Europe’s antitrust enforcer’s order for Ireland to claw back billions of dollars from Apple over illegal tax breaks will ramp up transatlantic tensions over how much global companies should pay to countries where they do business, market watchers say.
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The three-year investigation found IRELAND granted exorbitant tax breaks to APPLE, dropping its rate from 1% in 2003 to 0.0005% in 2014.
White House spokesman Josh Earnest argued that if Apple paid the back taxes, it might offset that amount against tax due in the United States, which would be unfair for American taxpayers.
In Apple’s case, 90% of its foreign profits are legally channelled to Ireland, and then to subsidiaries which have no tax residence.
“Apple’s tax benefits in Ireland are illegal”.
The department also accused the commission of unfairly singling out U.S. companies for punishment under its “new approach” to dealing with legal tax breaks given to multinational corporations operating within its member states.
Multinationals have such huge revenue that these countries can reap big gains even from low taxes. They also benefit from the jobs created locally.
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 worldwide sales, avoiding billions in corporation taxes.
“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment.”
It added: “The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money”. That’s the minimum value of Apple’s leverage over the country for the period 2003-2014. Meanwhile, sales of established products such as the Macintosh and iPad have slowed recently, and new products such as the Apple Watch haven’t yet had an appreciable impact on Apple’s finances.
It doesn’t always work – the fact that every tech company in Silicon Valley hasn’t been lured to a lower-tax state shows how companies factor things other than tax rates into their location decisions – but it often does.
Apple CEO Tim Cook, in a Washington Post interview published August 13, said he hoped to “get a fair hearing” on the matter.
But far from having a “harmful effect on investment and job creation in Europe”, as Cook claims, this should result in a more level playing field and more open competition.
A U.S. TREASURY DEPARTMENT spokesperson said the agency is “disappointed” with the EU’s ruling.
When asked about the EU’s concerns about an unfair playing field within Europe, Earnest says he won’t discuss internal European Union business, but that President Barack Obama is committed to ensuring American companies and taxpayers are treated fairly.
The European Commission’s ruling follows months of contentious debate between EU tax regulators and American companies such as Apple, Google and Yahoo.
As of June, Apple had over $200 billion stashed outside the U.S.in countries like Ireland.
Theoretically, that would mean USA taxpayers would have to make up the difference, or the government would simply have to go without those monies.
The Treasury’s statement said the 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”.
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In a ruling that is set to anger Washington, the European Commission said the world’s most valuable company avoided tax bills on nearly all its profits in the bloc under the arrangements with the Irish government. Both companies owe – million in back taxes, said the EU.
