EU Competition Commissioner Margrethe Vestager questioned how anyone might think an arrangement that allowed Apple to pay a tax rate of 0.005 percent, as Apple’s main Irish unit did in 2014, was fair.
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The European Commission believes that this so-called “sweetheart” deal gave Apple an unfair advantage compared to other companies, and constitutes a breach of state aid rules.
Apple generates almost four times more than the size of the tax penalty in free cash flow in just one year, making this $14.5 billion hit a little more than a financial annoyance following a decade of enormous benefits. Apple and Ireland rejected the accusation; both have said they will appeal any adverse ruling.
Earlier in a statement, his department outlined its position on the payments: “Ireland’s position remains that the full amount of tax was paid in this case and no State aid was provided”. He said Apple is the largest taxpayer in Ireland, the USA and the entire world, and has complied with everything asked of it by nations where it operates. Ireland denies that. The structure we have was applicable to everybody – it wasn’t something that was done unique to Apple.
Ms Vestager said Apple was paying 50 euro in tax on every one million euro of profit it made in 2014. It said it would challenge the EU action in the European courts, and predicted it would be vindicated.
Apple shares were down 1.1 percent in premarket trading in NY, a modest drop that reflects expectations that Apple can afford the settlement, should it stand. Apple made $10.5 billion in the first three months this year alone.
“As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its “head office” when this “head office” had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter”.
Bernie Sanders is applauding the European Union’s ruling that Apple must pay 13 billion euros ($14.5 billion) plus interest in back taxes to Ireland. Apple isn’t most companies, though, it can easily afford to pay back the money.
Apple and Dublin said the US company’s tax treatment was in line with Irish and European Union law and they would appeal the ruling, which is part of a drive against what the EU says are sweetheart tax deals that usually smaller states in the bloc offer multinational companies to lure jobs and investment.
And yet the government said it would appeal the decision, arguing it had granted no favorable treatment to Apple.
The tax ruling is the biggest the European Union has ever made regarding a single company, and it could spark a huge transatlantic row over how Europe treats US companies.
The exact amount of tax due is not expected to be set out by the Commissioner today, but she is set to outline her findings and a process for calculating the bill. The commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU.
The Irish government is afraid companies would be less likely to invest in Ireland if its tax regime changes, which could cost the country thousands of jobs.
Apple and other major U.S. firms including Google and Microsoft hold stockpiles of what’s known as indefinitely reinvested foreign earnings, or revenue not subject to U.S. corporate income tax, outside the U.S. The 10 firms with the largest holdings collectively have 4 billion in this revenue outside the U.S.
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Some opposition Irish lawmakers have urged Dublin to collect whatever tax the Commission orders it to. Any money handed over by the company will be placed in a hands-off escrow account pending what could be years of litigation before the European Court of Justice in Luxembourg, he said.
