TIME TO PAY UP

Apple owes Ireland $14.5 billion, plus interest, in taxes that Ireland didn’t ask for

The European Union says Ireland must recover €13 billion ($14.5 billion) in “illegal tax benefits” from Apple, covering a 10-year period. But the US tech giant received illegal state aid from the Irish government via arrangements dating as far back as 1991, the European Commission announced today (Aug. 30). These rulings allowed Apple to pay “substantially less tax than other businesses,” the commission said.

Margrethe Vestager, the EU’s competition commissioner, said it is illegal under the bloc’s rules to give bespoke tax benefits to individual companies. Ireland’s “selective treatment allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003 down to 0.005% in 2014,” the commission said.

Ireland must now recover the back taxes from Apple for 2003 to 2014, plus interest. “This is due to Apple’s decision to record all sales in Ireland rather than in the countries where the products were sold,” the commission said.

But Ireland’s finance minister, Michael Noonan, said he “disagrees profoundly” with the ruling, claiming there was no favorable treatment and Apple paid its taxes in full. A statement from the ministry said Ireland plans to appeal the decision but is legally obliged to recover the money from Apple in the interim. “Given that this money may ultimately have to be returned to the company in the event of a successful appeal, the money can be held in escrow until the case has concluded,” the statement says.

Apple’s European holding company, through which its regional profits flow, is located in Dublin, which has a much lower corporation tax rate, 12.5%, than the rest of Europe. The UK’s rate is 20%, for example.

The size of this tax penalty is unprecedented for the commission. By comparison, the commission told the Netherlands to recover €30 million in back taxes from Starbucks last year and Luxembourg was ordered to collect a similar amount from Fiat. Other cases are ongoing against Luxembourg for its tax arrangements with Amazon and McDonald’s.

Ireland can collect less from Apple if other EU countries demand that the company pays more taxes on the profits recorded by its subsidiaries in their jurisdictions. The amount can also be reduced if the US requires Apple to shift more money to the US parent company to finance its research and development efforts.

Apple CEO Tim Cook said in a Washington Post interview last week that if he felt the company didn’t get a fair hearing by the commission it would appeal the ruling. In a statement, the company confirmed that it would appeal the decision, which it called “an effort to rewrite Apple’s history in Europe” and upend the international tax system. The statement said it would have a harmful impact on investment and job creation in Europe. “Apple follows the law and pays all of the taxes we owe wherever we operate,” it said.

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