European Commission says Irish tax deal amounted to illegal state aid, in decision that could have far-reaching implications
The European Commission has ordered Ireland to collect up to €13 billion ($14.5 billion) from Apple, plus interest, ruling that the tech giant received illegal tax benefits from the Irish government. The decision brings a close to one phase of an ongoing investigation into tax deals carried out by US multinationals across Europe.
In a press release announcing the decision, the European Union’s antitrust regulator said Apple’s two tax deals with the Irish government “substantially and artificially lowered” the tax that Apple has paid to Ireland since 1991. The 1991 rulings allowed Apple to declare profits generated by two Irish subsidiaries — Apple Sales International and Apple Operations Europe. In the ruling announced today, the EC said that the profits reported by these companies “did not correspond to economic reality,” and that Ireland’s tax deal was illegal because it gave Apple “a significant advantage over other businesses that are subject to the same national taxation rules.”
“Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” Commissioner Margrethe Vestager, head of EC competition policy, said in a statement. “The Commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.”
“AN EFFECTIVE CORPORATE TAX RATE OF 1 PER CENT”
European regulators have launched several investigations into so-called “sweetheart deals” that some member states offer to multinational companies. The arrangements allow companies to shift profits and exploit loopholes in order to pay lower effective tax rates. Tuesday’s decision against Apple, first reported on Monday, comes after the Commission issued a similar ruling against Starbucks and Fiat in 2015, ordering both companies to pay up to €30m in unpaid taxes to the Netherlands and Luxembourg, respectively. (Starbucks and Fiat have appealed the decision.) The Commission also issued a preliminary condemnation against a tax arrangement between Amazon and Luxembourg, which allowed the retailer to declare most of its European profits under an untaxed entity.
The decision against Apple, which is expected to announce a new iPhone next week, could mark an inflection point in European policy on tax avoidance schemes, perhaps forcing other corporations to rethink their tax strategy. It could add further strain to US-European relations, as well. The US Treasury criticized European tax probes in a white paper published last week, accusing the Commission of acting as a “supranational tax authority” and saying that its crackdown threatens efforts at global tax reform.
“IT WILL HAVE A PROFOUND AND HARMFUL EFFECT ON INVESTMENT AND JOB CREATION IN EUROPE.”
Irish Finance Minister Michael Noonan told Reuters on Tuesday that Ireland disagrees “profoundly” with the Commission’s decision. “The decision leaves me with no choice but to seek cabinet approval to appeal,” Noonan said in a statement. “This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”
Apple said it will appeal the decision in a statement to the BBC. “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 company said. “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.”
By Amar Toot at theverge