http://www.forbes.com/sites/leesheppard/2016/09/05/the-

eu-case-against-apples-irish-tax-deal/4/#1cc7c2f355a0;

European

Commission

Press

Release

IP/16/2923,

State

Aid:

Ireland

Gave

Illegal

Tax

Benefits

to

Apple

Worth

up to

C13

billion

(Aug.

30,

2016),

http://europa.eu/rapid/press-release_IP-16-2923_en.htm.

91.

See

TFEU,

supra

note

79,

art.

107(1);

Negative

Decision

for

Apple

and

for

Ireland

to

be

Appealed,

DELOITTE,

http://www2.deloitte.com/ie/en/pages/tax/articles/negative-

decision-for-apple.html

(last

visited

Nov.

1,

2017).

555

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

certain

number

of

people

there.

92

Moreover,

the

EC

noted

that

the

OECD

Transfer

Pricing

Guidelines

for

Multinational

Enterprises

and

Tax

Administrations

set

certain

requirements

for

the

choice

of

the

appropriate

transfer

pricing

method

to

comply

with

the arm's

length

principle.

93

The

fact

that

the methods

used

in

APAs

resulted

from

negotiation

rather than

a

transfer

pricing

methodology

reinforces

the

idea

that

the

outcome

price

of

the agreed

method

was

not

negotiated

at

arm's

length.

94

The

Irish

government,

however,

has

repeatedly

insisted

that

tax

benefits

available

to

Apple

were

not

exclusive,

and the

law was

"applied

fully."

95

Irish

Finance

Minister

Michael Noonan

said

at

the

European

Parliament,

"The

government

fundamentally

disagrees with

the

European

Commission's

analysis

and the

decision

left

the

government

no

choice

but

to

take

an

appeal

to

the European

courts.""

IV.

AFTER

THE

DECISION

Greg

Clark,

a

Professor

of

Economics,

identified

five

key

features

that

manifest

over

time

in

cities

that

develop

roles

beyond

domestic

markets.

The

key

features

are:

(1)

cross-border

trade

through

connectivity;

(2)

diverse

and

entrepreneurial

populations;

(3)

innovation

and

influence

over

systems

of

exchange;

(4)

the

discovery

of

new

markets,

products,

and

practices;

and

(5)

geopolitical

opportunity

97

After

the

European

Commission's

decision,

Apple

announced

its

desire

to

appeal the

decision,

and

Ireland

expressed

its

intention

to

join

92.

See

Press

Association,

What

Were

Apple's

Tax

Arrangements

in

Ireland?,

EVENING

TELEGRAPH

(Aug.

31,

2016,

7:13

AM),

https://www.eveningtelegraph.co.uk/fp/apples-tax-

arrangements-ireland/.

93.

The

OECD

Transfer

Pricing

Guidelines

provides

five

such

methods

to

approximate

an

arm's

length

pricing

of

transactions

and

profit

allocation

between

companies

of

the

same

corporate

group:

(i)

the

comparable

uncontrolled

price

method,-

(ii)

the

cost-plus

method;

(iii)

the

resale minus

method;

(iv)

the

transactional

net

margin

method;

and

(v)

the transactional

profit

split

method.

Multinational

corporations

retain

the

freedom

to

apply

methods not

described

in

those guidelines

to

establish

transfer

prices

provided

those

prices satisfy

the

arm's

length

principle.

OECD,

supra

note

87,

at

21-53;

see

also

Letter

from

European

Commission

to

the

Republic

of

Ireland,

supra

note

1.

94.

EU

Commission

Concludes

Ireland

Granted

State

Aid

to

Apple,

SIMMONS

&

SIMMONs

LLP,

http://www.elexica.comlen/legal-topics/tax/27-eu-commission-concludes-

ireland-granted-state-aid-to-apple

(last

visited

Nov.

1,

2017).

95.

Apple

Tax

Case:

Why

is

Ireland

Refusing

Billions?,

supra

note

22.

96.

Stephanie

Bodoni,

Ireland

Set

to

Take

Fight

Over

Apple

Tax

Bill

to

EU Court,

BLOOMBERG

(Nov.

