Apple will have to pay up to 13 billion euros ($14.5 billion) in back taxes, plus interest, to Ireland after the European Union found Tuesday that it received illegal tax benefits over 11 years.
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The ruling against Apple‘s tax deal comes despite a stern warning from the U.S. Treasury Department last week that it would consider “potential responses” if the Commission doesn’t change course.
“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. This favorable tax treatment in Ireland effectively allowed Apple to avoid taxation on nearly all profits generated by sales of Apple products in the EU.
The latter accounts for nearly all the unpaid taxes Ireland now needs to recover, Vestager said.
“Member states can not give unfair tax benefits to selected companies, no matter if European or foreign, large or small”, EU Competition Commissioner Margrethe Vestager said.
‘Apple follows the law and pays all of the taxes we owe wherever we operate. “We will appeal and we are confident the decision will be overturned”, the company said in a statement on Tuesday after the European Commission’s decision.
“The most profound and harmful effect of this ruling will be on investment and job creation in Europe”, he said.
Apple has had a base at the southern city of Cork since 1980 and employs 5,000 people in Ireland, through which it routes its global sales, avoiding billions in corporation taxes. “The decision leaves me with no choice but to seek Cabinet approval to appeal the decision before the European courts”. It paid $2.67 billion in taxes during its latest quarter at an effective tax rate of 25.5 percent, leaving it with net income of $7.8 billion according to company filings.
Online retailer Amazon.com Inc and hamburger group McDonald’s Corp face probes over taxes in Luxembourg, while coffee chain Starbucks Corp has been ordered to pay up to 30 million euros ($33 million) to the Dutch state.
The Commission has demanded that Apple repay the retrospective tax bill together with interest earned although this will be fiercely fought at the Commission. Under EU rules, it must still recover the illegal state aid but could, for example, place the recovered amount in an escrow account pending the outcome of the EU court procedures.
The investigation found that Apple’s effective tax rate on profit reported in Ireland was just €500 per million euros in profit, falling to €50 per million in 2014.
Therefore, the Commission said, only a small percentage of Apple Sales International’s profits were taxed in Ireland, and the rest was taxed nowhere.
Ireland’s accelerating economy is already producing rapid growth in tax collections from workers, sales tax and an EU-leading multinational sector of around 1,000 companies with Irish bases. Those head-office companies were allocated nearly all the profits.
The US Treasury said the ruling “could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the European Union”.
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What’s more, the US government agency warned in a statement, the Apple ruling “could threaten to undermine foreign investment, the business climate in Europe and the important spirit of economic partnership between the USA and the European Union”.
