France does tax Apple on its own. They still pay VAT of course as well as on any profits classified as French (e.g. retail). The question is then everything else whose origin isn’t obvious.
The issue is using various IP transfer schemes to make it look like their French division has no profits while the Isle of Man division is earning billions.
Technically speaking, almost all of the value is created in the USA via R&D. I don’t think Apple has any significant amount of R&D creation in France (hopefully a lab or two). Then there is some by order manufacturing in China, along with component acquisition, leaving just retail and distribution for local markets. Now, Apple can and has done some dodgy IP transfers to tax havens, but France wouldn’t have been the wronged party in that, the USA would be.
Value is only created when you sell products, not when you create them (and especially not in R&D which is gamble cost for most companies), otherwise all the startups would be rich. If there would be no value creation in France, Apple would not have any business there.
Ridiculous, how would that even work? Profit is “sales - expenses.” So how would Apple account for the R&D in the states, or does Apple France just want to tax them assuming all the inputs don’t exist?
That’s why Apple USA sells iPhones to Apple France at some price above hardware production costs. It doesn’t make sense any other way. Value isn’t created on sale, it is only realized as money at that point.
Welcome to the world of tax avoidance. For example, if the software is assigned to a subsidiary in the Isle of Man, which "licenses" the use of the software to Google France, then Google France in the high tax jurisdiction pays these licensing fees to Google Isle of Man, shifting profits from the high tax to the low tax jurisdiction. This is one of many tricks available.
See this Forbes' article on transfer pricing as tax avoidance:
R&D is a cost center, not a profit center and as you pointed out, you need to sell your products at a higher price to recover that cost. If the value was created on R&D, it would mean that you could manufacture just about anything and it would create profit magically, which is obviously wrong as countless companies fail to monetize products. The value is created at the time you sell the product itself, by demand of consumers.
R&D is not a cost center, it is widely regarded as a profit center in a tech company. By your definition, Microsoft (assuming they aren’t selling hardware) should be paying all of its profits to where its software is sold vs. where it is produced, because it’s entire operation is just a cost center!
Like it or not, taxation internationally is currently based on where value is produced which is why...
> Under the current international tax system, profits are taxed based on where the value is created. The taxes Apple pays to countries around the world are based on that principle. The vast majority of the value in our products is indisputably created in the United States — where we do our design, development, engineering work and much more — so the majority of our taxes are owed to the US.
The value is not created at time of sale! Well, some value is created by virtue of the sale itself that go into retail profits, but the store has to pay its suppliers the price they charge regardless of the supplier’s markup. Imagine it’s a department store (Nordstrom’s or whatever) selling LV bags, LV is not charging the department stores just production cost. France in turn is taxing LV on the design value added in France, that tax money isn’t going to China or the USA where the bag is sold. France would be pissed otherwise.
If France wants to tax America’s R&D, then they can change their laws, but the USA isn’t going to be very happy about that, obviously.