8,

2016,

12:03

PM),

https://www.bloomberg.com/news/articles/2016-11-

08/ireland-set-to-take-fight-over-apple-tax-bill-to-eu-court.

97.

GREG

CIARK,

GLOBAL

CITIES

2

(2016).

556

AFTER

THE

EUROPEAN

COMMISSION

ORDERED APPLE

Apple.

98

However,

the

appeal

might

take years.

At

the

same

time,

the

decision

has

already

started

changing

the

global

tax

environment,

and

Ireland

will

have

to

make

changes

in

order

to

comply

with

international

tax

standards

and

maintain

its

tax-friendly

position

to

attract

foreign

investors.

A.

History Background:

Ireland and

European

Union's

Relationship

Since

Ireland

joined

the

then

European

Economic

Community

in

1973,

Ireland

has

enjoyed

the

benefit

of

being

a

member

of

the

European

Union

(EU)

in

many

aspects.

99

After

joining

the European

Monetary

System,

Ireland

received

European

funding

that

has

been

incorporated

into

Ireland's

economy.

This

funding

financed

infrastructure

projects

and

training,

research,

industrial,

social,

and

community

development

programs.oo

Ireland

gradually

transformed

into

one of

the

world's

most

open

trading

partners

and

became

an

attractive

investment

destination.

101

In

late

2010,

with the

banking

and

fiscal

crises,

Ireland

agreed

to

an

C85

billion

multilateral

support

package

from

its

European

partners.

102

The

interest rate

on

the

bailout

loan

was

determined

to

be

5.8

percent

per

annum

baseline

and

thereafter

variable

depending

both

upon

the

timing

of

the

withdrawals

from

the

bailout fund

as

well

as

upon

the

prevailing

market

conditions.

103

To

comply

with

a

required

condition

of

the

bailout

program,

Ireland

needs

to

take

domestic

measures

to

manage

Ireland's

budget

deficit.

104

Irish

policy

makers

set

forth

a

plan

to

cut

public

expenditures

by

C10

billion

and increase

tax

receipts

by

C5

billion

over

a

four-year

period.

10 5

98.

Vincent

Boland,

Ireland

to

Appeal

Against

EU's

Apple

Ruling,

FIN.

TIMES

(Sept.

2,

2016),

https://www.ft.com/content/2b8adff6-711f-I1e6-aOc9-1365ce54b926.

99.

Ireland

in

the

EU,

PERMANENT REPRESENTATION

OF

IR., DEP'T

OF

FOREIGN

AFFAIRS

&

TRADE,

https://www.dfa.ie/prep/brussels/the-perm-rep/ireland-in-the-eu/

(last

visited

Nov.

1,

2017).

100.

Brian

Bolger,

Ireland

and

the

EU:

Forty

Years

of

Change,

EUROPEAN

MOVEMENT

IR.

(Mar.

2013),

http://www.europeanmovement.ie/wp-content/uploads/2013/03/Ireland-

and-the-EU-Brian-Bolger.pdf.

101.

Ireland

in

the

EU,

supra

note

99.

102.

Lisa

O'Carroll,

Ireland

Bailout:

Full

Irish

Government

Statement,

GUARDIAN

(Nov.

28,

2010, 4:07

PM),

https://www.theguardian.com/businesslireland-business-blog-with-

lisa-ocarroll/2010/nov/28/ireland-bailout-full-government-statement.

103.

Eurozone

Agrees

C85bn

Deal

for

Ireland,

RTt

NEWS

(Nov.

29,

2010,

7:21

AM),

www.rte.ie/news/2010/1128/294894-economy/.

104.

Id.

105.

Neil

Shah,

Ireland

Outlines

Austerity

Measures,

WALL

ST.

J.

(Nov.

25,

2010,

12:01

AM),

https://www.wsj.com/articles/SBl0001424052748703572404575634452116491286.

557

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

B.

