Sun, Jun 02, 2013 page14

• Apple’s fortunes in contrast with those of Ireland

  • By Simon Bowers / The Guardian, LONDON
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  Eileen Stokes and her family live a basic life, one of 16 Irish Traveller families settled on an established halting site at the edge of Knocknaheeny, a run-down northern suburb of Cork, Ireland.

  A brazier smolders outside their mobile home. Also within the small, breezeblock-walled yard is the family’s horse, Ginger. Children show off minnows they have caught in a jar and ask for photographs to be taken of themselves posing as boxers or on horseback.

  Eileen’s husband pulls out a mobile phone to call his brother to come and talk to the Guardian. It is not an iPhone.

  The Stokes are the nearest neighbors to Apple Inc’s Cork offices. Almost two-thirds of the company’s US$34 billion global profits for 2011 were earned by companies registered next door.

  The past 10 years have brought “unprecedented success” as the popularity of its products has spread across the world, Apple chief executive Tim Cook said in Washington last week.

  As a result, Apple’s Irish companies now sit on reserves of cash and investments worth about US$100 billion — a corporate kitty that would more than cover Ireland’s annual government expenditure.

  Over the same 10 years, Ireland’s fortunes have taken a different turn, with the country engulfed in a banking crisis and forced to seek a bailout from the EU and IMF. Between 2006 and 2011, unemployment rates in Cork city and its suburbs doubled to 18 percent. The area includes nine of the country’s unemployment blackspots, the worst of which is Knocknaheeny, where the jobless rate according to the 2011 census was 43 percent.

  On its multibillion dollar Irish company profits, Apple paid an average of less than 1 percent tax to Dublin, leading US politicians and tax professors to accuse the group — which vies with the oil giant Exxon Mobil Corp for the title of the world’s largest joint-stock company — of deliberately shuffling around its global profits in order to lower its tax bill.

  These are earnings, tax experts say, that ordinarily would arise and be taxed, at Apple’s Silicon Valley headquarters; and to a lesser degree in markets around the world.

  Foremost among Apple’s accusers are two US senators: Carl Levin, a 78-year-old Democratic senator from Michigan, and John McCain, 76, the 2008 Republican presidential candidate.

  Leading the US Senate Permanent Subcommittee on Investigations, they discovered international selling rights to Apple products had been transferred out of the US to a handful of companies in Knocknaheeny.

  “You shifted that golden goose to Ireland,” Levin accused Cook at a six-hour hearing last week. “You shifted it to three companies that do not pay taxes in Ireland... These are the crown jewels of Apple Inc... Folks, it’s not right.”

  It was an interpretation Cook politely said he did not recognize.

  “There is no [profit] shifting going on that I see at all,” the smiling Apple boss explained, sticking firmly to the company line.

  “Apple has real operations in real places, with Apple employees selling real products to real customers. We pay all the taxes we owe — every single dollar... We don’t depend on tax gimmicks,” he added.

  However, politicians and tax experts found this hard to believe.

  “Apple does not use tax gimmicks? I about fell off my chair when I read that,” Dick Harvey, a professor in tax law and former adviser to the US Internal Revenue Service, told the Senate hearing.

  Probed on activities in Ireland, Cook said: “We have built up a significant skills base there of people who really understand, deeply, the European market, that serve our customers well.”

  With the two sides unable to agree, the Guardian went to Cork, seeking to test whether Apple’s claim that its Irish subsidiaries can reasonably be said to earn two-thirds of global group profits — or whether, in truth, they are masking industrial-scale tax avoidance.

  The investigation found:

  ‧ Apple’s Cork site employs large numbers of foreign workers, many in call centers dealing with tech-support queries raised in their home countries. Cork job adverts show vacancies for a Spanish payroll analyst, Nordic customer relations adviser, Norwegian Apple specialist, Russian fraud analyst and a German Agreement administration advisor.

  ‧ Staff at what Cook calls “our campus in Cork” earned less than the average for Apple, though Harvard professor Stephen Shay has calculated that 2011 profit per employee at the Cork site was more than US$9 million.

  ‧ Although then-Apple chief executive Steve Jobs made Cork his first European base in 1980, most Apple manufacturing operations left Cork years ago. Printed circuit-board production went to Indonesia in 1998, while iMac assembly transferred to Wales a year later.

  ‧ Most Apple products destined for all markets outside of the Americas are manufactured by Taiwan’s Foxconn Technology Group (富士康科技集團) in China on orders from Cork. Almost all of them never touch Ireland, being shipped directly to local distributors and retailers in Europe, the Middle East, India, Africa, Asia and Australia.

  ‧ Apple has been able to draw a secrecy veil over its Irish operations by making use of unlimited companies, which are not required to file company accounts.

  ‧ Billions of US dollars of profit pouring into Apple’s Irish coffers are managed by Apple’s Nevada-based investment subsidiary Braeburn Capital, making it larger than any US hedge fund. Cash reserves are held in banks in New York with not a penny in Ireland.

  ‧ Main accounting records for at least one of these companies are held in Austin, Texas. Meanwhile, notes of board meetings are taken by Apple’s California-based general counsel Gene Levoff and sent to a law firm in Ireland to be typed up as minutes.

  ‧ Auditors to Apple companies are Ernst & Young, the accountancy firm that also audits Google Inc, Facebook Inc and Amazon.com Inc — each of which have also elected to set up substantial operations in Ireland.

  Apple declined to co-operate with the Guardian’s investigations and staff were told not to speak to the paper.

  However, one worker did break ranks, although chose to speak anonymously.

  “I grew up in Denmark, so I come from a system where you pay 50 percent tax. So, yeah, I believe you should pay taxes — I would prefer to pay 50 percent and have a system that works,” he said.

  “I don’t know how the Irish do it. I don’t think it’s fair, no. I think they [Apple] pay 2 percent tax here in Ireland, which is ridiculous — but that’s the way the system works,” he added.

  Conor Healy, chief executive of the Cork chamber of commerce, said Ireland’s unapologetic drive to recruit multinationals was good for the local economy, insisting the country’s low corporation tax rate of 12.5 percent was just one reason multinationals chose to relocate.

  “That’s something we very much promote. But that, on its own, is not sufficient for large companies like Apple to be successful,” he said.

  “Cork is the European, Middle East and Africa headquarters for Apple... It’s delivering real services to Apple customers outside of the US and to the Apple corporation globally. And it is employing 4,000 real people, in real jobs here in Cork. That’s a very, very different environment to the tax haven as portrayed in some of the commentary from the US,” he added.
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