But his party colleague who chaired hearings into Apple’s taxes three years ago, Carl Levin, said the Europeans were only trying to take what USA authorities had failed to claim by not closing loopholes that allowed firms to hoard profits overseas.
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The White House also blasted the ruling as unfair and disruptive to its own efforts at tax reform. “Apple may be a tax cheat, but Apple is our tax cheat”, said Steven Rosenthal, a fellow at the nonpartisan Tax Policy Center.
In the meantime, Australian bankers will be watching for signs that other USA multinationals with large Irish operations have benefited from similar Irish tax deals, particularly since United States tech giants Google and Facebook also have their European headquarters in Dublin.
But the prospect of foreign governments making a grab for this huge $US2 trillion-plus foreign profit stockpile could encourage politicians to reach an agreement that would allow USA companies to repatriate their profits, particularly since USA companies are allowed to claim tax credits on overseas taxes that they pay.
The Obama administration has repeatedly objected to these investigations, saying they unfairly targeted American companies. In the following years, Apple’s profits continued to increase, but its tax payments continued to decrease.
Take one set of European profits, one phantom headquarters and two companies and there you have it: Apple’s recipe for avoiding tax.
The bigger issue for the EU commissioners, however, might be that because all of Apple’s European profits flow towards its Irish subsidiaries, no other EU member state is able to tax the company, even for gadgets sold in their countries.
Vestager argued that Ireland violated European Union rules by essentially giving favorable subsidies to selected companies. After Apple pays tax in the country profits are then shifted to a tax haven overseas, accoording to a EC diagram (below).
Ireland, however, was placed in the odd position of rejecting a payment that is the equivalent of 5 percent of its national economic product and officials expressed concerns that the ruling against Apple could hurt the country’s long-time reputation as a low-tax haven with an open door for global investment.
For Ireland, a country of barely 4.6 million people, the sum would be a huge windfall – equivalent to over 2,800 euros ($3,150) for every man, woman and child.
Cook said he was confident that the European Union ruling would be reversed on appeal.
Ireland began using its tax laws to persuade multinationals to base manufacturing and other operations in the country in the 1970s, in a policy that was created to combat its low levels of economic growth and the depopulation that had blighted the country since the potato starvation in the 1840s.
Apple employs almost 6,000 people in Ireland.
The Irish finance minister, Michael Noonan, said he would seek approval from the Irish Cabinet to appeal the EU Commission’s ruling to European courts.
Analysts said the size of the claim underlined the Commission’s aggressive stance, but since each case involves different circumstances and tax rules, lawyers said it was hard to see if further big claims were any more or less likely. But others applauded the crackdown on what they described as a “race to the bottom” by individual nations offering lower tax rates than their neighbors.
Now European tax authorities are also eyeing this money, worldwide tax experts say.
Still, perhaps the most crucial attraction is Ireland’s extraordinarily corporation-friendly tax system. The money is not taxed at home until it is brought back to the parent company in the United States. In recent weeks, the Obama administration warned European officials that their investigations seemed to be unfairly singling out US companies.
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In Washington, U.S. officials also voiced their disappointment in the decision.