EU's

Desire

to

Reset

the

Balance

of

Power

on

Tax

Policy

in

Europe

Transnational

financial

managers

and

entrepreneurs

have

learned

to

make

the

most

of

"both

the

revolution

in

information

technology

and

the

new

rules

instituted

in

response

to

neoliberal

ideology;"

thus,

financial

flows

have

expanded

even

faster

than

the

expansion

of

global

production

and

trade.'os

The

weakness

of

global

governance is

usually

considered

most

dangerous in the

realm

of

finance,

and

the

capacity

of

the

global

regulatory

apparatus

continues

to

fall

behind.

10 7

European leaders

have

criticized

the

current

system,

saying

it

amounts

to

a

"beggar

thy

neighbor"

policy

that

fosters

a

harmfully

competitive

environment

in

Europe

and

would

affect

the

world's

corporate

tax

system.xos

The

EU

is

estimated

to

have

lost

around

C1

trillion

every

year

due

to

tax

evasion

and

avoidance.

09

Under

Apple's

special

deal

with

Ireland,

Apple

paid far

less

than

Ireland's

statutory

rate

on

EU

sales

income;

therefore,

it

did

not

generate

much

income

tax

in

the

EU

countries

where

its

products

were

sold.lo

The

European

Commission's

Apple

decision

is

"an

indicator

of

[the

EC's]

desire

to

contribute,

through

the

application

of

the

State

aid rules,

to

fair tax

competition

and

to

the fight

against

tax

base

erosion.""'

Although

it

might

take

years

to

resolve

the

appeal,

the

final

decision

will

reset

the

balance

of

power

on

tax

policy

in

Europe

if

the

European

Commission

(EC)

ultimately

prevails.11

2

While

independent

countries

"will

still

be

able

to

set

their

own

tax

rates,

the

Commission

will

have

established

itself

as

a

watchful

referee

of

how

national

rules

are

106.

Peter

Evans,

Is

an

Alternative Globalization

Possible?,

36

POL.

&

SOC'Y

271,

280

(2008).

107.

Id.

108.

This

claim

is

supported

by

a

2011

report

conducted

by

PricewaterhouseCoopers,

which found

that

the

"effective

rate

of

tax

on

corporate

profits

in

Ireland

was

11.9

[percent]," a

number

almost

identical

to

the

statutory rate

of

12.5

percent.

Jim

Stewart,

Corporation

Tax

How

Important

is

the

12.5%

Corporate

Tax

Rate in

Ireland

3

(Inst.

for

Int'l

Integration

Studies,

Working

Paper

No.

375,

Sept.

2011).

109.

RICHARD

MURPHY,

CLOSING

THE

EUROPEAN

TAX

GAP

2

(2012),

http://www.socialist

sanddemocrats.eu/sites/default/files/120229_richard-murphyeutax-gap-en.pdf;

DEBT

&

DEV.

COAL.

IR.,

CORPORATE

TAX

SECRECY

AND

THE

STATE:

THE

APPLE

CASE

IN

IRELAND

2

(2015),

https://www.debtireland.org/download/pdfl20151023141734.pdf-

110.

See

Thomas

Jr.

&

Pfanner,

supra

note

28.

The

first

tax

ruling

by

Ireland

occurred

in

1991

and

then

was

followed

by

an

update

in

2007.

The

deals

subsidiaries

of

Apple

that

were

set

up

in

Ireland:

Apple

Sales

International

(ASI)

and

its

parent

company

Apple

Operations

Europe

(AOE).

See

Ryall,

supra

note

85.

111.

Lyal,

supra

note

80,

at

1043.

112.

Houlder,

Barker,

&

Beesley,

supra

note

62.

558

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

implemented."

113

"The

example

of

Apple

will

be

a

warning

to

big

global

companies

to

put

their

affairs

in

order,

at

least

in

Europe."1

14

C.

Ireland's

Position

in Remaining

Tax-Friendly

to

Attract

Foreign

Investment

Ireland

uses

its

12.5

percent

low

corporate

tax

rate,

together

with

its

well-educated,

English-speaking,

European

workforce,

to

attract

foreign

multinational

corporations

and

to

help

Ireland

become

the

single

largest

location

outside

the

United

States

for

the

declared

pretax

profits

of

U.S. firms.11

5

Irish

Finance

Minister

Michael

Noonan

has

acknowledged

that

"aggressive

tax

planning

by

multinational

companies

has

been

criticized

by

governments

across

the

world

and

has

damaged

the

reputation

of

many

countries,"

including

Ireland.

