Apple must pay €13 billion (plus interest) to the Irish exchequer in a landmark EU ruling that has judged its tax arrangements in Ireland to be “illegal” under state aid rules.
The competition commissioner Margrethe Vestager has finally ruled after a two-year investigation that the company was given “illegal” benefits that gave it an unfair advantage.
“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.
“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 ruling relates to two tax deals made by Apple in Ireland in 1991 and 2007.
The commission disputed the ability of what it called Apple’s ‘head office’ in Ireland to generate $22 billion in profit that went largely untaxed. “The ‘head office’ did not have any employees or own premises,” the commission said.
Going further than this, though, the commission said Apple has been able to “avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market”.
It’s illegal under EU state aid rules for tax arrangements to give companies an unfair advantage within one country, however, the cross-border tax issue is as yet outside the remit of EU state aid control.
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Although the EU said this ruling was not designed to undermine the wider Irish tax system, Ireland’s Minister for Finance Michael Noonan is likely to appeal the decision.
“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.”
Indeed, Ireland has already spent more than €670,000 trying to defend itself against the ruling.
US regulators last week outlined their shared “concern with tax avoidance by multinational firms” but said:
“These investigations, if continued, have considerable implications for the United States — for the U.S. government directly and for U.S. companies—in the form of potential lost tax revenue and increased barriers to cross-border investment. Critically, these investigations also undermine the multilateral progress made towards reducing tax avoidance.”