This Week's Sponsor:

Listen Later

Listen to Articles as Podcasts

Apple Ordered to Pay Up to 13 Billion Euros in EU Tax Crackdown

Dara Doyle and Stephanie Bodoni, writing for Bloomberg:

Apple Inc. was ordered to repay a record 13 billion euros ($14.5 billion) plus interest after the European Commission said Ireland illegally slashed the iPhone maker’s tax bill.

The world’s richest company benefited from a “selective tax treatment” in Ireland that gave it a “significant advantage over other businesses,” the European Union regulator said Tuesday in its largest tax penalty in a three-year crackdown on sweetheart fiscal deals granted by EU nations.

The European Commission is not saying that Apple has not paid its taxes. Rather, they have said that two tax rulings handed down to Apple by the Irish government in 1991 and 2007 had “no factual or economic justification” and constituted illegal state aid. That’s a problem in the eyes of the European Commission because profits from Europe, the Middle East, Africa and India were attributed to Apple’s corporate entity in Ireland.

“Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years,” EU Competition Commissioner Margrethe Vestager said in an e-mailed statement. “This selective treatment allowed Apple to pay an effective corporate tax rate of 1 percent on its European profits in 2003 down to 0.005 percent in 2014.”

The European Commission now wants the Irish government to claw back 13 billion Euros from Apple. Whilst this ruling is a significant development, it is far from the end of the story, Apple and the Irish government have already signaled their intentions to appeal the decision of the European Commission. If they do appeal, it is likely to take years for a final decision to be reached.

Update: Apple has posted an open letter from Tim Cook on their website, responding to today’s European Commission decision.

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. The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.

The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same. We are confident that the Commission’s order will be reversed.