11

6

Therefore,

Michael

Noonan

believes

that

it

is

time

for

Ireland

to

take

action.

1

'

7

1.

Why

Ireland

Would

Like

to

Support

Apple

Instead

of

Collecting

Tax

The

Irish

government

and

the

Irish

Revenue

have

strongly

defended

that

Apple

has

paid

the

correct

amount

of

Irish

tax

and

that

Ireland

applied

its

taxing

rights

for Apple

"no

differently

than

it

has

applied

them

to

other

taxpayers

with

branch

operations

in

Ireland."

18

This

position

seems

odd

in

light

of

Ireland's

recent

history

of

economic

trouble.11

9

"The

rise

of

government

deficits

has

also

been

fed

by

the

increase

in tax

evasion,

partly

facilitated

by

the

development

of

complex

accounting,

financial,

and

legal

instruments."

120

However,

Apple

has

brought

massive

benefits

for

Ireland

and

helped

develop

the

infrastructure

in the

north

side of

the

city

of

Cork

in

Ireland.

"A

primary

role

of

domestic

law

. .

.

is

to

provide

the

infrastructure

necessary

for

the

exercise

of

participatory

rights

by

113.

Id.

114.

Id.

115.

See

Nick

Shaxson,

How

Ireland

Became

an

Offshore

Financial

Centre,

TAX

JUSTICE

NETWORK

(Nov.

11,

2015),

http://www.taxjustice.net/2015/11/11/how-ireland-became-an-

offshore-financial-centre/;

Apple

Tax

Case:

Why

is

Ireland

Refusing

Billions?,

supra

note

22.

116.

Jim

Puzzanghera

&

Paresh

Dave,

Ireland

to

Close

Corporate

Tax

Loophole

Used

by

Google

and

Others,

L.A.

TIMES

(Oct.

14,

2014,

7:41

PM),

http://www.1atimes.com/business/

la-fi-ireland-tax-haven-20141015-story.html.

117.

See

id.

118.

Negative

Decision

for

Apple

and

for

Ireland

to

be

Appealed,

supra

note

91.

119.

Apple

Tax

Case:

Why

is

Ireland

Refusing

Billions?,

supra

note

22.

120.

SASIA

SASSEN,

EXPULSIONS

21

(2014).

559

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

citizens."

121

Apple

started

to

set

up

factories

in

Ireland

in

1980122

and

now

employs

nearly

6,000

people

across

the country.

123

The

workers'

presence

also

resulted

in

the

building

of

new

road

links

and

even

a

regular

bus

service.

124

Michael

Noonan

stated

that

the

country's

corporate

tax strategy

contains three

key

elements:

"rate,

reputation

and

regime."

125

In

Noonan's

view,

"increasing

tax reputation

is

a

key factor in

winning

mobile

foreign

direct

investment."

26

Any

increase

to

the

baseline

corporation

tax

would

cause

potentially

harmful

consequences,

including

discouraging

multinational

companies

from

doing

business

in

Ireland.

127

Thus,

Ireland

would

like

to

protect

its

reputation

for

being

a

tax-friendly

country,1

28

So

that

it

does

not

lose

companies

to

other

tax-

friendly

jurisdictions.1

2

9

2.

Future

Limitations

and

Obstacles

for

Ireland

to

Maintain

Status

Quo

An

unfortunate

combination

of

international

and

domestic

economic

factors

has

led to

significant

financial

deficit

issues

for

Ireland,

forcing

increased

borrowings

at

sometimes

very expensive

interest

rates.1

30

It

has

placed

increasing

pressure

and

international attention

on

the

fiscal

121.

ALFRED

C.

AMAN,

JR.,

THE

DEMOCRACY

DEFICIT:

TAMING

GLOBALIZATION

THROUGH

LAW

REFORM

14

(2004).

122.

Duhigg

&

Kocieniewski,

supra

note

39;

see

also

Apple's

Tax

in

Ireland,

WALL

ST.

