The European Commission has ruled that Ireland can recover up to €13bn (£11bn) in back taxes from Apple, following a three year investigation that found that the US tech giant's benefits in the country were illegal.
According to the Commission's ruling, Ireland enabled Apple to pay substantially less than other businesses, using a variety of incentives, discounts and other methods to give Apple an effective corporate tax rate of no more than one per cent.
"Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules," said Margrethe Vestager, Commissioner in charge of competition policy. "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."
Apple's tax benefits in Ireland date back to 1991, following two tax rulings over how the company operates in Ireland. Two Irish incorporated companies belonging to the Apple group, Apple Sales International and Apple Operations Europe, had almost all their sales profits attributed to 'head offices' which only existed on paper.
Because the 'head office' existed outside Irish jurisdiction, it meant that taxable profits for both Irish companies were dramatically slashed, giving Apple an effective corporate tax rate that declined from one per cent in 2003 to 0.005 per cent in 2014.
The €13bn ruling is 40 times bigger than any previous known demand by the European Commission to a company in such a case. However, it could be reduced if other countries also seek more tax themselves from Apple.
While the fine is obviously a substantial blow to Apple, the company earned $18bn (£13bn) last year, and the $13bn fine will represent just six per cent of its on-hand treasury when cash, cash equivalents and marketable securities are taken into account.
Both Apple and Ireland plan to appeal the ruling, but the European's Commission on competition has been on something of a crusade against companies who have been avoiding fair taxation lately. Both Amazon and McDonald's are facing probes over taxes in Luxembourg, while Starbucks is set to pay €30m to the Netherlands in back taxes.
"I disagree profoundly with the Commission," said Michael Noonan, Finance Minister for Ireland. "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."
"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 an Apple spokesperson in a statement on the decision. "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."
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