Apple has been widely criticized for its tax practices in Europe, where it managed to avoid paying big taxes thanks to the special deals it has in place with Ireland and Luxembourg. A new report from The Australian Financial Review, which cites an investigation led by the International Consortium of Investigative Journalists, says that Apple’s iTunes earnings in the region go mostly untaxed as well.
More than two-thirds of the money Apple makes through international movie and music sales outside the U.S. flows through Apple’s Luxembourg-based iTunes Sàrl company, where it isn’t taxable “thanks to an intra-group fees agreement signed in 2008,” according to documents seen by the publication.
In 2013, Apple apparently paid just €20 million in taxes, even though it made €2.05 billion in iTunes sales during the period.
“On September 28 2008, the company entered into a marketing services agreement with an affiliated company,” iTunes Sàrl said in 2009. The AFR notes that this deal is separate from marketing costs iTunes pays to third parties, and that other related charges include intra-company commissions.
These extra charges, which are paid to an affiliate company, apparently account for 66% of the money iTunes Sàrl makes. As a result, the company ended up paying €26.6 million in taxes to Luxembourg in 2011 on just €90 million of taxable income, and €20 million in 2013, even though sales have increased substantially.
Apple and other companies taking advantage of lax tax systems in certain European markets including Ireland and Luxembourg are already investigated by the EU for their tax practices.
A video explaining how, and why, large corporations sign special tax deals with Luxembourg follow below.