J.

(Aug.

30,

2016,

9:39

AM),

http://blogs.wsj.com/briefly/2016/08/30/apples-irish-tax-bil-at-a-

glance/#.

123.

Apple's Tax

in

Ireland,

supra

note

122.

124.

Henry

McDonald,

Irish

Finance

Minister

Stands Firm

on

Apple

Tax

Deal

in

Budget

Speech,

GUARDIAN

(Oct.

11,

2016,

7:07 PM),

https://www.theguardian.com/tech

nology/2016/oct/Illapple-ireland-corporate-tax-finance-minister-michael-noonan-

european-commission.

125.

Ireland

to

Change

Company

Tax

Laws,

but

12.5%

Corporation

Tax Rate

to

Stay,

supra

note

12.

126.

Id.

127.

See

Liz

Alderman,

Much

Fiscal

Pain

in

Ireland,

but

Low

Corporate

Taxes

Go

Untouched,

N.Y.

TIMES,

Nov.

26,

2010,

at

Bl;

Matt

Carthy,

After

Apple.-

Ireland's

Taxation

Regime

Has

Become

a

Source

of

Embarrassment

to

Our

People,

THEJOURNAL.IE

(Sept.

12,

2016, 8:30

PM),

http://www.thejournal.ie/readme/matt-carthy-apple-tax-panama-papers-

2976321-Sep2016/?utm

source=shortlink.

128.

Cianan Brennan,

"The

Government Needs

Its

Head

Examined"-Should

Ireland

Really

Throw

£13

Billion

Back

in

the

EUs

face?,

THEJOURNAL.IE

(Aug.

31,

2016, 6:05

AM),

http://www.thejournaLie/apple-appeal-el3-billion-2955381-Aug2016/.

129.

See

id.;

see

also

Kummer,

supra

note

12,

at

293-94.

130.

Andrew

Cullen,

Corporate

Tax

Remains

Central

to

Ireland's

Strategy,

21

INT'L

TAX

REv.

7,

7

(2010).

560

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

decisions

that

are

now

being

made

in Ireland.

13

1

Irish

citizens

are

aware

that

C13

billion

($14.5

billion)

plus

interest

is

enough

to

cover

the

costs

of

the

Irish

health

service

for

a

year.132

People

have

started

wondering

why

their

government

refuses

the

money.

133

Although

the

EC

has

said

that

Ireland

would

not

be

obligated

to

use

back

taxes

from Apple to

pay

down

its

national

debt,

Ireland

could

have

taken

this

chance

to

use

the

money

to

pay

its

national

debt.134

In

the

absence

of

government

actions

against

abusive

and

unfair

business

practices,

ordinary

citizens

will feel

increasingly

disempowered

and

doubtful

about

continuing

on

toward

globalization.

Success

on

appeal

for

Apple

and Ireland

might

relieve

some

of

the

pressure

and

give

national

governments

more

leeway. However,

it

is

very

difficult

to

predict

which

way

a

decision

would

go.

The

panel

of

judges

comes

from

all

over

the

EU,

so

judges

are

not

necessarily

inclined

to

support

Ireland.

Moreover,

because

direct

taxation

is

the

responsibility

of

EU

member

governments,

some

judges

may

bristle

at

the

EC's

interference

with

this

sovereign

function.

Apple

and other

companies

have

also

faced

criticism

for

keeping

large

reserves

of

cash

overseas.

The

money

is not

taxed

at

home

until

it

is

brought

back

to

the

parent

company

in the

United

States.

135

Paul

Ryan,

the

Speaker

of

the

U.S.

House

of

Representatives,

has

urged

the

United

States

to

reform

the

tax

system

so

that

U.S.-based

companies

invest

in

their

own

country.

136

But

until

the

appeal is

resolved,

it

threatens

to

upset

U.S.-

EU

relations,

potentially

further

hampering

already

difficult

talks

on

a

trade

deal.1

3

7

Apple's

tax

issue

will

be

an

example

for

any

country

operating

in

the

"Eurozone."

13

8

Although

Apple

is

not going to

abandon

Ireland

regardless

of

the

outcome,

the

EC

decision

would

make

companies

think

131.

