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Tim Cook on the European Commission’s Tax Ruling

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Tim Cook:

The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.

The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same. We are confident that the Commission’s order will be reversed.

I’m with Cook on this one. It’s about what the Commission (and many observers) think the tax law should have been, not what it actually was. It’s telling that Ireland is objecting just as strenuously as Apple.

Also: 13 billion euros pounds isn’t all that much to Apple.

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larrydavis
2170 days ago
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Well, duh, the EU says that but Cook is saying he doesn't know where the EU came up with that number and then states just how much Apple has paid in taxes in a single year.
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satadru
2171 days ago
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It beggars belief that one can say that a .005% tax rate isn't a special deal with a straight face. You're based in the EU. Fucking pay the taxes you owe under EU rules, which are opposed to tax haven setups. Also, the US has lost WTO cases over tax breaks being considered illegal subsidies... because they are.
New York, NY
larrydavis
2170 days ago
"It's a false number. I have no idea where the number came from. It is not true. Here is the truth. In that year, we paid $400m to Ireland, and that amount of money was based on the statutory Irish income tax rate of 12.5%." - Tim Cook
satadru
2170 days ago
The WSJ says that the number comes from the European Commission: http://www.wsj.com/articles/apple-received-14-5-billion-in-illegal-tax-benefits-from-ireland-1472551598 'The European Commission said tax arrangements that Ireland offered Apple in 1991 and 2007 allowed the company to pay annual tax rates of between 0.005% and 1% on its European profits for over a decade to 2014, by designating only a tiny portion of its profit as taxable in Ireland.'

Spotify Bitches About the App Store

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Speaking of Peter Kafka, here’s his report on Spotify’s complaint over Apple’s App Store policies:

In a letter sent this week to Apple’s top lawyer, Spotify says Apple is “causing grave harm to Spotify and its customers” by rejecting an update to Spotify’s iOS app.

The letter says Apple turned down a new version of the app while citing “business model rules” and demanded that Spotify use Apple’s billing system if “Spotify wants to use the app to acquire new customers and sell subscriptions.” […]

“This latest episode raises serious concerns under both U.S. and EU competition law,” Gutierrez wrote. “It continues a troubling pattern of behavior by Apple to exclude and diminish the competitiveness of Spotify on iOS and as a rival to Apple Music, particularly when seen against the backdrop of Apple’s previous anticompetitive conduct aimed at Spotify … we cannot stand by as Apple uses the App Store approval process as a weapon to harm competitors.”

Cry me a river. Spotify has long charged $12.99 via in-app subscriptions to get around the 30 percent “App Store tax”. And Apple has now cut the long-term subscription split from 70-30 to 85-15. And Spotify is the streaming service most at war with artists over their abysmal royalty rates.

Read between the lines and the real message here is that Apple Music is kicking Spotify’s ass.

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larrydavis
2232 days ago
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Spotify is free to charge whatever price they choose through their website or with Apple. However, if they choose to leverage the service Apple provides (audience, billing system, etc) then the cost is 30% (15% after a year). This is similar to any store that essentially marks up the products they sell. It was very common and much more expensive in the days of boxed software. 30% is a fair price for what Apple offers. If Spotify disagrees they can always charge directly on their website. Apple doesn't prevent that.
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jhamill
2232 days ago
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Spotify has to charge more for it's premium service on iOS devices just to get the same rate they offer on their website (as well as the same rate that Apple charges for it's streaming service) and Gruber doesn't see a problem with that? It's okay for Apple to charge less while forcing other companies to charge more due to Apple's revenue split because ... Apple?
California
[deleted]
2232 days ago
And they must charge these rates so that...they can put more cash in the bank? Does Apple exist to collect all the cash in the world?
walokra
2232 days ago
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How I'm not surprised about the title and post contents.
davidedwards
2232 days ago
Seriously, Apple Music is kicking Spotify's ass to the tune of 11 million subscribers to 30 million, respectively. Nice ass-kicking apple.
jqlive
2232 days ago
Sometimes I wonder how one man can be so blindly loyal to one brand. I usually respect his writing and opinion, but sometimes...
[deleted]
2232 days ago
He's been on a tear lately, even for him. Apple Music and his Lightning headphones...it's the Betamax of music.

