French tax authority’s Apple bill shows up weakness of HMRC
Reports from France tell us that the French tax authorities have reached a settlement with Apple after an investigation into Apple’s tax payments in the country going back 10 years. Although the accounts of Apple’s French subsidiaries have not yet been published, the French newspaper L’Express reports that the settlement reached is in the order of £500m.
In 2016/17, according to Apple’s UK accounts the company reached a similar settlement with HMRC. In that year the Apple companies paid a total of £324.8m – in the previous year the company had paid £16.8m. The 2016/17 accounts of Apple in the UK covered a longer period than usual, as Apple changed their accounting year. The notes to the accounts disclose that between them the Apple companies in the UK paid an additional £218m, less than half of the amount that the company has settled with the French government.
The accounts of Apple (UK) Limited disclose that he increase in tax was due to an adjustment for “prior years” up to 2015 following an ‘extensive investigation’ by HMRC, although it does not say how far back the HMRC investigation went. The majority of the adjustment was attributed to Apple Europe Limited – a UK based company which supports sales activity for the whole of the European, Middle Eastern and African region for Apple.
Apple does not publish a breakdown of figures for its activities in various countries around the world, however, there is data on the market share of Apple vs Android phones published by market research organisations. We used the figures provided by Kantar.
These show that the UK is a much bigger market for Apple, where iPhones had 41% of the smartphone market in 2018, whereas in France they accounted for just 25%.
Apple have paid more than twice the amount to French authorities in their settlement for tax avoided in the past, than they have to HMRC, in a country which has a smaller market for Apple products.
There could be a number of reasons that account for some of the difference. French tax rates are higher than UK corporation taxes, so the effect of any avoidance is greater – although for many of the years covered by the adjustments the difference in the UK and French rate would have been smaller.
It could be that the HMRC investigation covered a shorter period, but that is unlikely. The HMRC investigation led to permanent changes in the way that Apple calculated its taxable income in the UK. The first year following the adjustment Apple had a UK tax charge of £30m, up from £16.8m in the year before the adjustment. This suggests that the adjustment covered a long period.
Until we have more transparency on the settlements between HMRC and the companies they investigate, we will never know how on what basis these deals are done – but on the face of it, the settlement with the French Authorities makes the UK settlement with Apple look pretty weak.