The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid.
Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a “head office”. The Commission’s assessment showed that these “head offices” existed only on paper and could not have generated such profits. These profits allocated to the “head offices” were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.
This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission’s first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.
In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple’s decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.
However, Irish authorities have vowed to fight the finding, and the U.S. government has disputed the EU’s position.
“Ireland’s position remains that the full amount of tax was paid in this case and no state aid was provided,” the Irish government said in a statement. “Ireland does not do deals with taxpayers.”
Apple and other major U.S. firms including Google and Microsoft hold stockpiles of what’s known as indefinitely reinvested foreign earnings, or revenue not subject to U.S. corporate income tax, outside the U.S. The 10 firms with the largest holdings collectively have $724 billion in this revenue outside the U.S., a USA TODAY report found.
The EU has been investigating possible tax avoidance by multinational firms since June 2014. Under current EU rules, member countries cannot give aid that grants companies or sectors an unfair advantage.
A ruling by the European Commission in October that a tax arrangement between Starbucks and the Netherlands was illegal is currently on appeal to the EU General Court, as is a similar ruling against Fiat in Luxembourg. An EU investigation into tax agreements between Amazon and Luxembourg is still awaiting a final decision.
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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