EU hits Apple with $14.5-bn Irish tax demand

Reuters  |  BRUSSELS/DUBLIN August 31, 2016

The ordered to pay of up to 13 billion euros ($14.5 billion) on Tuesday as it ruled the firm had received illegal state aid.
and said the US company’s tax treatment was in line with Irish and European Union law and they would appeal the ruling, which is part of a drive against what the says are sweetheart tax deals that usually smaller states in the bloc offer multinational to lure jobs and investment.

The US feels its firms are being targeted by the and a US Treasury spokesperson warned the move threatens to undermine US investment in Europe. Starbucks has been ordered to pay up to 30 million euros ($33 million) to the Dutch state, while Amazon.com and McDonald’s are also under investigation by the Commission, the EU’s executive arm.

Competition Commissioner questioned how anyone might think an arrangement that allowed to pay a tax rate of 0.005 per cent, as Apple’s main Irish unit did in 2014, was fair. “Tax rulings granted by have artificially reduced Apple’s tax burden for over two decades, in breach of the state aid rules. now has to repay the benefits,” Vestager told a news conference. Apple, which had more than $200 billion in cash and readily marketable securities at the end of June, is likely to see the case drag out for years.

The EU’s ruling challenges the way agreed to tax the profits of Irish registered subsidiaries, through which most of its non-US profits flowed.

licenses the rights to technology designed in the United States to Irish subsidiaries. These then hire contract manufacturers to make devices which they sell to retail subsidiaries around Europe and Asia. Since the manufacturing cost is a small portion of device sales prices and retail subsidiaries are allocated a small operating margin, is very profitable. In 2011, it earned $22 billion after paying $2 billion to its US parent in relation to the rights to IP.

However, the Irish tax authority agreed only 50 million euros of this was taxable in Ireland, the said. Under the terms of Apple’s tax deal, first agreed in 1991 and renewed in 2007, could allocate most of the profits earned by its Irish operating units to a “head office” that did not have any employees or own any premises.

“This ‘head office’ had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter,” the Commission said. The Commission said this agreement had no basis in tax law and was not available to others, and so represented state aid.

said it was confident of winning an appeal. “The has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the tax system in the process,” CEO said in a letter to customers posted on Apple’s website.

“A company’s profits should be taxed in the country where the value is created.”

“Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission’s theory, every company in and across Europe is suddenly at risk of being subjected to taxes under laws that never existed,” Cook added.

Irish Finance Minister Michael Noonan said he profoundly disagreed with the decision and in order to preserve Ireland’s attractiveness for investment he would appeal. “There is no economic basis for this decision. It’s bizarre and it’s an exercise in politics by the Competition Commission,” Noonan said. Ireland’s low corporate tax rate has been a cornerstone of the country’s economic policy for decades.

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