Fiat was judged to owe back taxes in Luxembourg, and Starbucks was judged to owe back taxes in the Netherlands.
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In a landmark ruling following a three-year investigation, Competition Commissioner Margrethe Vestager said the maker of iPads and iPhones paid just 1% tax on its European profits in 2003 and 0.005% in 2014. In a worst-case scenario, Apple may face a $19 billion bill if the government ultimately loses and is forced to recoup tax from the company, according to JPMorgan Chase analyst Rod Hall.
Apple also has plans for a major data centre near Athenry, Co Galway, in Ireland and another in Denmark.
That prompted complaints by both European and USA lawmakers, who argued the deal gave Apple an unfair advantage in exchange for creating jobs in Ireland.
The country has for years offered low corporate tax rates to multinationals to benefit from the jobs they create locally.
In a hard-hitting defence of its tax planning and corporate structure, Apple warned of the ramifications for future investment in Europe, where it employs 22,000 people.
Earlier this year, Apple’s chief financial officer, Luca Maestri, told the FT that Apple shouldn’t owe anything beyond what it has already paid the region. It said it would challenge the EU action in the European courts, and predicted it would be vindicated. So this profit remained untaxed for year, greatly lowering the effective tax rate.
Its company structure enabled it to channel worldwide sales through Ireland in order to take advantage of the arrangement.
The EU commission said on Wednesday: “All companies, no matter their nationality, generating and recording their profits in an EU country should pay taxes in line with national tax laws.
This is how the USA tax system works and it has absolutely nothing to do with the European Commission or the European Union”, he added.
The Government are now scrambling to find ways to lessen the impact from a European Commission investigation into an alleged Apple sweetheart tax deal as they try to halt the EC imposing a €1 billion fine on the State.
When reminded of the current practice of breaking a company down to a number of smaller ones to lower the overall tax burden, he said that Apple’s arrangement is actually very simple.
The ruling, which will be contested by Apple and the Irish government, may threaten Ireland’s ability to attract investment from global companies eager to limit their tax bill on overseas earnings.
They noted that even if Ireland was to be awarded €5bn on the back of the decision, under European Union fiscal rules that “windfall” would have to be used to pay the national debt.
Following the bloc’s decision on Apple, the U.S. Treasury Department voiced disappointment, saying 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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In September 2014 the European Commission published a letter setting out its preliminary findings in relation to its investigations into the rulings given to Apple.
