Apple Must Pay $14.5 Billion For Tax Breaks in Ireland, E.U. Orders

Apple Must Pay $14.5 Billion For Tax Breaks in Ireland, E.U. Orders

Europe’s antitrust enforcer ordered Ireland on Tuesday to claw back billions from Apple over illegal tax breaks, a move that will ramp up trans-Atlantic tensions over how much global companies should pay to countries where they do business.

The decision by Margrethe Vestager, the European Union commissioner for competition, is the culmination of a two-year investigation into whether Ireland gave preferential treatment to Apple, part of a broader crackdown on corporate tax avoidance.

The clawback from Apple, which covers 10 years of back taxes of up to 13 billion euros, or about $14.5 billion, from Apple, is the largest of its kind since the European Commission, the executive arm of the 28-member union, started going after member states that favored selected companies.

The ruling adds to a strained relationship between the United States and the European Union over who has the right to regulate tax payments by some of the world’s largest companies.

The European Commission has aggressively sought to stamp out sweetheart tax deals that countries strike with multinational companies. Along with Apple, the campaign has also ensnared Starbucks in the Netherlands, Amazon in Luxembourg and Anheuser-Busch InBev in Belgium.

But American officials have warned that the commission is overstepping its power given that taxes are typically left to national governments to oversee and that European officials should not retroactively issue penalties in past tax rulings. They also emphasized that such cases undermine continuing efforts to overhaul global policies and create measures to curtail tax avoidance.

“U.S. companies are the grandmasters of tax avoidance,” said Edward D. Kleinbard, professor at the Gould School of Law at the University of Southern California and a former chief of staff to the congressional Joint Committee on Taxation.

“Nevertheless, because of the nature of U.S. politics,” he said, the Apple case “will be framed by the U.S. as Europe overreaching and discriminating against ‘our team.’ ”

Since early this year, Ms. Vestager and Jacob J. Lew, the United States Treasury secretary, and their teams have met regularly to discuss Europe’s state-aid tax investigations. Mr. Lew visited Brussels in July to put forward the American perspective.

Just last week, the Treasury Department released a report criticizing any efforts to claw back taxes from American companies. The document repeatedly claimed that the European Commission did not have the right to undertake the tax clawbacks and that they could harm America’s efforts to collect taxes from domestic companies with vast international operations.

“That outcome is deeply troubling as it would effectively constitute a transfer of revenue to the E.U. from the U.S. government and its taxpayers,” Robert B. Stack, a senior Treasury official, said in the report.

The European Commission denies these claims, saying that it is relying on a history of using state-aid rules related to corporate tax issues. The Brussels-based agency also says that it has the right to act when certain companies are provided with an unfair advantage — either through tax breaks or other incentives — and that Apple’s operations are based in Ireland, therefore falling under its jurisdiction.

“No rules have been changed — not one rule,” Ms. Vestager said at a news conference in Brussels on Tuesday. “This is a question of paying unpaid taxes.”

In the Apple case, the antitrust commission said that the deals with Ireland allowed the company to allocate profits from two Irish subsidiaries to a “head office,” but that it could not have generated such profits since it had few operations and little distribution or substantive business.

By doing so, the commission said that Apple could effectively lower its tax rate on European profit to just 0.005 percent in 2014. Ms. Vestager said at a news conference on Tuesday that amounted to roughly €50 for every €1 million in Apple’s European profit.

“The so-called head office had no employees, no premises, no real activities,” Ms. Vestager said.

Apple defends its tax practices, saying it follows the law and pays all of its taxes.

“The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money,” the company said in a statement. “It will have a profound and harmful effect on investment and job creation in Europe.”

Ireland has broadly faced scrutiny for its tax strategies to attract large multinationals.

Its corporate tax rate, at 12.5 percent, is one of the lowest in the developed world. Other incentives and breaks allow companies to cut their bill even further. While it is phasing out some of the more contentious loopholes, Ireland just introduced a new break for revenues on intellectual property, a potentially huge benefit to large technology companies with troves of patents.

The United States has a complicated view on Apple’s dealings in Ireland. The European inquiry was spurred in 2013 when a United States Senate committee said that Apple had negotiated a special corporate tax rate of 2 percent or less in Ireland.

The Treasury has also taken steps to curtail so-called inversions, in which an American company buys an overseas counterpart and shifts its headquarters overseas to lower its taxes. Ireland, with its low corporate tax rate, has been an especially big beneficiary of such deals, which helped plump up the country’s economy last year.

Ireland stands by its approach to taxes, saying it did not give preferential treatment to Apple or other companies. The country’s Finance Ministry, in a statement, said that the commission’s decision would undermine continuing global tax overhaul and create uncertainty for business in Europe.

The finance minister, Michael Noonan, said he would move to appeal the Apple decision, adding it was “necessary to defend the integrity of our tax system.”

“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for substantive investment,” he said.

Apple also said it would look to overturn the decision, although any appeals process could take years.

“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 in a statement.

The commission said the amount due in Ireland could be lowered if the American authorities decided that Apple should have paid more tax in the United States.

The commission also said that other countries in the European Union could take a share of the money if Apple conducted more taxable business in those nations than the company had previously declared. That could reduce the amount Ireland collects and give additional revenue to other countries.

Apple is also expected to have to pay interest on the €13 billion, but the commission did not disclose how much that would be.

About Alexis Sostre

Entrepreneur, contributor, writer, and editor of Sostre News. With a powerful new bi-lingual speaking generation by his side, Sostre News is becoming the preferred site for the latest in Politics, Entertainment, Sports, Culture, Tech, Breaking and World News.

Check Also

Using Handheld Devices Cause Young Children’s Speech Delay, new study claims

Using Handheld Devices May Cause Young Children’s Speech Delay, new study claims

While technology offers convenience on one’s life, it could also impose negativity on its users especially on children. A new study presents the possible speech delay in children upon usage of handheld devices last May 6 during 2017 Pediatric Academic Societies (PAS) meeting...