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There’s actually three things going on here with Apple’s accounts, practices and tax in the UK.
The first is that all of the iTunes sales are actually made in Luxembourg. This is because the VAT rate there is lower and one of the peculiarities of EU tax law is that “electronic services” pay VAT in the country they emanate from, not the country of delivery. For physical items it is the country of delivery’s rate that is applied. So, all of the revenue, all of the profits (whatever they might be) and of course all of the VAT end up in Luxembourg for e-books, software, songs and the like, even when the sale is to a UK resident. Of course, the tax savings from this go to the UK residents making the purchases: so it’s a little difficult to see this as tax dodging by Apple.
The second is the way that Apple structures its entire worldwide business. For all sales outside the US (or perhaps the “Americas” segment, which might include Canada) Apple buys the equipment from the manufacturers in China through an Irish company. This then sells the equipment on to either the dealers and distributors or to the Apple Stores themselves around the world. Prices are such that the stores don’t really make much money: the margins just about cover the actual fixed and variable costs of having stores and making sales. All of the real profit thus ends up in that Irish company and is taxed in Ireland. Or not, as actually happens, for Ireland only taxes corporate profits on economic activity that takes place in Ireland. So all those profits made by buying from China and selling in the UK aren’t taxed. It’s also true that Apple does not then take those profits back into the US, so there’s no US corporate income tax to pay. Largely, the business is untaxed then. But that’s the way the politicians wrote the system so it’s a bit odd to blame people for following the rules. Full story...
Related posts:
There’s actually three things going on here with Apple’s accounts, practices and tax in the UK.
The first is that all of the iTunes sales are actually made in Luxembourg. This is because the VAT rate there is lower and one of the peculiarities of EU tax law is that “electronic services” pay VAT in the country they emanate from, not the country of delivery. For physical items it is the country of delivery’s rate that is applied. So, all of the revenue, all of the profits (whatever they might be) and of course all of the VAT end up in Luxembourg for e-books, software, songs and the like, even when the sale is to a UK resident. Of course, the tax savings from this go to the UK residents making the purchases: so it’s a little difficult to see this as tax dodging by Apple.
The second is the way that Apple structures its entire worldwide business. For all sales outside the US (or perhaps the “Americas” segment, which might include Canada) Apple buys the equipment from the manufacturers in China through an Irish company. This then sells the equipment on to either the dealers and distributors or to the Apple Stores themselves around the world. Prices are such that the stores don’t really make much money: the margins just about cover the actual fixed and variable costs of having stores and making sales. All of the real profit thus ends up in that Irish company and is taxed in Ireland. Or not, as actually happens, for Ireland only taxes corporate profits on economic activity that takes place in Ireland. So all those profits made by buying from China and selling in the UK aren’t taxed. It’s also true that Apple does not then take those profits back into the US, so there’s no US corporate income tax to pay. Largely, the business is untaxed then. But that’s the way the politicians wrote the system so it’s a bit odd to blame people for following the rules. Full story...
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