Apple must repay €13 billion (or AU$19.2 billion) in back taxes to Ireland, after the European Commission ruled that agreements made with the Irish authorities were illegal under European Union rules.
These agreements, according to the European Commission’s ruling, substantially lowered the amount of tax Apple had to pay in Ireland since 1991. As a result, Apple had an effective tax rate as low as 0.005 percent (in 2014) on profits made by its international subsidiary, Apple Sales International.
Apple Sales International was used to record all of Apple’s sales in Europe, Middle East, Africa and India; with the money (less tax paid) funnelled back to the United States as research and development payments.
The €13 billion, plus interest, only covers the period between 2003 and 2014. The Commission notes that it can only issue penalties on the ten-year period preceding the date it first requested information for its investigation, which was in 2013.
Since 2013, the European Commission has been cracking down on tax arrangements between countries and multinational companies; with Amazon and McDonald’s currently being investigated with their tax arrangements with Luxembourg.
Apple, Ireland to appeal decision
Both the Irish Government and Apple have said that they plan to appeal the decision, with Apple calling the European Commission ruling as setting a dangerous precedent.
“We never asked for, nor did we receive, any special deals. 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,” its CEO Tim Cook wrote in an open letter.
“The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe.”
The Irish Government says that its dealings with Apple were not state aid, and that it did not give it favourable tax arrangements.
“The decision leaves me with no choice but to seek Cabinet approval to appeal the decision before the European Courts. 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,” the Irish Minister for Finance, Michael Noonan, TD said in a statement.
It may not all go to Ireland
While Apple faces a bill of €13 billion, it does not necessarily mean that the full amount will go to Ireland.
According to the European Commission’s ruling:
In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple’s decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.
Put simply, the European Commission is opening the doors for other European countries to investigate Apple. If they find Apple recorded sales in Ireland that should have recorded in that country, they can force Apple to pay more tax in that country – and that would reduce the amount it has to pay to Ireland.
And the European Commission is more than happy to provide the data.
“Other countries in the EU or elsewhere can look at our investigation and can use our data,” said Margrethe Vestager, the European Commissioner for Competition.