Apple and Google Fail, Why Europe's "Newbies Love Games"?

The recent days for Apple have been a mix of joy and sorrow: the grand "highlight moment" of the new product launch yesterday, with the bold statement of "fully embracing AI" still echoing over Cupertino, hasn't yet translated into revenue from new product sales, when today's judgment of "paying 13 billion euros ($14.4 billion) in back taxes" has been delivered to Cook's desk from across the ocean, and it's final!

Specifically, according to multiple media reports, on September 10th, the European Union's highest court ruled against Apple in the Irish tax case, and Apple must pay back taxes of up to 13 billion euros from 2003 to 2014.

It was particularly emphasized that "this is a final judgment, with no right to appeal."

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Apple is destined to "spend money to avert disaster!"

According to media reports such as AFP, the EU's highest court, based in Luxembourg, stated in its judgment that day: "The court has made a final judgment on this matter and confirmed the European Commission's decision in 2016: Ireland provided illegal aid to Apple, and Ireland needs to recover these aids."

The Financial Times described this ruling as a "major defeat" for Apple.

The decision was made in 2016, and finally confirmed by the European Commission in 2024, with many twists and turns, but if we count from the investigation that started in 2014, this "once-in-a-century case" has lasted for a full decade!

According to foreign media, the actual tax and interest amount to 14.3 billion euros, and in 2018, Apple had already deposited this huge sum in full into an escrow fund account in Ireland.

Imagine if someone insisted on giving you a sum of money, and you had no choice but to accept it because it was mandated by law, wouldn't you find it strange?

And Ireland, the "tax haven" in Europe, plays just such a role!

Also, because of its special tax policies, while the country is vigorously developing its "headquarter economy," it has also become a "thorn in the side" for Brussels - you, a mere member state, dare to set up your own shop, secretly offering companies low tax rates, and even creating tax refunds under various pretexts, if everyone acted like you, how could I be the boss?

This is intolerable!

How does Apple avoid taxes in Ireland?

Although the "tax haven" is a complex legal concept, it is some countries and regions that use their preferential tax policies to attract companies, and multinational corporations naturally have the need to avoid taxes, it's normal for the two to hit it off - you make more money, I pay less tax, a win-win!

And Ireland, one of the 27 EU member states, has turned tax avoidance into a business: since the 1990s, the country's corporate tax rate has been only 12.5%, the actual tax rate, that is, the tax rate actually paid by companies after deductions and subsidies, is only 10%-11%, although the country's latest law last October raised it to a maximum of 15%, but compared with other countries' tax rates of more than 20% (such as France's 26%), it's not a little higher, even lower than Singapore, which is known for its low tax rates!

Because of such a low tax rate, many big companies whose names you can call out have set up their European headquarters in Ireland: in addition to Apple, there are Google, Microsoft, Meta, etc., especially technology giants that provide non-physical products, as long as they type on the keyboard, tax avoidance is as easy as pie!

It also makes Ireland the "Silicon Valley of Europe!"

The Global Tax Evasion Report by the EU Tax Observatory estimates that in 2022, about 1 trillion US dollars (943 billion euros) of corporate profits were transferred to low-tax countries including Ireland, equivalent to nearly 10% of global corporate tax revenue.

In all profit transfers, Ireland and the Netherlands had the largest profit transfer amounts in 2019, each over 14 billion US dollars.

The report lists Ireland as one of the world's major "tax havens."

Although it has the "good reputation" of a "tax haven," it doesn't hinder the Irish government's income: according to the report, Ireland's per capita corporate income tax revenue in 2022 was 4,500 euros, five times that of France and Germany.

And according to the International Monetary Fund's estimates, as of September 1, 2024, Ireland's per capita GDP has been "brushed" to $134,000, the third in the world, second only to Luxembourg's $144,000 in Europe, and much higher than the ninth United States' $85,000 - with so many giants, it's hard for GDP to be low!

In fact, Apple's "tax dispute" in Ireland started in 2013, and although the EU was the main force, it was inseparable from the "assistance" of the United States during President Obama's time - the left-wing forces in Europe and the United States united in the siege against Apple!

Specifically, in May 2013, Tim Cook, who had just taken over Apple for less than two years, was "shelled" at a hearing of the US Senate Committee, where US senators accused Apple of hiding tens of billions of dollars in profits in companies in Ireland, a "tax haven."

What followed was the EU's smell of money, and the EU also launched an investigation into Apple the following year.

By August 2016, after two years of "prolonged" investigation by the European Commission, it concluded that the actual European profit tax paid by Apple in 2003 was 1%, and in 2014 it was only 0.005%.

