European Commission says Apple should pay €13bn in unpaid taxes to Irish state

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EU competition commissioner Margrethe Vestager said today that Ireland should recoup €13bn (£11bn) plus interest in unpaid taxes due between 2003 and 2014 after illegal aid stretchng back 25 years.

Apple records much of its worldwide sales, including in the UK, in Ireland, and has built up a colossal cash pile it is yet to bring back to the US, where it is based. Vestager said Ireland had let the company transfer profits to a subsidiary with no staff or location, that paid no taxes.

At a press conference, Europe’s competition commissioner Margrethe Vestager said:

“This decision sends a clear message. Member states cannot give unfair tax benefits to selected companies, no matter if they are European or foreign, large or small, part of a group or not.

“This is not a penalty, this is unpaid taxes to be paid.”

The ruling, which both Apple and the Irish state will appeal against, will also raise anger in Washington, which believes Brussels has unfairly targeted American companies.

The commission said that two deals between Apple and Ireland, dating back as far as 1991, were illegal under EU law, allowing Apple to attribute its profits from Europe and elsewhere via Cork to a head office with no employees, premises or any economic activity, and pay almost no tax.

It said the company had paid an effective tax rate of between 1 per cent and 0.005 per cent between 2003 and 2014, with the rate diminishing over time, even as the company grew to the world’s biggest.

The total amount that Apple may have to pay will depend on how the ruling is actually enforced. Other countries or US authorities may order the company to pay extra, which could reduce the sum allegedly owed to the state.

Michael Noonan, the Irish finance minister, said the country would appeal against the ruling.

“I disagree profoundly with the Commission. The decision leaves me with no choice but to seek approval to appeal,”

Apple today said:

“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money.

“It will have a profound and harmful effect on investment and job creation in Europe. 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.”

Apple has made $47.8bn (£36.5bn) in profits in the last 12 months, so the order represents just over 100 days of its profits. It also represents just under 7pc of its $215bn overseas cash pile. The company’s shares were down 2pc in pre-market trading in New York.

How does Apple’s structure work?

iPhones, iPads and other Apple products sold in Europe, Africa, the Middle East and India are registered by Apple Sales International, a subsidiary in Ireland. The commission says almost all the profits from this were allocated to a head office with no physical location or staff, that is not based in any country, meaning no tax was paid on its income.

Under the terms of Apple’s deals with Ireland, Apple Sales International pays registers just €50m of profits in Ireland, meaning corporation tax of less than €10m. The rest amounting to tens of billions in profits every year were not taxed.

A second company, Apple Operations Europe, the Irish subsidiary that manufactures Apple Macs in Ireland, used a similar structure to allocate profits to a head office. The two companies pay Apple Inc, the US company itself billions in R&D payments a year, but the rest has contributed to Apple’s growing overseas cash pile, now worth $215bn

European Commission’s view

European competition law forbids a country from giving one company an advantage over another when it comes to taxes, and the commission says Ireland gave Apple a deal that was not available to others.

It says the deal effectively amounts to a tax rate as low as 0.005pc between 2003 and 2014, compared to Ireland’s typical 12.5pc corporation tax rate. It now wants Ireland to recoup the sum, which it says would wipe out the financial advantage it says Apple enjoyed.

Apple’s View

Apple believes it should pay taxes on its profits in the US, since that is where its products are researched and invented.

It wants to repatriate its swelling overseas cash pile, much of which moves through Ireland, but is waiting for US tax reform.

Tim Cook responded to the commission’s decision, saying Apple follows the law in Ireland and everywhere it operates, and that the EU’s order has “no basis in fact or in law”. It also says the EU is “proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been”, echoing attacks from the US Treasury last week that accused the EU of an unprecedented power grab over member states.

What happens now?

Both Apple and the Irish government say they will appeal the ruling in the European courts, which could lead to years of legal wrangling. Similar decisions taken about Fiat and Starbucks about alleged sweetheart deals are currently being appealed.

It is now the Irish government’s responsibility to recoup the €13bn plus interest from Apple – the EU itself cannot order tax payments. The sum could be altered if, for example, other member states choose to charge Apple more taxes or if the US argues more should be paid to finance R&D.

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