Following a three year investigation into the US firm’s Irish tax benefits, The European Commission has found that Apple is liable to repay the Irish government 13billion euros in back taxes.
The Commission said that Ireland enabled the company to pay substantially less than other businesses, in effect paying a corporate tax rate of no more than 1%.
Both parties have said they disagreed with the record penalty and that they would be appealing against it.
Commissioner Margrethe Vestager had this to say: “Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules”. She went on to say that “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 standard Irish corporate tax rate is 12.5% however according to the Commissions’ investigations; Apple only paid 1% tax on its European profits in 2003 and a meagre 0.005% in 2014.
In the 2015 tax year alone, Apple made a net profit of $53 billion.
Apple had this to say in a statement: “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 went on to say that 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”. The statement vehemently denies wrongdoing and went on to say that: “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”.
The Irish government also contests the decision. Ireland’s finance minister Michael Noonan said in a statement that: “I disagree profoundly with the Commission”. “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 uncertainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.
Concerns have been expressed by industry experts who are worried that the Commission’s decision in this case and others could seriously undermine investment. Neil Wilson, market analyst at ETX Capital said that “Apple has been enjoying a river of free cash flow and while the ruling may not been too much short-term, investors will have to assess whether a higher tax bill will have any impact on profits after tax”.
The US Treasury said last week that the European Commission could be in danger of becoming a “supranational tax authority” and that this ruling could “undermine foreign investment, the business climate in Europe, and the important economic partnership between the US and the EU”.
A US Treasury spokesman said that “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 joins a list of companies which have been recently targeted for securing favourable tax deals in the EU. It was reported last year that the Commission ruled that the Netherlands should recover as much as 30 million euros from Starbucks. Similarly, Luxembourg was ordered to reclaim a similar amount from Fiat.