Therefore, it attracted a large number of international giant companies to settle in Ireland and use the so-called "double Irish Dutch sandwich" to avoid taxes.

But Cook called it "political nonsense."

So what kind of "magic trick" did Apple use to pay so little tax?

It's a complex legal issue, but let's put it simply, Apple made a small part (0.005%) of the European business profits need to pay Irish corporate income tax through the complex agreements between the US parent company API and the two Irish subsidiaries AOE and ASI.

Not only Apple, in fact, this is also a routine operation for many big companies!

The EU has a special term for this, called "Aggressive Tax Planning" (ATP).

It is used to describe the "tricks" of big companies.

Faced with the EU's tax collection decision, Apple naturally won't give up and decided to appeal to the European Court.

And the Irish government, resolutely chose to form a united front with Apple - it's about the future of Ireland's economic development, much more important than a mere 13 billion euros, "the wind and objects should be looked at from a long-term perspective"!

In July 2020, Apple and Ireland once had a brief victory - the EU General Court ruled in the first instance that the European Commission's decision was invalid, and there was no so-called "selective preference."

The EU General Court believed that there were defects such as incompleteness and inconsistency in the tax agreement reached between Apple and the Irish government, but these defects themselves were not enough to prove that the Irish government violated the EU competition law "prohibition of state aid" clause.

The European Commission also failed to provide sufficient evidence to show that fair competition in the EU market was affected.

In the final analysis, four words: insufficient evidence!

The EU was celebrating the first victory of the tax investigation, and the duck that was about to be caught flew away, and the EU naturally won't give up: on September 25, 2020, the European Commission announced an appeal against the judgment of the EU General Court.

In May this year, the EU competition regulatory agency appealed to the European Court, requesting to overturn the ruling of the EU General Court.

Today, the EU has finally ushered in a "big reversal": the original judgment is invalid, the taxes that should be collected are still collected, and the money deposited in the escrow fund in 2018 has finally officially belonged to Ireland!

Even Vestager, the Vice President of the European Commission in charge of competition affairs, who is about to end his term, said: "If measured by surprise and not surprise, from 1 to 100, I think my surprise level is 99 points."

She said that this case proved to taxpayers that "occasional tax fairness can also be achieved," and big companies cannot be above the law.

The reason why she is so excited is also because - the EU's tax investigation campaign started several years ago, targeting not only Apple but also a group of giants, and this is the first victory Vestager has achieved in the legal struggle with the giants.

Previously, the EU's tax cases with Amazon and Engie, the European Court did not support the decisions of the European Commission.

According to China Securities News, in response to the ruling of the European Court of Justice, Apple spokesman Julian Theurth said on Tuesday that the case "was never about how much tax we pay, but about which government we have to pay taxes to."

"No matter where we operate, we will pay all the taxes due, and we have never reached a special agreement."

He also said that "the European Commission is trying to retroactively change the rules and ignore the fact that international tax law requires our income to be taxed in the United States."

In response to the EU's decision, the Irish government said in the latest response that this judgment "now only has historical significance."

Ireland has amended the laws on the rules of corporate residence and the attribution of profits to branches of non-resident companies operating in the country.

In addition, the Irish government, as always, emphasized that "Ireland does not provide tax benefits to any company or taxpayer."

In addition, there is a little episode: due to the change in the yield of the global fixed income market and the significant increase in the operating costs of the fund, the escrow fund has suffered losses.

According to the data disclosed by the Irish government in July 2024, as of December 31, 2023, the net asset total of this fund was 13.774 billion euros, and 600 million euros were lost in six years.

This is not the first time Apple has been "beaten" by the EU this year.

According to previous articles by Financial Breakfast, at the end of July this year, the EU antitrust regulatory agency accepted Apple's plan to allow competitors to use Apple's own "Tap to Pay" (NFC) contactless mobile payment technology, thus ending the EU's four-year investigation into Apple and avoiding a fine of 40 billion US dollars.The dispute between Apple and the European Union (EU) goes far beyond what meets the eye.

Earlier this year, Apple was fined €1.8 billion (approximately RMB 14.2 billion) by the EU for violating the rules of its App Store, and the company is also facing three investigations for not complying with digital competition rules.

The delay in launching Apple's latest pride, "Apple Intelligence," in the EU is also closely related to the EU's regulatory policies.

In a nutshell, "A wise man does not suffer losses in front of him," and under someone else's roof, one must bow their head.

Let's put aside the grudges between Apple and the EU for now.

