Apple ordered to pay up to 13bn after EU rules Ireland broke state aid laws

European commission says Apple got illegal help with tax breaks but CEO Tim Cook says ruling threatens investment in Europe

Apple has been ordered to pay a record figure of up to 13bn (11bn) in back taxes to Ireland after the European commission ruled that deals between Apple and the Irish tax authorities amounted to illegal state aid.

The commission said Irelands tax arrangements with Apple between 1991 and 2015 had allowed the US company to attribute sales to a head office that existed on paper only and could not have generated such profits.

The result was that Apple avoided tax on almost all profits from sales of its products across the EUs single market by booking the profits in Ireland rather than the country in which the product was sold.

Apple and Ireland have rejected the commissions account and said they intend to appeal against the ruling. The figure of 13bn plus interest 40 times the previous record for such a case is the equivalent of the annual budget for the Irish health service. Irish campaigners are also calling for the windfall to be invested in public housing.

The taxable profits of Apple Sales International and Apple Operations Europe did not correspond to economic reality, the commission said. Apple paid an effective tax rate of 1% in 2003 on profits of Apple Sales International. The rate dropped to 0.005% in 2014.

Margrethe Vestager, the European competition commissioner, said: Member states cannot give tax benefits to selected companies this is illegal under EU state aid rules. The commissions investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years.

Tim
Tim Cook, Apple CEO. Photograph: Justin Sullivan/Getty Images

Vestager said state aid rules did not cover where profits should have been recorded but suggested other countries could claim unpaid tax from Apple for the same period and that this would reduce the bill owed to Ireland.

Tim Cook, Apples chief executive, said the commission was rewriting Apples record in Ireland, overriding Irish law and disrupting the international tax system. He said Apple chose the Irish city of Cork as its European base 30 years ago and had expanded from 60 workers to almost 6,000 in Ireland.

The commissions decision threatened investment and job creation in Europe by subjecting companies to unpredictable tax rulings, Cook said. He said Apple would appeal and that he was confident of winning.

Cook said: 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 dont owe them any more than weve already paid.

The commissions decision is a rebuff to US efforts to persuade it to drop the case after warnings of retaliation from Washington. The US Treasury department said last week the commissions investigations departed from international tax norms and would affect US companies disproportionately.

Apple, which changed its tax arrangements with Ireland in 2015, should be able to pay the tax because it has a stockpile of more than $230bn (176bn) of cash and securities, mostly held outside the US.

The 13bn figure covers the 10 years before the commission first requested information in 2013. The commission said it was up to Ireland to collect the tax from Apple but the Irish governmentwants the ruling reversed because it wants to preserve its status as a low-tax base for overseas companies.

Irelands finance minister, Michael Noonan, said Dublin would also appeal against the ruling. He said: The decision leaves me with no choice but to seek cabinet approval to appeal. 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.

A cabinet meeting will be held in Dublin on Wednesday to discuss the fallout from the ruling.At the heart of the Fine Gael-led administrations objections is that it would cause Ireland reputational damage in the eyes of other mainly US multinationals thinking of establishing their European base in the Republic.

Fine Gael, the main opposition party Fianna Fil, and a host of independent deputies serving as ministers in the coalition government support the low-tax regime for multinationals because it has created hundreds of thousands of jobs.

Richard Murphy, a tax campaigner and a professor in international political economy at City University in London, said: This is a great day for the sovereignty of the EUs nations when it comes to tax. They will now be able to choose their own tax policies knowing another state should not be consciously undermining them when doing so. The Irish state has for too long been committed to tax abuse, unfair competition and secrecy, all of which are designed to undermine fair competition and increase inequality.

The commission has been examining Apples tax deals with Ireland for three years. The deals have allowed the US company to pay very little tax on income earned throughout Europe. The commission opened a formal inquiry in 2014 after initial findings concluded that the arrangements amounted to state aid incompatible with the single market.

Read more: https://www.theguardian.com/business/2016/aug/30/apple-pay-back-taxes-eu-ruling-ireland-state-aid