Apple CEO Tim Cook says the iPhone maker never asked or received “special deals” on its taxes from Ireland, and that the company will appeal the European Union’s decision for it to pay up to 13 billion euros ($14.5 billion) in back taxes.
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If Apple were to lose its appeal, Ireland’s sometimes gravity-defying growth would lose a key foundation stone as a succession of companies with similar tax deals face retroactive charges rendering the tax-efficient reputation of Ireland null and void.
The EU’s investigations of Apple and other multinationals trace their origins to a 2014 leak of documents that showed how big companies shop around among EU states to get as low a corporate tax rate as possible. After all the profits that Apple declares in Ireland (on which it pays 2%) could otherwise have been booked in the USA, and subject to (substantially higher rates of) corporation tax there. Apple’s Irish operations had a cost-sharing agreement with the United States headquarters in which they were allowed to use Apple’s intellectual property if, in return, they paid for the American R&D expenses to create that IP. They directly pay Ireland more than 2 billion euros annually in tax, a figure dwarfed by their much larger investment in salaries (6 billion euros), infrastructure and research (3 billion euros) and Irish goods and services (4 billion euros). Apple’s Chief Financial Officer Luca Maestri has said that “if there is a fair outcome of the [European Commission] investigation, [Apple should pay] zero” extra tax. The EU rules also try to ensure that a country can effectively tax profits generated in its territory.
“Apple was now the largest employer in the Cork area with 1,000 direct employees and 500 persons engaged on a subcontract basis”.
Immediately after Vestager’s announcement, the Irish government said it would appeal to the European Court of Justice.
The EU executive decided that tax rulings from Irish authorities in 1997 and 2011 gave Apple “an undue advantage that is illegal under EU state aid rules”.
“Under this agreement, Apple Sales International and Apple Operations Europe make yearly payments to Apple in the USA to fund research and development efforts conducted on behalf of the Irish companies in the US”. “We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid”. Apple and other USA firms leave much of their foreign earnings overseas to avoid higher US tax rates.
In the latest in a series of rulings that has angered Washington, Brussels said the world’s most valuable company avoided tax bills on virtually all its profits in the bloc under its arrangements with Dublin.
“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the global tax system in the process”, CEO Tim Cook said in a letter to customers posted on Apple’s website.
The Irish finance minister, Michael Noonan, said he would seek approval from the Irish Cabinet to legally challenge the EU Commission’s ruling.
“This is not a penalty, this is unpaid taxes to be paid”, Vestager added.
The U.S. government has countered that European officials are unfairly targeting American companies.
Cook says the European Union is trying to replace Irish tax laws with what it thinks the law should have been.
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The Commission has previously said Apple’s tax treatment had been “motivated by employment considerations”.