On the same day Apple paid its back taxes, another multinational giant suffered a financial blow in the EU: Google's fine is finally unavoidable, with the ever-present charge of "alleged monopoly"!

According to the latest news, Google was fined a record €2.42 billion (approximately RMB 19 billion) by the EU for abusing its shopping services.

Google's parent company, Alphabet, appealed, but the EU Court rejected it.

According to the EU Court, Google illegally used its dominant position in search engines to provide higher rankings for its own product listings.

This case has been long-standing: in 2017, after years of investigation, the European Commission ruled that Google abused its dominant position in the search engine field and provided higher rankings for its shopping comparison service, Google Shopping, in the list, suppressing the shopping services of competitors.

The Commission imposed a hefty fine of €2.42 billion for this action.

Google also appealed against the EU's fine decision, but unlike Apple, the EU General Court's ruling in November 2021 rejected their appeal, supporting the EU's fine decision.

Subsequently, Google appealed to the EU's highest court, seeking to overturn the EU's fine decision, but the result was still not as desired!

Next week, Google will face a major test: at that time, the EU's highest court will rule on its smallest fine, which is about €1.49 billion (approximately RMB 12 billion).

In 2018, in response to the antitrust case against Android, the EU once announced a record fine of €4.34 billion for Google, surpassing the €2.7 billion penalty (the settled case) imposed by the EU on Google's search antitrust case in 2017.

According to CCTV Finance's report in 2023, the EU has imposed fines of over €8 billion on Google in three different antitrust cases, and these two major cases account for nearly €7 billion.

According to foreign media, these two cases are seen as an important test of Europe's efforts to crack down on the world's largest technology companies, and the two rulings made by the EU Court are a "major victory" in the EU's 27-year-long technology industry regulatory campaign.

Why does the EU specifically target giants?

In recent years, almost all global technology giants have been targeted and penalized by the EU for various reasons such as antitrust and data protection, and each time there is a legal basis, emphasizing equal treatment for all!

Of course, as the party with the power, if the EU's case handling is truly "based on facts and guided by law," there is nothing to say.

However, we cannot ignore the background of the issue: against the backdrop of the wave of digital technology and artificial intelligence applications in various fields, the EU, which is lacking in relevant fields, seems to have developed "digital anxiety"!

Taking the burgeoning large model field as an example, who among the financial friends has heard of any impressive large models from Europe?

At least as far as I know, I have only heard of one "hope for Europe" - Mistral AI, which was born in France and founded by former employees of a giant company.

It just completed a Series B financing of $645 million in June this year, with backers including many European Old Money, and even President Macron has high hopes for it, trying to prove that "France is not just about luxury goods!"

What about the actual effect of Mistral AI, which bears the "hope of the whole village"?

According to the latest reports from foreign media, the company has officially released its first multimodal model Pixtral 12B, marking the company's latest move into the field of integrated language and visual processing.

Although its competitors such as OpenAI and Anthropic have already launched models with similar image processing capabilities.

However, the uniqueness of Pixtral 12B lies in its ability to natively support any number and any size of images, with higher flexibility.

Apart from this, I have not heard of any other truly competitive large models in Europe, and I hope that financial friends who know will not hesitate to teach!

It seems understandable that the EU is not satisfied with these technology giants: they earn the money of European netizens, the code is completed in the United States, and the tax and employment provided to the EU are very limited.

They even try to "collude inside and outside," trying to pay as little as possible, but it is helpless that their own children are too uncompetitive, and they can't produce any products that can be proud of, no wonder they are so twisted!

What can make the EU "twisted" is not only the technology giants?

To put it bluntly, how many of the EU's traditional advantage industries are not "a mess" now?

If described in gaming terms, it is a typical "poor skills but big addiction," and being stabbed in the back by their own people is also a common occurrence!

Taking the new energy industry as an example: according to the previous article by Financial Afternoon Tea, in June this year, the European local battery company Northvolt (Chinese name: Bei Fu) was canceled by the German BMW company due to the failure to meet both production capacity and quality standards.

The battery contract signed with the company in 2020, worth more than €2 billion (15.56 billion yuan), was transferred to Chinese battery companies!

If you can't do new energy, you can only raise the banner of "trade protectionism," but unexpectedly, the "traitor" inside first "betrayed": according to Global Network and others, the Prime Minister of Spain said that the EU should reconsider the issue of imposing additional tariffs on Chinese electric vehicles, and the German government also expressed support, and the slow-electric German Volkswagen even said this month that "in order to reduce costs, it is not ruled out to close the factory in Germany and lay off employees."