Spotify: ‘30 Percent Is Fucking Bullshit’

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Micah Singleton, writing for The Verge:

Regardless of the pressure, Spotify isn’t married to its free tier, according to sources, but it does strongly believe it drives users to its premium service, and currently has no intentions of giving it up. The free service also draws a significant amount of revenue — much of which goes to the music labels — and attempting to cut off a revenue stream goes against the music labels’ usual practices. “You would never dry up that revenue stream unless someone is making promises they ought not to be making,” a music industry source said.

You can never be certain with unnamed sources, but it seems pretty clear that someone from Spotify is the “music industry source”. What they seem to be doing is preemptively seeding the idea that Apple’s approach to their upcoming streaming music service is analogous to what they did when they entered the e-book market. That they’re colluding with music labels to eliminate free streaming tiers the same way they colluded with publishers to switch to the agency pricing model.

Given how that turned out for Apple, who knows, maybe there’s something to this. But this stuff about Apple’s 30 percent cut of subscriptions through the App Store is amusing:

Apple charges a 30 percent fee toward any sales through its App Store, and that includes subscription services. That means if Spotify wants to sell its premium subscription service — which usually costs $9.99 a month — through the App Store, it has to raise the price 30 percent higher to $12.99 to pull in the same revenue, while Apple can still offer Beats at a lower price. Spotify and many others in the music industry believe Apple’s App Store tax gives them an unfair advantage over the competition.

To make things worse, Apple’s rules disallow companies from redirecting users to the browser to get the lower subscription price. “Apps that link to external mechanisms for purchases or subscriptions to be used in the app, such as a ‘buy’ button that goes to a web site to purchase a digital book, will be rejected,” Apple wrote in its App Store review guidelines. That means if you tried to sign up for Spotify or Rdio or Tidal through their apps in the App Store, you would think they raised their prices, much like what happened last week. “I get that there’s some administrative burden so they should get some kind of fee, but 30 percent is fucking bullshit,” one music industry source said.

Welcome to 2008. What’s interesting to me about this line of argument is how it’s predicated on the assumption that in-app purchasing is essential. The fact that Spotify can sign up customers on the web, without one penny going to Apple, isn’t really part of the discussion because the convenience advantage of IAP is so overwhelming.

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larrydavis
2650 days ago
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Apple doesn't require 30% of every transaction. Only those that benefit from their in-app purchase system. Spotify and others are free to sell subscriptions via their own website and keep 100% of the proceeds (minus the credit card fees, infrastructure costs, auditing costs, etc, etc).
aaronwe
2649 days ago
Yes, but not allowing apps to even link to their own website if they sell services there is coercive. 30% for the convenience of IAPs is one thing -- preventing apps from using a workaround is abusive and will probably land Apple in antitrust trouble at some point.
larrydavis
2648 days ago
Apple doesn't command a majority of the smartphone market. The policy has always been 30% cut and no external linking. Why should Apple be required to provide the platform, the app store, and the audience and get nothing in return? If a company was able to put their app in the store for free then simply charge through an in app purchase not using Apple then how is that fair to Apple? It also invites fraud and abuse. By requiring and limiting in app purchases to only go through Apple you increase security, decrease fraud, and provide a better user experience. For those companies that don't want those benefits Apple still allows them to put their app in the App Store for FREE. Those companies just have to find their own infrastructure and advertising rather than leech off Apple. I think that's fair.
aaronwe
2648 days ago
Apple does control ~75% of the digital music market. That's plenty to get EU anti-trust regulators interested.
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steingart
2651 days ago
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Imagine if it was 1997, apple had the same position on the desktop that it has on mobile now, and they demanded 30% of every internet sales transaction. Regardless of what you think of the merits and ethics, well, the internet would be a very, very different place.
Princeton, NJ

Dieter Bohn of The Verge Profiles Project Ara, Google’s Modular Phone Project

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I remain highly skeptical that a modular design can compete in a product category where size, weight, and battery life are at such a premium. Even if they can bring something to market, why would any normal person be interested in a phone like this?

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larrydavis
3040 days ago
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Normal people used ticket scanners?
aaronwe
3040 days ago
Normal people didn't use smartphones 15 years ago.
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aaronwe
3040 days ago
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If Gruber had bothered to RTFA, he'd see they address the modular overhead question directly:

"We think the crossover point is somewhere at the one-third overhead point," he argues, summing up all those issues into a single number. "We think we'll come in at about one-quarter, about 25 percent overhead."

