Apple Hit with $14.5 bn EU Tax Ruling

Register now

(Bloomberg) On Tuesday, Apple was ordered to repay as much as 13 billion euros ($14.5 billion) plus interest after the European Commission said Ireland illegally slashed the iPhone maker’s tax bill between 2003-2014.

The commission ruled that Ireland provided Apple illegal aid through a favorable tax arrangement, which violated the European Union’s state-aid rules. It's the largest tax penalty in a three-year crackdown on sweetheart fiscal deals granted to multinationals by EU nations. The EU, like other global regulators, has targeted firms that sidestep taxes by moving around profits and costs to wherever they are taxed most advantageously -- exploiting loopholes or special deals granted by friendly governments.

EU Competition Commissioner Margrethe Vestager said in an e-mailed statement that member states of the EU cannot give tax benefits to selected companies. "This is illegal under EU state aid rules," she said. "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."

The decision covers taxes which would have been due in 2003-2014. It says Apple paid an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.

Apple and the Irish government have both vowed to appeal the decision. The appeal process could take as long as three or four years. 

In a statement, Apple 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.”

Irish Finance Minister Michael Noonan said, “I disagree profoundly with the commission’s decision." Ireland’s tax system is founded on the strict application of the law “without exception,” he said.

In an e-mailed statement, a U.S. Treasury spokesperson said: "We believe that retroactive tax assessments by the commission are unfair, contrary to well-established legal principles, and call into question the tax rules of individual member states. The commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU. We will continue to monitor these cases as they progress, and we will continue to work with the commission toward our shared objective of preventing the erosion of our corporate tax bases.?”

Apple can easily afford to pay the bill: As of last month, it had $232 billion in cash, with about $214 billion of that being held overseas. If Apple pays, the money would go to Ireland, which would put those funds into an escrow account and leave it there until any appeal process has fully concluded. 

Apple isn’t the only company facing this issue. The EU authority has already ordered the Netherlands and Luxembourg to recover as much as 30 million euros ($33.3 million) apiece in back taxes from Starbucks Corp. and a Fiat Chrysler Automobiles NV unit. Vestager is also probing Amazon Inc. and McDonald’s Corp.’s affairs in Luxembourg and has signaled that she’s willing to add Google parent Alphabet Inc.’s 130 million-pound ($184 million) tax deal with the U.K. to her growing list of investigations.

--With assistance from Dara Doyle, Stephani Bodoni, Aoife White, Peter Chapman

For reprint and licensing requests for this article, click here.
Tax practice International taxes