The European Commission has ordered Ireland to recover EUR 13 billion in taxes from Apple, after concluding that the country gave the company an unfair tax advantage over other businesses. The advance tax rulings granted by the Irish government for Apple's European headquarters in the country helped Apple lower its tax rate on European profits to as little as 0.005 percent in 2014.
The Commission's investigation, started in June 2014, covers the period going back to 1991. The selective tax treatment of Apple in Ireland was found to be illegal under EU state aid rules. As a result, Ireland must now recover the unpaid taxes from Apple for the years 2003-2014 of up to EUR 13 billion, plus interest. The period covered is limited by EU rules capping recovery at 10 years and Apple changing its headquarters structure in 2015.
The advance tax rulings granted to Apple in Ireland, first in 1991 and renewed in 2007, allowed most profits from Apple's European operations to be allocated to a 'head office' not based in any country and without any employees or premises. Its activities consisted solely of occasional board meetings. As a result only a fraction of the profits were allocated to its Irish branch and subject to tax in Ireland. The remainder went to the 'head office', which was not subject to tax due to no physical domicile.
The Commission said the artificial structure laid down in the tax rulings had "no factual or economic justification", and the profits of Apple's two Irish subsidiaries, Apple Sales International and Apple Operations Europe, should have been subject to Irish income tax. Apple set up its sales operations in Europe in such a way that customers were contractually buying products from Apple Sales International in Ireland rather than from the shops that physically sold the products to customers. In this way Apple recorded all sales, and the profits stemming from these sales, directly in Ireland.
Apple has consistently denied avoiding tax, with CEO Tim Cook saying in late 2015 that it was "total political crap" the idea, and his company was paying "every tax dollar we owe". In a statement reported by the BBC, Apple said it would appeal the Commission's decision, adding "Apple follows the law and pays all of the taxes we owe wherever we operate". It accused the European Commission of trying "to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process" and predicted the decision would have negative consequences for investment and jobs in Europe.
The EU tax bill is worth around a quarter of the company's net profit of USD 53.4 billion reported for its last fiscal year to September 2015. The Commission noted that the amount of tax recovered by Ireland could be reduced if other countries in the EU or Apple's home country the US decided to try and tax more of Apple's profits locally. Apple noted that the the Commission’s case is "not about how much Apple pays in taxes, it’s about which government collects the money".
The Irish finance minister said in a statement that the government "profoundly disagrees" with the Commission's decision. He noted that the decision does not call into question Ireland's general tax system or its corporate tax rate, nor was the country fined for the offence. The country's position is "that the full amount of tax was paid in this case and no State aid was provided. Ireland did not give favourable tax treatment to Apple."
The Irish government also plans to appeal the EC decision; it has two months and ten days to file the appeal. It said the decision was contradictory as the EC acknowledged that some of the profits could be recoverable under other jurisdictions than Ireland. Furthermore, the possibility of Apple's ghost 'head office' was not down to only Irish tax law, but a mismatch with other countries' tax law, such as the US, it said.
The Irish government also accused the EU of overstepping its authority in tax matters and disrupting the international consensus on tax issues, which are largely negotiated through the OECD. The US has taken a similar stance, threatening the European Union of possible repercussions if it attempts to claim back billions in tax from major US multinationals such as Apple. The Commission has already taken similar decisions over tax rulings for Starbucks in the Netherlands and Fiat Chrysler in Luxembourg.
Source: http://www.telecompaper.com/news/eu-orders-apple-to-pay-eur-13-billion-in-additional-tax--1159828
