The following excerpt is taken from the note of the interview of 1990:
“[the tax advisor’s employee representing Apple] mentioned by way of background information that Apple was now the largest employer in the Cork area with 1,000 direct employees and 500 persons engaged on a sub-contract basis. It was stated that the company is at present reviewing it’s worldwide operations and wishes to establish a profit margin on it’s Irish operations.
[The tax advisor’s employee representing Apple] produced the accounts prepared for the Irish branch for the accounting period ended […]1989 which showed a net profit of $270m on a turnover of $751m. It was submitted that no quoted Irish company produced a similar net profit ratio.
In [the [TAX ADVISOR’S]employee representing Apple]’s view the profit is derived from three sources-technology, marketing and manufacturing. Only the manufacturing element relates to the Irish branch.
[The representative of Irish Revenue] pointed out that in the proposed scheme the level of fee charged would be critical.
[The tax advisor’s employee representing Apple] stated that the company would be prepared to accept a profit of $30-40m assuming that Apple Computer Ltd. will make such a profit. (The computer industry is subject to cyclical variations). Assuming that Apple makes a profit of £100m it will be accepted that $30-40m (or whatever figure is negotiated) will be attributable to the manufacturing activity. However if the company suffered a downturn and had profits of less than $30-40m then all profits would be attribitable [SIC]to the manufacturing activity. The proposal essentially is that all profits subject to a ceiling of $30-40m will be attributable to the manufacturing activity.
[The representative of Irish Revenue] asked [the tax advisor’s employee representing Apple] to state if was there any basis for the figure of $30-40m and he confessed that there was no scientific basis for the figure. However the figure was of such magnitude that he hoped it would be seen to be a bona-fide proposal. As it was not possible to gauge the figure in isolation [the tax advisor’s employee representing Apple] undertook to extract details of the actual costs attributable to the Irish branch.”
The following excerpt is taken from the note of the meeting dated 1991:
“in [the tax advisor’s employee representing Apple’s] view it was clear that the
company was engaged in transfer pricing. The branch accounts for the accounting period ended […]1989 showed a net profit of $269,000,000 on a turnover of $751,000,000. No company on the Irish stock exchange came close to achieving a similar result.
Revenue were not prepared to be conclusive as to whether the company was engaged in transfer pricing but were willing to discuss a profit figure for the Irish branch based on a percentage of the actual costs attributable to the Irishbranch.
The proposal before the meeting was that the profit attributable to the Irish branch would be cost plus $[28-38]m and the capital allowances would not exceed $[8-18]m thereby leaving $[18-28]m chargeable to Irish tax. Based on the accounts for the accounting period ended […]1990 a profit of $[28-38]m represented 46 per cent of the costs attributable to the Irish branch. It was pointed out that this figure greatly exceeded a figure of [10-20]% which is normally attributable to a cost center although it was readily conceded that a figure of [1020]% was meaningless in relation to the computer industry. It was pointed out that a mark-up of 100% can be achieved in some industries and in particular the pharmaceutical industry. It was conceded however that the pharmaceutical and computer industries are not directly comparable. Following further discussions it was agreed that, subject to receiving a satisfactory outcome to the capital allowance question, to accept a mark-up of 65 per cent of the costs attributable to the Irish branch. In addition it was agreed to accept a mark-up of 20 per cent on costs in excess of $[60-70]m in order not to prohibit the expansion of the Irish operations.
(…) Arising from further discussions it was agreed that the capital allowances
computations would be re-cast in Irish punts and the normal rate of wear and tear16 would be written for all years. In addition it was agreed that the company´s claim would be restricted to a sum of $[1-10]m in excess of the sum charged for depreciation in the accounts. Based on the schedule of costs submitted for the period ended […]1990 this would ensure that the profits chargeable to Irish tax would be $[30-40]m.
(…) The format of the accounts to be submitted was then discussed. A proposal to submit a schedule of costs was not accepted. It was agreed that a full profitand loss account would be prepared and a royalty/head office charge would be taken for technology and marketing services provided by the group. In addition the full audited accounts of the company will be submitted.
…) On a separate issue [the tax advisor’s employee representing Apple] wished to agree a mark-up for a new company whose activities would be confined to sourcing raw material in the State. A mark-up of 10% was proposed and it was agreed following discussions to accept a mark-up of 12.5%”.
