Deep within Apple’s research labs in California, scientists are monitoring mobile phone signals around the world. Another team is testing the feel and sound of an iPhone box being slid open, while a robotic arm is used to measure the optimum tilt, velocity, angle and force of an iPad Pro pencil on a screen.
It is this attention to detail that has gained Apple a reputation for excellence. And it is this devotion to design and performance that the company has put at the heart of its battle with the European Commission.
The commission wants Apple to pay €13 billion in tax in the Republic of Ireland, through which it shifted tens of billions of dollars in profits from international sales.
The company says that the tax should be paid instead to the United States, where its products are designed and engineered, rather than Ireland, which serves primarily as a distribution and logistics centre.
Apple, which has a global workforce of 110,000 people, employs about 25,000 in the Santa Clara Valley working on design and performance. In one lab, employees are fitted with sensors on their fingers and arms and are filmed from every angle as they type. The data collected is fed back to designers so that they can ensure the new generation of lighter, thinner keyboards require the same muscle activity to operate as the last model.
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The same rigour applies to packaging, which is designed concurrently with each product. Details such as the amount of time it takes for the inner box of an iPhone to slide out of its cardboard are key, because opening it up is, the company’s engineers say, all part of the Apple experience.
The boxes are tested, too, on a shuddering hydraulic platform to measure how well they are likely to absorb shock while being transported by a lorry over uneven streets. Other experts are subjecting the cords on Beats headphones to friction tests to make sure that they don’t stick to the back of users’ sweaty necks in the gym.
Apple’s One Infinite Loop campus in thsi corner of Silicon Valley also houses one of the world’s largest radio frequency and wireless labs. Here, information from a fleet of vans driving around the world collects data on mobile phone signal quality, so that Apple’s engineers in California can compare what reception was like at noon in Barcelona with signal strength at 8pm in Anchorage, Alaska. Their aim? To optimise the iPhone antenna design for all mobile phone networks in all conditions, all over the world at all times.
Over at Apple’s Irish headquarters in Cork, which has 6,000 employees, there is a similarly keen, but also significantly different, focus on detail. Here, teams are responsible for moving Apple products from manufacturing sites all over the world to 147 countries in Europe, the Middle East, Asia and India. Up to three million products are shifted every week. If more than ten items are delivered late, the Cork team has to make an incident report. If more than 200 are late, the matter is “escalated” to the senior vice-president of operations.
Tim Cook, Apple’s chief executive, has described the European Union tax ruling as “total political crap”. He said that Ireland was being picked on as he pledged to press ahead with an expansion in Cork, which is also responsible for demand planning in the EMEA region and India.
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A core part of this function is to make sure that retailers and mobile phone carriers in the region are supplied but do not overstock. Their concern is that the adoption of a new product can be harmed if there are too many previous products still on the shelves. The Irish team also conducts some “localisation” testing for the iPhone to make sure that its software functions equally well in all languages. As the German translation is 30 per cent longer than English, a team works to make sure the dialogue boxes that display words are wider for German versions of products and feeds the specifications back to Cupertino.
Custom-built iMacs sold in the region are also assembled at the Cork plant, which opened in 1980 to make early Apple desktops. As Apple aims to turn around iMac orders in 24 hours, it is cheaper to assemble them in Ireland because the costs of shipping from China within a day of the order being submitted would be too high.
For Apple the strict separation of functions between Cork and Cupertino is at the core of its appeal against the European Commission’s ruling. The case isn’t really about how much tax Apple has to pay, but about where it has to pay it. It’s clear that its distribution and logistics and other operations in Ireland do add some value to the products; the key question is whether they are a significant driver of value.
Another is whether Apple received special treatment from the Dublin government when it decided to shift tens of billions of dollars in profit from around the world into its Irish affiliates, something that both the company and the Irish government deny. The dispute revolves around an obscure 1991 Irish tax ruling issued for Apple, which at the time was a much smaller and less influential business than it is today.
Whatever the arguments made by lawyers from both sides, it is clear that Apple’s executives are taking the battle very personally. Call it hubris, pride or self-respect, there’s no doubt they are rattled. “We have a very strong value system,” Luca Maestri, Apple’s chief financial officer, told The Times, “and for a company that has such strong principles to be associated with tax evasion is very disturbing, especially because we are the largest taxpayer in the world. So to be called a tax evader is actually quite ironic.”