Id.;

see

also

Press

Association,

supra

note

92.

132.

If

you

are

an "ordinarily

resident"

in

Ireland,

you

can

access

a

range

of

public

health

services

that

are

free of

charge

or

subsidized

by

the

Irish

government.

People

without

medical

cards

can

still

access

a

wide

range

of

community

and

hospital

health

services,

either

free

of

charge

or

at

reduced

cost.

See

Health:

Introduction

to

Irish

Healthcare

System,

LIVING

IN

IRELAND,

http://www.livinginireland.ie/en/health

(last

visited

Nov.

2,

2017);

Who

Can

Access

Health

Services

in Ireland?,

HEALTH

SERVICE

EXECUTIVE,

http://www.hse.ie/eng/services/Find

a_Service/eligibility.html

(last

visited

Nov.

1,

2017).

133.

See

Sheppard,

supra

note

90.

134.

R6ndn

Duffy,

EC:

Ireland

Could

Spend

Apple

Tax

Money

on

Anything

It

Wants,

THEJOURNAL.IE

(Aug.

31,

2016,

4:12

PM),

http://www.thejournal.ie/commission-apple-

money-2957501-Aug2016/.

135.

Kanter

&

Scott,

supra

note

1.

136.

Raiyan,

supra

note

27.

137.

Houlder,

Barker,

&

Beesley,

supra

note

62.

138.

See

id.

561

INDIANA

JOURNAL OF

GLOBAL

LEGAL

STUDIES

25:1

twice

before

using

Ireland.1

39

Potentially

any

company

that

is

deemed

to

have

received

a

special

deal

from

a

European

government

could

end

up

being

targeted

in the

future.

140

Although

not

all companies

doing

business

in Europe

are

bound

by

the

EC's

Apple

decision,

the

EC

could

conduct

separate

investigations

and

address

each

specific

company

or

country.141

This

might

result

in

more

investment

in

other

tax

friendly

countries

like

Switzerland

or

Singapore

as

opposed

to

Ireland.1

42

.

The

Organization

for

Economic

Cooperation

and

Development

(the

OECD)

could

set

international

standards

on

taxation

and

develop

mandatory

codes

of conduct

for

multinationals

based

in

OECD

countries,

including

Ireland.143

Similar

to

problems as

the

environment,

security,

or

some

areas

of

public

health,

taxation

on

a

global

scale

cannot

be

resolved

effectively

by

the

way

of

individual

nation-state

action

alone.144

State-scale

or

global-scale

rights

are

often

resistant

to

pressures

from

higher

levels.145

Research

on

international

economic

exchanges

has

revealed

the

emergence

of

a

new

lex

mercatoria, an

international

legal

space

in

which

different

types

of economic

agents

operate,

whose

behavior

is

regulated

by

new

international

rules

and

contractual relations

established

by

dominant multinational

corporations,

international

banks,

or

international

associations

dominated

by

both.146

The

OECD

aims

to

promote

policies

that

will

improve

the

economic

and

social

well-being

of

people

around

the

world.1

47

Mr.

Saint-Amans,

the

director

of

the

OECD's

Center

for

Tax

Policy

and

Administration,

has

expressed

concern

over

the

EC's

Apple

139.

See

Young,

supra

note

86.

140.

See

id.

141.

A

decision

may

have

one

or

more

addressees. For

example,

when

the

Commission's

decision

imposed

a

fine

on

Microsoft

for

abuse

of

its dominant

market

position,

the

only

company

directly

concerned

was

Microsoft.

European

Union Decisions,

EUR-LEx

(Sept.

16,

2015),

http://eur-lex-europa.eullegal-content/EN/TXT/9uri-URISE

RV%3Aai0036;

Paul

Blake,

Amazon,

McDonald's

Face

EU

Tax

Audit

Similar

to

Apple's,

ABC

NEWS

(Aug.

30,

2016),

http://abcnews.go.com/Internationallamazon-mcdonalds-face-

eu-tax-audit-similar-apples/story?id=41741475.

142.

See

Young,

supra

note

86.