In other words, will you take a phone that's 25% thicker for the same features, or maybe get rid of the camera in exchange for 25% better battery life? We know from the huge market for iPhone battery cases that a large number of buyers are perfectly happy to make their phone thicker if they don't have to recharge during the day.

Clearly normal people are interested in customizing their phones.
Denver
islandzero
3040 days ago
No, nerds are interested in customizing their phones. I just witnessed my sister buying a phone, two kids under fourty accountant. The guy at the shop was trying to woo her with specs of this specs of that. She ended up with an iPhone 5s (because my iphone 4 was great and this one is smaller). It wasn't until we were home that I showed her the fingerprint lock (which she probably wont use at the end of the day). She didn't give a shit, she wanted a decent enough camera (the 4 was good enough), sms, mail and a browser.
benzado
3040 days ago
"We think the crossover point is [ARBITRARY NUMBER WE MADE UP]. We think we'll come in at [A LITTLE BIT UNDER THAT]." Very few people build a PC from components any more. Who is going to do that with a phone? Modularity is going to come from devices that communicate with each other, probably over Bluetooth.
aaronwe
3040 days ago
islandzero: And what kind of case did your sister buy for her new phone? Nerds are interested in speccing out their phones, but consumers as a whole are VERY into personalizing their phones.
aaronwe
3040 days ago
benzado: If you RTFA, you'll see they're not anticipating people will build their phone from components, Newegg-style. They'll customize their phones after the fact. Right now, the nature of phones means people customize them using external bits. We've never given them the option to customize their phone's internals. Adding a radio to every phone accessory is even worse for battery life than modularizing the components. And I find it hard to believe that a data-driven company like Google is picking arbitrary numbers for thickness and overhead. Phones have hit a point where average screen size is going up, not down. There's still some downward pressure on thickness, but again, the market for Otterbox cases show a large number of consumers are happy to trade extra thickness for more functionality or protection.
larrydavis
3040 days ago
http://en.wikipedia.org/wiki/Springboard_Expansion_Slot
aaronwe
3040 days ago
Indeed, everything old is new again. PalmOS devices lasted a long time in some markets (ticket scanners) because of the expansion capabilities.
benzado
3040 days ago
You're pointing to examples of *accessories*, but I don't think anybody is saying there won't be a need for extra things you can connect to a basic device. But the idea that people are going to buy a phone and swap out parts is like buying a PC and upgrading components...
larrydavis
3040 days ago
Handspring was a turd other than in specific verticals. Ara is likely to also be a turd other than in a niche or specific verticals. People don't upgrade parts on their PCs. People don't upgrade parts on their cars. People don't upgrade parts, period, except for geeks and tinkerers. Ara will not have broad appeal.
aaronwe
3040 days ago
There's definitely a possibility that Ara will be bigger in verticals than among consumers. But I don't think you can assume that just because people buy accessories today, they WANT to buy accessories rather than upgrade their phone directly. It's not the same as opening up a PC case, breaking out the screwdriver, and swapping parts. The process of swapping modular bits on Ara is much more like plugging in an accessory.
Paraquat
3040 days ago
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Drinking game: a shot every time Gruber uses the word "market"
Paris
sashae
3040 days ago
I went to a mobile conference a looong time ago and a gentleman from Ericsson made a compelling case for the concept of a modular phone, where you'd carry a credit-card sized antenna/SIM dock and attach whatever accessories (a screen, a headset, etc) that you needed whenever, based on Bluetooth. It's not a crazy idea IMO.
islandzero
3040 days ago
Gruber has a very valid point, every one of those modules requires packaging in one form or another. We are talking about a press that is so hooked on specs including weight, size, etc. Not to mention that the average consumer could give two shits, they just want a phone that serves their needs and they don't want to build a puzzle. All this coming from a guy that loves the concept, I just don't see how it could work.
aaronwe
3040 days ago
I can see this being initially popular among enterprise clients -- custom security/authentication units, cameras/scanners, even extra radio chipsets (2-way, anyone?) that wouldn't fly in a mass-market unit. But if you're ordering devices on the scale of UPS or FedEx, being able to roll a custom phone is huge.

Distressed by Baby Controversy, AOL’s Armstrong Reverses 401(K) Policy

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In a letter to employees, AOL CEO Tim Armstrong reversed the company’s recent decision to change some 401(k) benefits. The move had caused controversy inside the company, especially after Armstrong made a mess of an already tense situation with staffers by rationalizing the cuts because of higher healthcare costs.

