The inside story of Apple's $14-bn tax bill

Maxforce concluded that Ireland allowed Apple to create stateless entities that effectively let it decide how much tax it pays

‘The Maxforce’ is the European Union (EU) team that ordered Ireland to collect billions of euros in back taxes from Apple, rattled the Irish government, and spurred changes to international tax law. You’d think it might have earned the name by applying maximum force while investigating alleged financial shenanigans. It didn’t. It’s just led by a guy named Max.

A European Commission official gave the nickname to the Task Force on Tax Planning Practices in honour of its chief, Max Lienemeyer, a lanky, laid-back German attorney who rose to prominence vetting plans to shore up struggling banks during Europe’s debt crisis. Since its launch in 2013, the Maxforce has looked at the tax status of hundreds of companies across Europe, including a deal Starbucks had in the Netherlands, Fiat Chrysler Automobiles’ agreement with Luxembourg, and — its largest case — Apple in Ireland.  

Lienemeyer’s team of 15 international civil servants pursued a three-year investigation stretching from the corridors of the European Commission, the EU’s executive arm, to Ireland’s Finance Ministry and on to Apple’s leafy headquarters in Cupertino, California. Much of it outlined for the first time here, this story chronicles a growing clash between Europe and the US and a shift in the EU’s approach to the tax affairs of multinationals.

The Maxforce concluded that Ireland allowed Apple to create stateless entities that effectively let it decide how much — or how little — tax it pays. The investigators say the company channelled profits from dozens of countries through two Ireland-based units. In a system at least tacitly endorsed by Irish authorities, earnings were split, with the vast majority attributed to a “head office” with no employees and no specific home base — and therefore liable to no tax on any profits from sales outside Ireland. The US, meanwhile, didn’t tax the units because they’re incorporated in Ireland.

In August the EU said Ireland had broken European law by giving Apple a sweetheart deal. It ordered the country to bill the iPhone maker a record 13 billion euros ($13.9 billion) in back taxes, plus interest, from 2003 to 2014. One example the Commission cites: In 2011, a unit called Apple Sales International recorded profits of about 16 billion euros from sales across Europe. But only 50 million euros were considered taxable in Ireland, leaving 15.95 billion euros of profit untaxed, the Commission says.

Though the EU says its goal is “to ensure equal treatment of companies” across Europe, Apple maintains that the Commission selectively targeted the company. With the ruling, the EU is “retroactively changing the rules and choosing to disregard decades of Irish law,” and its investigators don’t understand the differences between European and US tax systems, Apple said in a December 8 statement.

Apple, which has some 6,000 workers in Ireland, says its Irish units paid the parent company a licensing fee to use the intellectual property in its products. The Irish companies didn’t own the IP, so they don’t owe tax on it in Ireland, Apple says, but the units will face a US tax bill when they repatriate the profits. “This case has never been about how much tax Apple pays, it’s about where our tax is paid,” the company said. “We pay tax on everything we earn.”

Ireland on November 9 appealed the Commission’s ruling at the EU General Court in Luxembourg, arguing it has given Apple no special treatment. Irish Finance Minister Michael Noonan has said he “profoundly disagrees” with the ruling and that Ireland strictly adheres to tax regulations. The government says Ireland has no right to tax non-resident companies for profits that come from activities outside the country.

“Look at the small print” on an iPhone, Noonan said after the EU released its ruling in August. “It says designed in California, manufactured in China. That means any profits that accrued didn’t accrue in Ireland, so I can’t see why the tax liability is in Ireland.”

In the coming weeks, the EU is expected to publish details of the Maxforce investigation. At about the same time, Apple will likely lodge its own appeal in the EU court. Though Apple will have to pay its tax bill within weeks, the money will be held in escrow, and the issue will probably take years to be resolved.

This story is based on interviews with dozens of officials from the EU, Ireland, and Apple, though most didn’t want to speak on the record discussing sensitive tax matters. A Maxforce representative declined to make Lienemeyer available for an interview. Ireland’s Office of Revenue Commissioners (the equivalent of the American Internal Revenue Service) says it can’t comment on specific companies.

Lienemeyer began assembling the Maxforce in late spring of 2013 with a mandate of scrutinising tax policies across Europe in search of any favouritism. Direct subsidies or tax breaks to court a specific company are illegal in the EU to prevent governments aiding national champions.

 His first hire — the person who would oversee the Apple probe — was Helena Malikova, a Slovak who had worked at Credit Suisse Group in Zurich. He quickly added Kamila Kaukiel, a Polish financial analyst who had been at KPMG, and Saskia Hendriks, a former tax policy adviser to the Dutch government. 

As the four initial members began their investigations, they got a head start from a US Senate probe of the tax strategies of American multinationals. The Senate’s Permanent Subcommittee on Investigations said Apple shifted tens of billions of dollars in profit into stateless affiliates based in Ireland, where it secured a tax rate of less than two percent.

At 9:30 am on May 21, 2013, senators gathered in Room 106 of the Dirksen Office Building. Included in the evidence presented that day was a 2004 letter from Tom Connor, an official at Ireland’s tax authority, to Ernst & Young, Apple’s tax adviser.