143.

ARCHON FUNG,

DARA

O'ROURKE,

&

CHARLES

SABEL,

CAN

WE

PUT

AN

END

TO

SWEATSHOPS?

67

(Joshua

Cohen

&

Joel

Rogers

eds.,

2001).

144.

Alfred

C.

Aman,

Jr., Globalization:

Legal

Aspects,

in

INTERNATIONAL

ENCYCLOPEDIA

OF

THE

SOCIAL

&

BEHAVIORAL SCIENCES

(James

D.

Wright

ed.,

2d

ed.

2015);

see

also

Eoin

Burke-Kennedy,

Bulk

ofApple's

Profits

Belong

in

US,

Says

OECD

Tax

Chief,

IRISH

TIMES

(Sept.

26,

2016),

http://www.irishtimes.com/business/economy/bulk-of-

apple-s-profits-belong-in-us-says-oecd-tax-chief-1.2806379.

145.

Mariana

Valverde,

Jurisdiction

and

Scale.-

Legal

"Technicalities"

as

Resources

for

Theory,

18

SOC.

&

LEGAL

STUD.

139,

141-42

(2009).

146.

Boaventura

de

Sousa

Santos,

supra

note

14,

at

287.

147.

Org.

for

Econ.

Co-operation

and

Dev.

[OECD],

OECD

Work

on

Taxation,

at

2

(2017),

http://www.oecd~org/ctp/beps/centre-for-tax-policy-and-administration-brochure.pdf

562

AFTER

THE

EUROPEAN

COMMISSION

ORDERED

APPLE

563

decision:

"Are

we

moving

to

a

tax

war

between

two

blocs,

Americans

and

Europeans,

or

are

we

still

in

an

environment

in

which

we

can

still

build

something?

148

His

view

is

that

"we

must

ensure

we

have

co-operation

among

all

the

countries."

149

In

fact,

the

OECD

has

taken

steps

to

combat

perceived

tax

avoidance

and

is

trying

to

restore

global

unanimity

in

an

effort

to discourage

profit

shifting.

50

The

OECD

has

enumerated

a

fifteen

point

action

plan

on

Base

Erosion

and

Profit

Shifting

(BEPS)

which

includes

proposals

to

develop

and

implement

model

treaty

provisions

to

combat

tax

avoidance

schemes

and

to

create

rules

to

limit

corporations'

ability

to

transfer

intangible

property

rights

to

more

favorable

jurisdictions.151

Apple's

decision

may

be

seen

in

a

broader

context

encompassing

the

BEPS

project

currently

under

way

in

the

OECD

and

the

Commission's

initiatives

aimed

at

greater

tax

transparency,

including

information

on

tax

rulings.1

52

Ireland

and

the

United

States

already

started

tax

negotiations

after

the

OECD

made

the

BEPS

reports

to

update

existing

tax

agreements

between

Ireland

and

the

United

States.1

5

3

CONCLUSION

The

European

Commission's

decision

will

certainly

escalate

tensions

between

the

EU

and

the

United

States,

adding

further

fuel

to

the

U.S.

Treasury's

concerns

of losing

domestic

tax

revenue.

It

will

also

cause

all

European

Union

member

states

to

take

notice

of

the

EC

approach,

and

encourage

them

to

reconsider

their

domestic

tax

regimes,

over

which

the

EU

retains

sovereignty,

in

order

to

comply

with

the

global

economy

scale.

1

5

4

148.

See

Burke-Kennedy,

supra

note

144.

149.

Id.

150.

See

Mistler,

supra

note

19,

at

903;

see

also

Lynnley

Browning,

Profit Shifting,

BLOOMBERG

(Apr.

27,

2017,

12:38

PM),

http://www.bloombergview.com/quicktake/profit-

shifting.

151.

See

August,

supra

note

13.

152.

See

id.

153.

The

existing

treaty

between

Ireland

and

the

United

States

was

signed

in 1997,

with a

protocol

to

the

treaty

signed

in

1999.

New

Tax

Discussions

Begin

Between

Ireland

and

US,

RTE

NEWS

(Aug.

