The EU alleges that Ireland gave Apple, an American company, sweet deals in order to bring jobs to the island.
On Tuesday morning, the EU antitrust enforcer ordered Apple to pay 13 billion euros ($14.6 billion) in unpaid taxes in the biggest tax ruling in EU history.
From CNN Money:
“[EU] member states cannot give tax benefits to selected companies — this is illegal under EU state aid rules,” said Commissioner Margrethe Vestager, Europe’s top antitrust official.The United States fired back immediately, saying retroactive tax assessments by the EU were unfair.”The Commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU,” a Treasury spokesperson said.
This will likely cause more tension between the EU and the U.S. over taxes because the U.S. has complained numerous times that the EU’s tax policies unfairly target American companies.
Ireland and Apple plan to appeal the decision:
The finance minister, Michael Noonan, said he would move to appeal the Apple decision, adding it was “necessary to defend the integrity of our tax system.”“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for substantive investment,” he said.Apple also said it would look to overturn the decision, although any appeals process could take years.“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 company said in a statement.
Apple CEO Tim Cook pointed out the company chose “Cork as its European base 30 years ago and had expanded from 60 workers to almost 6,000 in Ireland.” He said:
“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.”
That’s the thing. Ireland doesn’t want them to pay all these taxes, it just wants Apple’s business. The government knows as the company expands the jobs it brings in will provide more money to the Irish economy than just a lump sum of tax money. This tweet sums it up perfectly:
Dublin even refused to call the ruling a blessing. Instead, the government admitted this could cause the country to take a huge step backwards:
But far from welcoming the European Commission’s ruling on Apple, the Irish government will seek to overturn it. The reason: the threat it poses to the central pillar of Ireland’s economic model, which is to attract investment from U.S. companies looking to sell in Europe and other parts of the world.—“To do anything else would be like eating the seed potatoes,” said Michael Noonan, Ireland’s minister of finance.
The government wants to defend these companies so it does not lose ground and these companies continue to invest in the Irish economy. This is what Ireland offers the U.S. companies:
A low and stable tax environment is one of the country’s key pitches, in addition to a well-educated and English speaking workforce, and a familiar legal system. For that reason the government has resisted pressure from other European nations to raise its tax rate on company profits from 12.5%, even though it relied on those nations for a bailout in the economic crisis that followed the bursting of a property bubble in 2007, which threatened to take down the country’s banking system.
Ireland is far from a tax haven, but look at what Apple and other companies have done for the island:
In 2015, its economy grew by 26%, roughly 10 times the pace of other developed economies. That was largely due to a series of so-called inversions, in which U.S. corporations merge with companies based abroad to benefit from their lower tax rates.
You can read Cook’s full statement here, but these two paragraphs really stuck out to me after he mentions that Apple established Cork as their base in 1980:
We have operated continuously in Cork ever since, even through periods of uncertainty about our own business, and today we employ nearly 6,000 people across Ireland. The vast majority are still in Cork — including some of the very first employees — now performing a wide variety of functions as part of Apple’s global footprint. Countless multinational companies followed Apple by investing in Cork, and today the local economy is stronger than ever.The success which has propelled Apple’s growth in Cork comes from innovative products that delight our customers. It has helped create and sustain more than 1.5 million jobs across Europe — jobs at Apple, jobs for hundreds of thousands of creative app developers who thrive on the App Store, and jobs with manufacturers and other suppliers. Countless small and medium-size companies depend on Apple, and we are proud to support them.
Bloomberg reported:
In preliminary findings in 2014, European competition authorities said Apple’s tax arrangements were improperly designed to give the company a financial boost. There’s a range of estimates on how much Apple might have to pay. In a worst-case scenario, Apple may face a $19 billion bill if the government ultimately loses and is forced to recoup tax from the company, according to JPMorgan Chase & Co. analyst Rod Hall. The Irish Times reported earlier on Monday that the figure might not be much more than 100 million euros ($112 million), although it later revised its estimate upwards.
But if the EU rules against Apple and Ireland, guess who pays? The American taxpayer:
Still, the Commission-ordered repayments could wind up costing American taxpayers under U.S. tax law, and benefit EU taxpayers, the U.S. has said. That’s because multinational corporations with large foreign operations, like Apple, are allowed to claim a credit against their U.S. tax bills for any foreign taxes paid, an offset that reduces their tax payments to U.S. coffers.
The Apple case focuses specifically on what tax should be paid in Ireland by an Apple unit registered in that country that pulls in billions of dollars from the sale of Apple gadgets to Apple products to the company’s retail operations in countries such as Germany, but pays no income tax in Ireland on the bulk of its profit.The unit, Apple Sales International, buys the Apple products like iPhones from contract manufacturers in China and resells them to retail outlets, according to the letter the EU sent to the Irish government.The unit, which had revenue of more than $63.9 billion in fiscal 2012, according to a U.S. Senate inquiry in 2013, pays some tax in Ireland but the EU alleged in the letter that those amounts were lower because of sweetheart deals.
This same commission demanded 700 million euros ($782,250,000) from 35 American companies. Starbucks alone had to pay 30 million euros ($33,525,00) to the Dutch government.
*Updated to include reactions from Ireland and Tim Cook’s statement.
CLICK HERE FOR FULL VERSION OF THIS STORY