Apple Inc. has been ordered to pay Ireland up to $14.5 billion in unpaid taxes by the European Commission. The commission ruled that the company had received illegal state aid through its tax agreement with Ireland. EU Competition Commissioner Margrethe Vestager said the arrangement allowed Apple to pay a tax rate of 0.005 percent. The Commission said the agreement had no basis in tax law and was not available to others.
The EU has been going after the sweetheart tax deals that smaller states in the bloc have offered to multinational companies in an effort to lure jobs and investment. Ireland claimed that the U.S. company’s tax treatment was in line with Irish and European Union law. In a news conference, Vestager said, “Tax rulings granted by Ireland have artificially reduced Apple’s tax burden for over two decades, in breach of the EU state aid rules. Apple now has to repay the benefits.”
Irish Finance Minister Michael Noonan said he profoundly disagreed with the decision. Both Apple and Ireland have said that they will appeal the ruling. Apple said it was confident of winning an appeal. The case could drag out for years in EU and Irish courts.
Ireland’s low corporate tax rate has been a cornerstone of the country’s economic policy for decades. The staff of multinational companies account for almost one in 10 of the country’s workers. Apple employs 5,500, or about a quarter of its Europe-based staff, in the Irish city of Cork. It is the largest private sector employer in the city.
Apple Ireland is very profitable. In 2011, it earned $22 billion. However, the Irish tax authority agreed only 50 million euros of this was taxable in Ireland under the terms of Apple’s tax deal. The tax deal was first agreed to in 1991 and renewed in 2007.
The U.S. Treasury Department has said the Commission’s approach was at odds with EU tax law and international treaties. Under U.S. tax law, Apple’s Irish profits are taxable if brought back to the United States, but any tax paid in Europe is reduced from the tax due in the United States. A U.S. Treasury spokesperson also warned the move threatens to undermine U.S. investment in Europe.
The U.S. feels its firms are being targeted by the EU. Starbucks Corp has been ordered to pay up to $33 million to the Netherlands in back taxes. Amazon.com Inc and McDonald’s Corp are also under investigation by the Commission. The Commission has also ruled some European companies, including carmaker Fiat and Swedish engineer Atlas Copco AB, must pay tax claims worth over $350 million. The Netherlands, Belgium and Luxembourg have already appealed the commission’s rulings against their tax deals with multinationals.