The EU commission ruled on Tuesday that Apple’s tax arrangement with Ireland constituted illegal state-aid, ordering the Irish government to recover as much as €13 billion in taxes from the iPhone maker. Apple does have a physical presence in Ireland, but its low taxation rate really depends on the existence of a “head office” in the country that coordinates worldwide sales.
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Ireland must recover up to 13 billion euros ($14.6 billion) in unpaid taxes from Apple, European officials said on Tuesday.
BRUSSELS ” Apple will have to pay up to $14.5 billion plus interest in back taxes to Ireland after the European Union found today that the USA technology giant had paid next to no tax across the bloc’s 28 countries for over 11 years.
Apple CEO Tim Cook rejected the findings and accused the European Commission of, “proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been”.
As reactions poured in following the ruling, she stayed firm in the Commission’s assessment that Apple owed money. Northern Ireland is indeed part of the United Kingdom, but Apple’s base is in Southern Ireland, which is not part of the UK.
It’s important to note that the ruling does not constitute a fine or penalty against Apple.
“They’re going after Apple, which means a big name and big dollars”, said Brad Badertscher, a corporate tax expert at the University of Notre Dame’s Mendoza College of Business.
Similarly, Irish finance minister Michael Noonan said he “profoundly” disagrees with the commission, stressing it’s “important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment”. It’s just that with a company the size of Apple, and the extensiveness of the tax-lowering deal Ireland gave to Apple, the illegal state aid easily reaches monstrous proportions.
“Our tax system is founded on the strict application of the law. without exception”, he said.
White House spokesman Josh Earnest says Apple could deduct the payment from those back taxes to the amount owed the United States government.
Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company’s profits should be taxed in the country where the value is created. According to the EC investigation, the head office exists on paper only. “It had no employees, no premises”, said Vestager in her excoriation of the whole set-up.
Last week, the Treasury Department warned that the European Commission was overstepping its powers and becoming a “supranational tax authority”.
And yet the government said it would appeal the decision, arguing it had granted no favorable treatment to Apple.
The ruling is the highest profile move yet in the European battle to make global companies pay what authorities consider their fair share of EU taxes.
The UK’s vote on exiting the European Union is done, but the actual exit wont take place fully for several years.
European countries are keen to attract big companies to their territory; sometimes too keen, with some offering ultra-low tax rates as incentives. Apple’s tax situation, including the hundreds of billions in cash held offshore, has always been a hot topic for the company.
In Apple’s case, almost all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States.
“If we don’t, then we would obviously appeal it”, he added. Apple now employs 6,000 people in Ireland.
Peter Vale, a Dublin-based corporate tax expert for the accounting firm Grant Thornton, calculated that today’s decision, if upheld, could ultimately cost Apple 19 billion euros ($21 billion) because the European Union order also includes interest for unpaid taxes going back more than a decade.
“The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: nearly all sales profits recorded by the two companies were internally attributed to a head office”, the statement further said.
In recent years, the commission has brought similar cases against Starbucks in the Netherlands, Anheuser-Busch InBev in Belgium and Amazon in Luxembourg.
The EU believes sweetheart tax deals help divert investment and jobs away from countries where it would normally go.
Currently, the setup allows Apple to record all its sales across the EU’s 28 nations and 500 million consumers in Ireland. When one country’s tax policy hurts a neighbor’s revenues, that country should be able to protect its tax base.
“Tech firms like all others need to contribute to the society they operate in – including by paying a fair share of taxes”.
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For now, Apple is reeling and collecting its thoughts. That is the unfairness the European Commission is now calling out. Expect lots of legal and political wrangling in the months, and years, ahead.