Worse still, he used the example of two “distressed babies” of employees — claiming each cost $1 million to care for — as one of those expenses.

Armstrong’s public utterance problems comes just as the company turned in a very decent quarter, which should have been the focus this week, if not for him essentially stepping all over it with what is a classic case of foot-in-mouth disease. Wonder if that’s covered in the plan?

Here is the internal memo to employees, which is Armstrong’s second in a few days:

AOLers -

We began our journey together in 2009, and for the last four years have had an employee-first culture. As I have said before, the ability to change is a strategic advantage for us. With benefit costs increasing, we made a strategic, financial decision last year to revise our employee matching 401K program from a per-pay-period contribution to a yearly lump-sum contribution. We then communicated this decision in the fall through multiple channels to every AOL office in the US.

The leadership team and I listened to your feedback over the last week. We heard you on this topic. And as we discussed the matter over several days, with management and employees, we have decided to change the policy back to a per-pay-period matching contribution. The Human Resource team will be in contact with all employees over the next week to explain the change and to answer any other benefits related questions you might have. We are proud to provide AOLers with a robust benefits offering that spans from exceptional healthcare coverage to 401K’s to AOL fitness programs and beyond. On a personal note, I made a mistake and I apologize for my comments last week at the town hall when I mentioned specific healthcare examples in trying to explain our decision making process around our employee benefit programs.

Thursday we announced an outstanding Q4 and end to our fiscal year. More importantly, it validated our strategy and the work we have done on it. AOL is positioned for future growth and our long-term strategy to be one of the world’s leading media technology companies.

Now, as we begin 2014, let’s keep up our momentum. Thank you for the great 2013 year and for your ongoing passion. And know that I am a passionate advocate for the AOL family – TA

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larrydavis
3106 days ago
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Couldn't this be a HIPAA issue? He disclosed private, identifiable medical information about his employees. Even if not illegal it's incredibly tone deaf and inconsiderate.
alang
3106 days ago
I have a feeling that the media is twisting this story. Armstrong was attempting to be transparent about a difficult decision - that AOL was choosing to continue to provide healthcare in exceptional circumstances over continuing to support retirement benefits at the same level. Now something else is going to be cut for employees, and AOL won't be as transparent about what that is.
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trekkie
3106 days ago
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Tried to be like IBM. Failed miserably to the benefit of the employees.
Wake Forest, North Carolina
JayM
3106 days ago
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Atlanta, GA

Businessweek Scores Interviews With Cook, Ive, and Federighi

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Sam Grobart, writing for Businessweek:

To Cook, the mobile industry doesn’t race to the bottom, it splits. One part does indeed go cheap, with commoditized products that compete on little more than price. “There’s always a large junk part of the market,” he says. “We’re not in the junk business.” The upper end of the industry justifies its higher prices with greater value. “There’s a segment of the market that really wants a product that does a lot for them, and I want to compete like crazy for those customers,” he says. “I’m not going to lose sleep over that other market, because it’s just not who we are. Fortunately, both of these markets are so big, and there’s so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business.”

“We’re not in the junk business” is exactly why none of us should have expected the 5C to be cheaper than it is.

Concluding, Grobart writes:

You could say that Apple’s approach in mobile ignores history, specifically the Mac/Windows wars of the 1990s, which Apple clearly lost.

I know this is universally accepted as gospel in the business world, but how does this jibe with the fact that Apple has been the most profitable PC-maker in the world for the last decade? Not counting iPads or iPhones, just Macs, Apple makes more profit than any company producing Windows PCs — and yet we’re supposed to accept as fact that Apple “clearly lost” the Windows-vs.-Mac war? Methinks Grobart should have paid more attention to Cook regarding junk businesses.

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larrydavis
3248 days ago
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Isn't they Cook's point? Windows fought for the "junk" and Apple fought like hell for the top end and now makes most of the profit in the PC industry. That's exactly their strategy in phones. Android has and probably will maintain market share but Apple will take the high end, avoid the junk, and make the most profit. Seems consistent to me.
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aaronwe
3248 days ago
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It depends on how you measure a win. If you measure by market share, then Apple clearly lost. If you measure by profits, Apple held its own against any individual tech company, though not against Microsoft in its heyday.
Denver