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Leonid Bershidsky

U.S. and EU Police Each Other's Companies

Regulatory actions against multinationals show a strange division of labor.
And I'll scratch yours.

And I'll scratch yours.

Photographer: John Thys/AFP/Getty Images

Apple has always denied there was anything illegal about the corporate structure it set up in Ireland to radically cut the tax it pays on non-U.S. operations. Now it has warned investors that a European investigation may have a material effect on its future earnings. The probe is part of an evolving practice, in which the U.S. and the European Union do each other's law enforcement. 

Apple's tax arrangement was based on a discrepancy between Irish and U.S. tax laws. In Ireland, a company's domicile is where it is run from; in the U.S., it's where it's is incorporated. Thanks to this quirk, Apple's Irish subsidiaries, which receive most of the company's overseas profits, have had essentially no domicile for tax purposes. The Irish authorities didn't mind that: Apple employs thousands of people in the country and pays some taxes on its Irish-related business. For Ireland, something is better than nothing.