Apple must hand over $14.5 billion in unpaid taxes after the European Commission ruled that Ireland had granted the iPhone maker illegal tax benefits.
It is a record-breaking ruling from the Commission, but not one that will cause undue hardship to Apple, which is known to have hundreds of billions of dollars in its coffers.
The European Union’s agency opened an investigation in the summer of 2014 to determine if Ireland was indeed acting as a tax sanctuary for Apple.
The two-year probe determined that Apple’s deal with Ireland enabled the company, between 2003 and 2014, to pay very little on the business it does in Europe. Because of that deal, Apple was able to channel revenue from two Irish subsidiaries to a “head office” with “no employees, no premises, no real activities,” Commissioner Margrethe Vestager said.
Vestager has subsequently ordered the Irish government to recover the “illegal aid” it gave to Apple.
“Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” Vestager said in a press release. “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 one per cent on its European profits in 2003 down to 0.005 per cent in 2014.”
Apple and the Irish government, predictably, are not happy with the ruling and are vowing to appeal the decision.
Apple CEO Tim Cook, in a statement to the BBC, said the European Commission is trying to “rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process,”
“The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money,” Cook continued. “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.”
Ireland’s finance ministry, meanwhile, has accused the Commission of trying to undermine its country’s tax system.
“The decision leaves me with no choice but to seek cabinet approval to appeal,” Irish Finance Minister Michael Noonan told Reuters. “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.”