Apple loves to tout its technological innovation, but the Italian government wasn’t a fan of the company’s innovative approach to paying taxes, so it’s starting to collect its dues.
The Cupertino company has agreed to pay $348 million to settle an investigation into the tax practices of its Italian subsidiary. The sum falls considerably short of the $960 million that Italy has accused Apple of hiding. Apple generates enough revenue to cover the cost of the settlement in just over 10 hours.
Apple Italia reportedly paid only $32.77 million in taxes, when its annual profits were $1.3 billion for the period. Apple Inc. has finally reached a consensus with the tax department and agreed to settle the amount to end the case. The tax department opined that the sum paid by Apple is a fraction of the actual taxes it was liable to pay for that period.
On Apple’s front, this is a complete turnaround given that it refused to acknowledge the tax evasion case earlier. Apple CEO Tim Cook even termed the case as a “political crap”. He had stated previously that the company “pays every tax dollar it owes.”
Apple is the latest tech giant to face considerable Italian regulatory scrutiny due to its tax practices. Italian Prime Minister Matteo Renzi has proposed a tax on multinational Internet companies—dubbed the “Google Tax”—that could yield over $3 billion per year. The previous prime minister proposed the idea only to abandon it due to opposition from the European Union. Renzi has revived the proposal as a way of shoring up his country’s strained finances.
Silicon Valley firms’ practices have placed significant pressure on Italy to take action. In 2014, Google reported about $60 million in revenue in the country; Italy’s tax office estimates the search giant’s revenue to be nearly ten times higher. Google opened its European headquarters in Ireland to take advantage of the same generous tax rates that boost Apple’s profits.
As of now, the evidence clearly points towards Apple cleverly evading tax by transferring its profits for the Italian market into its subsidiary in Ireland. As Ireland demands a lower tax rate for corporates, Apple saved substantial profits. Apple in fact, lists Apple Italia as a “consultant” for Apple Ireland, which makes it legitimate for the company to channelize its profits earned in the Italian market.
Its not just Apple though. Other multinational companies have come under the scanner and are suspected of using the same methods employed by Apple to evade tax.
In a report compiled by the Organisation for Economic Co-operation and Development (OECD), it was found that multinationals save a gargantuan $100 billion to $240 billion through tax-minimizing schemes globally.
Other tech giants such as Facebook and Google are also reportedly under the scanner of the Italian tax department. The department is investigating files of Facebook’s headquarters in Milan. On the other hand, Google — as a preventive measure — is in talks with the tax department to check whether it owes the department any money in taxes in order to avoid similar law suits.