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EU slaps Apple with record €13b tax bill it must pay to Ireland

EU Commission’s finding that Ireland granted illegal tax benefits to Apple will impact many multinational companies operating in or selling to EU countries

PUBLISHED : Tuesday, 30 August, 2016, 9:21pm
UPDATED : Wednesday, 31 August, 2016, 9:12am

The European Union’s antitrust regulators have ordered Apple to cough up about 13 billion (HK$113 billion) in back taxes plus interest to Ireland, after ruling that the Irish government granted illegal tax aid to the US technology giant.

“Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” Margrethe Vestager, the European Commissioner for Competition, said in a statement on Tuesday.

Both Apple and the Irish government have said they would appeal that ruling, which followed the EU’s sweeping investigation of member states’ tax ruling practises since June 2013.

“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,” Vestager said. “In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.”

The regulators found two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by the company in the country since 1991.

The commission said it can order recovery of illegal state aid for a 10-year period preceding its first request for information in 2013, which it estimated at 13 billion plus interest.

In a statement, Apple said the EU ruling would have “a profound and harmful effect on investment and job creation in Europe”.

“We will appeal and we are confident the decision will be overturned,” the company 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 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
Apple company statement

Paul Haswell, a partner at international law firm Pinsent Masons, told the South China Morning Post that the appeal process will take time and could be “an uphill struggle for Apple”.

“Bearing in mind that this case will impact tax avoidance approaches taken by many multinational companies operating in or selling to EU countries, it is a fight that Apple has to take on,” Haswell said.

EU investigators found that taxable profits for Apple’s two Irish-incorporated companies, Apple Sales International and Apple Operations Europe, were internally attributed to a “head office”, which existed only on paper.

Those profits allocated to the head office were not subject to tax in any country under specific provisions of the Irish tax law. That treatment enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU market.

Citing figures released at US Senate public hearings, the commission said Apple Sales International recorded profits of US$22 billion in 2011. “But under the terms of Ireland’s tax ruling only around 50 million were considered taxable in Ireland, leaving €15.95 billion of profits untaxed,” it said. “As a result, Apple Sales International paid less than€10 million of corporate tax in Ireland in 2011.”

In October, the commission found Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. In January, the commission ruled that Belgium provided tax advantages to least 35 multinational companies.