25,

2016,

4:25

PM),

http://www.rte.ie/news/business/2016/0825

/811925-ireland-us-tax-talks/.

154.

Negative

Decision

for

Apple

and

for

Ireland

to

be

Appealed,

supra

note

91.

On

October

4,

2017,

the

European

Commission

took

Ireland

to

the

European

Court

of

Justice

for

failure

to

collect

the

back

taxes

from

Apple.

See

State

Aid:

Commission

Refers

Ireland

to

Court

for

Failure

to

Recover

Illegal

Tax

Benefits

from

Apple

Worth

up

to

0l3

Billion,

EuR.

COMM'N

(Oct.

4,

2017),

http://europa.eu/rapid/press-releaseIP-17-3702_en.htm.

On

October

4,

2017,

the European

Commission

ordered

Luxemburg

to

recover

C250

million

($294

million)

in

corporate

income

taxes

from Amazon

and

stated

that

Luxemburg

granted

INDIANA

JOURNAL

OF

GLOBAL

LEGAL

STUDIES

25:1

Given

the

open

nature

of

the

Irish

economy,

the

long-established

emphasis

by

the

Irish

government's

encouragement

of

foreign

direct

investment,

and

the

importance

that

is

placed

on

Ireland's

international

competitiveness,

Ireland

will

try

to

provide

a

solution

that

can

maintain

Ireland

as

an

attractive

location

for

international

investment.

155

The

low

corporate

tax

rate

has

been

key

to

Ireland's

strengthening

recovery

from

the

recession,

56

and

it

is

unlikely

that

Ireland

will

change

this

lower

corporate

tax

rate

in

the future.

Irish

Minister

for

Finance

Michael Noonan

has

stated

that

the

international

rules

for

taxing

multinational

companies

have

captured

Ireland's

focus.

He

added

that

"Ireland

wants

to

be

part

of

the

solution

to

this

global

tax

challenge,

not

part

of

the

problem."

57

After

Apple's

case,

one of

the

main

policy

changes

in

Ireland

might

be

to

fix

the

mismatch

between

the

U.S.

tax

regime

and

Ireland's,

so

that

companies

incorporated

in

Ireland

would

not

be

"stateless"

by

operating

outside

of

Ireland.1

56

8

A

case

involving

such

a

wealthy

multinational

corporation

like

Apple

is

unlikely

to

come

up

again,

but

there

are

other

multinational

corporations

at

risk.1

59

With

the

new

OECD

project

in

force,

Ireland

will

have

to

pay

close

attention

to

internationally

agreed

standards

to

keep

itself

competitive

and

attractive

in

the

global

market.

Amazon

anti-competitive

State

aid

in

2003.

See

David

Meyer,

Amazon

Was

Just

Hit

with

a

$294

Million

Bill

for

Back

Taxes,

FORTUNE

(Oct.

4,

2017),

http://fortune.com/2017/10/04/

amazon-luxembourg-tax-eu-vestager/.

These

decisions

are

beyond

the

scope

of

this

note.

These

decisions,

however,

indicate

the

European

Commission's

determination

in

regulating

the

tax

evasion

problems

in

Europe.

155.

Cullen,

supra

note

130,

at

7.

156.

Tom Sykes,

Why

Ireland

Doesn't

Want

Apple's

$14

Million

in

Unpaid

Taxes,

DAILY

BEAST

(Aug.

30,

2016,

7:02

AM),

http://www.thedailybeast.comlarticles/2016/08/30/apple-

must-pay-ireland-13-billion-in-unpaid-taxes.html.

157.

Ireland

to

Change

Company

Tax

Laws,

but

12.5%

Corporation

Tax

Rate

to

Stay,

supra

note

12.

158.

See

id.; see

also

Kummer,

supra

note

12,

at

293-94;

Michael

V.

Sala,

Breaking

Down

BEPS: Strategies,

Reforms,

and

Planning

Responses,

47

CONN.

L.

REV.

573,

596

(2014).

159.

EU

authorities

are

currently

investigating

Amazon

and

McDonald's

for

similar

tax

deals

it

deems

illegal.

Press

Association,

supra

note

92.

564