Apple handed €13bn bill over tax dealings in Ireland

Tim Cook, chief executive officer of Apple Inc., unveils Apple Pay during a product announcement at Flint Center in Cupertino, California, U.S., on Tuesday, Sept. 9, 2014. Apple Inc. unveiled redesigned iPhones with bigger screens, overhauling its top-selling product in an event that gives the clearest sign yet of the company's product direction under Cook. Photographer: David Paul Morris/Bloomberg *** Local Caption *** Tim Cook

Tech giant Apple has been handed a landmark €13 billion bill by the European Commission in relation to unpaid taxes in Ireland.

Earlier today, the EU’s powerful competition arm ruled that Apple had been enjoying favourable treatment granted to it by Irish tax authorities.

However, in a statement, the Irish government denied that it granted such fiscal treatment to Apple and that it did not break state aid regulations.

“Ireland’s position remains that the full amount of tax was paid in this case and that no state aid was provided,” it said. “Ireland does not do deals with taxpayers.”

The conclusions were that Apple was allowed to pay an effective corporate tax rate of one per cent on its European profits in 2003, down to 0.005 per cent in 2014.

“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 EU competition commissioner, Margrethe Vestager, said.

Ireland must now enforce the 12.5 per cent corporate tax on almost all the profits attributed to the two key subsidiaries – ‘Apple Sales International’ and ‘Apple Operations Europe’ – to recoup the €13 billion.

The profits from these subsidiaries, which dealt with all non-US Apple sales, were attributed to a “head office”.

Distorted competition

However, this “head office” was deemed to have existed only on paper and almost all of the profits were left untaxed.

“These profits allocated to the ‘head offices’ were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force,” the commission explained.

It added that this selective treatment distorted competition in Europe and that the company’s structure in Ireland “did not correspond to economic reality”.

In a scathing letter, Apple boss Tim Cook attacked the ruling, in which he accused it of singling his company out.

“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,” he said.

“The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. 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 don’t owe them any more than we’ve already paid.”

The huge bill for back taxes – to which interest must be added – was far from what was expected.

Apple, Irish and US officials had all anticipated a much more moderate penalty.

The amount ordered smashes the previous record in relation to state aid – the €1.3 billion recouped from the Nürburgring in Germany.

Both Ireland and Apple reject the decision, with Irish Minister of Finance, Michael Noonan, confirming that he will seek cabinet approval to appeal against the ruling.

“This is necessary to defend the integrity of our tax system, to provide tax certainty to business, and to challenge the encroachment of the EU state aid rules,” he said.

While the legal appeal is still being processed, Dublin plans to hold the tax payment in escrow.

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