Hire me for journalism, moderation, and sparkling copy
The European Commission today (30 August) hit Apple with a €13 billion clawback of unpaid taxes in Ireland, but Dublin branded the move a violation of its sovereignty and both the country and the US tech giant immediately said they would appeal the decision.
The decision has put the executive at loggerheads with Ireland, which fears for the effect on investment in its economy and accused it of meddling in its sovereign tax affairs, with Apple, and with the US government, which has accused Brussels of targeting successful American companies.
After a three-year probe, Commission antitrust regulators said that Dublin gave Apple an unfair competitive advantage through the tax treatment of two company structures over ten years.
The Commission accused Ireland in 2014 of dodging international tax rules by letting Apple shelter profits worth tens of billions of dollars from tax collectors in return for maintaining jobs.
“Two tax rulings granted by Ireland artificially reduced Apple’s tax burden for over two decades in breach of EU state aid rules. Apple now has to repay benefits worth up to 13 billion plus interest, “ said Competition Commissioner Margrethe Vestager.
Ireland’s Finance Minister Michael Noonan said an appeal to the European courts was 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”.
Apple Inc US set up two ‘stateless’ subsidiaries, Apple Sales International and Apple Operations Europe, which were incorporated in Ireland. ASI was set up to handle sales of Apple products such as the iPhone in Europe, the Middle East, Africa and India.
But the Irish tax rulings, made in 1991 and renewed in 2007, meant that any profits reported by each company’s head office, neither of which had any employees, were not subject to tax in any jurisdiction in the world.
That meant that Apple, one of the world’s most valuable companies, paid as little as €50 for every million euros in profit the two subsidiaries made, Competition Commissioner Margrethe Vestager said at a Brussels press briefing.
The loophole was closed by Dublin in early 2013, after the existence of the rulings were exposed by a US senate hearing.
The money must be clawed back by the Irish government, which will calculate the final amount owed.
Vestager said the door was open for other countries to claim possibly unpaid taxes on ASI’s profits. Any claimed in other jurisdictions could reduce the tax bill in Ireland, where Apple employs 5,500 people. Apple pays 12.5% corporation tax on the economic activity it declares for that staff.
The decision follows two similar but smaller EU state aid investigations into tax rulings for Fiat in Luxembourg and Starbucks in the Netherlands.
Those probes were launched after the eruptions of the Luxleaks tax scandal that exposed sweetheart tax deals made between multinational and the Luxembourg government.
Commission President Jean-Claude Juncker was prime minister of Luxembourg when the deals were struck.
Apple said the ruling would damage investment and job creation in Europe and vowed it would be successful in its appeal against the finding that it benefited from illegal state aid.
Although it closed the loophole, Dublin also said it would appeal, subject to Irish cabinet approval.
“I disagree profoundly with the Commission’s decision,” said Finance Minister Michael Noonan.
Dublin accused the Commission of overreaching itself by using its competition powers to influence national tax policies, echoing earlier criticism from Washington.
Tax is a national competency, jealously guarded by member states. The US Treasury has warned that using state aid rules would mean the executive was turning itself into a “supra-national tax authority”.
“It is not appropriate that EU state aid competition rules are being used in this new and unprecedented way in the area of taxation, which is a member state competence and a fundamental matter of sovereignty,” an Irish government statement said.
Vestager said EU judges would support the Commission. “State aid is state aid no matter if it informs a piece of land, a grant, a beneficial loan or a tax benefit,” she said.
Both Ireland and the US said the Commission move would upset international consensus on global tax rules, which are centred in the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.
The US Treasury’s Jacob J. Lew said that the Commission’s “sweeping interpretation” of State aid doctrine “threatens to undermine” the progress made by the international community “to curtail the erosion of our respective corporate tax bases”.
But Vestager said that both Brussels and Washington were going in the same direction on the global guidelines.
BEPS, a response to numerous tax avoidance scandals involving multinational companies, is based on the principle that tax is paid where economic activity is centred.
Much of Apple’s economic activity is based on the Intellectual Property of its products, which is held at the US headquarters.
When Apple pays the Irish government, the company can write off the bill in the US, chipping away at taxes it owes there.
>>Read: Whole story on EurActiv.
Una llave para salir a la otra Europa de la UE
Journalist, Copywriter and Communications Consultant