In a ruling that could have vast business and tax repercussions across the globe, the European Union has ordered Apple to pay .5 billion in back taxes to Ireland after the agency said the company was given “undue tax benefits” in the past. In addition to Apple, the Commission has initiated state aid investigations of Starbucks, Amazon, Fiat-Chrysler and McDonalds. Ireland did not give favorable tax treatment to Apple.
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The Minister for Finance, Michael Noonan, will seek approval at an emergency Cabinet meeting on Wednesday to appeal the decision to the European courts.
Such a measure wouldn’t be fair to USA taxpayers, he said.
In October Brussels ordered United States coffee giant Starbucks and Italian automaker Fiat to each repay up to 30 million euros in back taxes to the Netherlands and Luxembourg respectively.
There was no immediate reaction from Apple, headquartered in Cupertino, California.
By 2014, the rate had fallen to 0.005 percent, meaning Apple paid just $50 on every $1 million in profit, the commission said.
Ireland is an attractive location for foreign subsidiaries because its 12.5 percent corporate tax rate is one of the lowest in the developed world.
Conversely, the US corporate tax rate of 35 percent is the highest among the 35 members of the Organization for Economic Development and Cooperation, although many companies pay less because of loopholes and accounting maneuvers.
“If you look at the small print on an Apple iPhone, it says designed in California and manufactured in China and that means any profits that accrued didn’t accrue in Ireland and so I can’t see why the tax liability is in Ireland”, he said.
The U.S. report triggered the European investigation.
In a statement to investors Tuesday, however, Apple said it plans to fight the decision, which is not yet final.
The move from the Netherlands to Ireland cost the company $US63 million, but was still considered to be worthwhile due to the favourable tax treatment.
“In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe”, Cook said in a letter posted on Apple’s website.
“I’m sure, if people need time to understand this matter, that we will create the time and space to do this properly”, Public Expenditure Minister Paschal Donohoe of Fine Gael told national broadcaster RTE when asked if Prime Minister Enda Kenny would allow the Alliance more time if they ask for it.
Under its current arrangement, Apple treats virtually all sales of iPhones and other goods and services in the EU’s 28 nations as revenue generated by its Irish subsidiaries. These subsidiaries earned about 90 percent of Apple’s foreign profit, protecting it from tax authorities in the US and elsewhere.
To use a football analogy, the European Commission went in studs up with its ruling yesterday on Apple’s tax affairs in Ireland. “It could have broad ramifications”.
EU Competition Commissioner Margrethe Vestager said Ireland had allowed Apple to funnel profits worth tens of billions of dollars through the country in order to avoid paying corporate taxes. “It’s freakish and it’s an exercise in politics by the Competition Commission”, Noonan said.
In a statement, the Department of Treasury said retroactive tax assessments by the EU Commission “are unfair, contrary to well-established legal principles and call into question the tax rules” of the individual countries in the EU.
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“We are concerned about a unilateral approach”, said White House spokesman Josh Earnest, adding that the move “threatens to undermine progress that we have made collaboratively with the Europeans to make the worldwide taxation system fair”.
