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Apple’s settlement with Italian tax authorities might hint at the size of the penalties to come

Tim Cook at a 2013 US Senate hearing on tax affairs
Reuters/Jason Reed
Apple might be all smiles even if it gets a hefty tax bill next year.
By Joon Ian Wong
Published Last updated This article is more than 2 years old.

Apple may have just struck a €318 million ($348 million) deal with Italy’s tax authority yesterday (Dec. 30), but it’s just the beginning of the company’s European tax wrangling.

The European Commission will issue a final decision on its probe into Apple’s tax affairs in Ireland early next year that most observers believe will include a fine in the billions of euros. The Italy deal may have just confirmed that that estimate is on track.

That’s because Italy’s tax agency initially claimed Apple owed €879 million (paywall) in back taxes from 2008 to 2013, tied to €1 billion in revenue (paywall) that the company reportedly moved to its Irish subsidiary.

Though Italy’s tax agency now appears satisfied with a settlement from Apple worth roughly a third of what it says it’s owed, the agreed-upon figure is significant as a potential reference for any possible settlement Apple makes after the Commission issues its decision.

We know Apple’s pre-tax income for its Irish subsidiary from 2009 to 2011 was $38.1 billion. We also know it paid $21 million in taxes on that income. If Ireland’s 12.5% corporate tax rate were levied on those earnings, Apple would still owe $4.8 billion in taxes, after deducting the amount it already paid.

Assuming Apple is able to strike a deal with Ireland in roughly the same range as the Italian settlement, after the European Commission’s final decision, that would leave the company with a $1.7 billion tax bill. And that’s just for the three years with publicly disclosed earnings for Apple’s Irish subsidiary. Apple could be looking at 10 years worth of back-taxes—the maximum period for which the Commission may recover unlawful state aid. This is possible because the Commission’s preliminary findings (pdf) show that Apple began receiving a favorable tax arrangement from Ireland in 1990.

But even a multibillion-dollar tax bill for Apple may not go far enough in addressing the loopholes that created the situation in the first place. Some observers, like John Christensen, executive director of the Tax Justice Network, believe Apple got a plum deal in Italy and that current tax laws leave it in a similarly favorable position.

“It’s not acceptable that a company of this scale can negotiate such a favorable deal. It reflects the fact that the global rules protecting multi-national companies remain unfit for purpose,” he told Quartz.

Apple did not respond to a request for comment.

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