UK alleges Irish tax dodge gives Apple Inc. (AAPL) an effective 0.1% tax rate on British profits

The ongoing saga of Apple Inc.’s (NASDAQ:AAPL) efforts to avoid paying taxes on its profits continues with a fresh allegation from the government of the United Kingdom, which claims that the Cupertino titan is using Irish tax breaks to pay an approximately 0.1% effective tax rate on the profits it earns in Great Britain.

Britain is an extremely important market for Apple (AAPL), accounting for roughly 10% of the electronics company’s global sales according to an article in the Daily Mail. This would put sales in the “Sceptered Isle” at somewhere around £10.5 billion, or close to $18 billion. The same article states that Apple has paid only £11.4 million in taxes to the British government, or $19.5 million. This is only slightly more than 0.1% of the total figure earned.

Apple Inc. (AAPL) is using Ireland as part of its tax reduction scheme, a fact that has launched a major European Union (EU) investigation into the legality of the Irish government’s actions. Apple’s lawyers have evidently found enough details in the 17,000 page UK tax code to enable this maneuver, a fact pointed out by the Taxpayers’ Alliance’s John O’Connell.

Interestingly, allowing enterprises like Apple and many other companies to use its country as a sort of advanced tax haven has brought little benefit to Ireland itself, and in fact might even be generating a net loss for the Irish government. According to the Wall Street Journal, the activity of these haven-seeking companies boosts Ireland’s GDP, which, in turn, by EU law, compels the Emerald Isle to make larger cash contributions to the EU’s overall budget.

These budgetary contributions are rising at a slightly faster rate than the GDP gains, indicating that acting as Apple’s buffer against international tax law may be damaging Ireland’s economy. This, in turn, calls the exact motives of the Irish government into question.

One possibility is that the Irish state made the deals with an overly rosy assessment of how much Ireland would benefit from the process. Now that the reverse has proven true, the Irish may simply be unable to quickly extricate themselves from the deals they made, and must suffer through the consequences of excessive optimism.

Another possible cause is that the Irish government is pressing forward in the hope that providing a tax haven will eventually start producing excess revenue, benefiting their nation in the long run. Other, more cynical reasons could also be readily devised.