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Landmark ruling by Commission

EU tells Irish to demand €13bn unpaid tax from Apple

AppleApple was handed a €13 billion tax bill today after the European Commission concluded that the US firm’s Irish tax benefits are illegal.

In a landmark that has implications for Ireland’s economy and the tax regimes surrounding multi-nationals, the EU said Dublin was enabling the technology giant to pay substantially less than other businesses,

It amounted to little a corporation tax rate of little more than 1%.

Both Apple and the Irish government disagreed with the findings of the three-year investigation and said they would appeal.

Commissioner Margrethe Vestager said: “Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules.

“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 rate of Irish corporate tax is 12.5% which has long been the source of frustration among other EU states, some arguing that it undermines the principles of the single market.

The Commission concluded that Apple had paid only 1% tax on its European profits in 2003 and about 0.005% in 2014.

In a statement, Apple said the verdict would have a detrimental effect on jobs.

“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,” said the company.

“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.

“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 shared the company’s view and said it would appeal even though the repayment is equal to the country’s entire health budget.

The fear for Ireland is that it may force Apple to leave and would have a serious impact on jobs and the economy. This would negate any benefits. Acceptance of the bill would also be mean accepting its tax regime is wrong, with implications for other tax payers.

Ireland’s finance minister, Michael Noonan, said: “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 certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”

While the size of the tax bill may be eye-popping for most people and would threaten the existence of most businesses, it will not undermine Apple as it represents just 6% of its cash in the bank.

However, that is not to say that paying this bill would not be harmful.  One analyst said investors will have to assess whether a higher tax bill will have any impact on profits after tax.

Some have also questioned whether the ruling may affect US investment into Europe.

The US Treasury said the latest ruling could “undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU”.

This will jar with those who say the EU is entitled to enforce tax legislation and police companies which engage in large scale tax avoidance.

Apple, in fact, is the latest in a string of companies being pursued for securing favourable tax deals in the EU.

The current record is a bill of €300 million for Swedish engineer Atlas Copco to pay Belgian tax.

The Commission last year said the Dutch government should recover up to €30m (£25.6m) from Starbucks, while Luxembourg was ordered to claw back a similar amount from Fiat.

Online retailer Amazon and fast food chain McDonald’s face similar tax probes in Luxembourg.

Louise Gracia, of Warwick Business School, a Professorial Teaching Fellow in the Accounting Group, said: “This ruling is a serious attempt at curtailing the power large multinationals have in avoiding their tax liabilities, and sends a warning to countries that facilitate hard-edged corporate tax minimisation strategies.

“It raises some bigger issues beyond the tax practices of Apple, not least the tension created by EU encroachment into the tax practices of individual member states. 

“It also shines a spotlight on the paltry levels of corporate tax that large multinationals are actually paying. Even if we accept the job and wealth creation arguments put forward by multinationals as mitigation against tax liability, this has to be within reason. 

“The average person probably has a right to challenge the reasonableness of Ireland facilitating Apple to pay so little tax on its European profits. Given that large multinationals work and operate across countries, using the infrastructure and labour within those countries there is an implicit fairness in requiring them to pay tax on the profits generated within a country, in that country. 

“This raises the spectre of fairness, or equity, which is a key ingredient of an efficient and stable tax system and one worth protecting against the corporate tax behaviour of large multinationals.”

 

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