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Apple faces record multibillion-euro tax penalty

Apple has been hit with a €13bn tax bill after European competition authorities ruled the company benefited from an illegal tax deal in Ireland

Apple is facing a record tax back-payment of €13bn after European competition authorities ruled the company benefited from an illegal tax deal with the Irish government.

The ruling concludes a three-year investigation as part of a wider crackdown by the European Commission (EC) into multinational tax avoidance. The EC has powers to recover illegal state aid to companies for up to 10 years.

The EC said tax deals between Apple and Ireland were anti-competitive, allowing the company to pay a tax rate as low as 0.005% on its European profits for more than a decade.

In 2015, the EC ruled that the Netherlands should recover as much as €30m from Starbucks, and Luxembourg was ordered to recover a similar amount from Fiat.

The previous record penalty was €1.4bn, which French energy group EDF was ordered to pay in July 2015 after the EC found the company had benefited from illegal tax benefits from the French government. 

Apple was hit with the €13bn back taxes bill a day after EU competition commissioner Margrethe Vestager distributed the final ruling to the EC, which is the EU’s executive branch, on 29 August 2016.

“This decision sends a clear message. Member states cannot give unfair tax benefits to selected companies, no matter if they are European or foreign, large or small, part of a group or not,” Vestager said in a statement.

However, the total amount that Apple pays will depend on how the ruling is actually enforced and other countries or US authorities may order the company to pay extra, which could reduce the sum owed to Ireland, according to the Telegraph.

Apple admission

The EC ordered the probe into Apple’s tax affairs after the company admitted in May 2013 to having sheltered $30bn in international profits in Irish subsidiaries.

Apple chief executive Tim Cook also told a US Senate hearing that Apple had struck a deal with the Irish government in 1980 to limit its domestic taxes there to 2%.

But Apple and the Irish government denied breaking any laws or that Apple benefited from state aid. Both are likely to appeal against the EC’s ruling, which called on the Irish government to raise a new tax assessment on Apple, according to the Financial Times.

Ireland is the European base for several major technology companies, including Amazon, Facebook, PayPal and Twitter, because of its low corporation tax rate of 12.5%. The US rate is 35%.

Michael Noonan, Ireland’s finance minister, said he disagrees “profoundly” with the ruling. "The decision leaves me with no choice but to seek cabinet approval to appeal.

“This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation,” he said in a statement. 

OECD crackdown

In September 2014, the Organisation for Economic Co-operation and Development (OECD) began to crack down on tax avoidance by multinational companies using complex tax structures.

These structures help companies reduce the tax paid on profits, often by shifting profits to subsidiaries based in low-tax jurisdictions such as Ireland.

In June 2013, the UK led efforts to lobby the OECD to bring international tax rules up to date for the internet world.

The move followed a call by the House of Commons‘ Public Accounts Committee (PAC) for a full investigation into Google’s alleged tax avoidance practices in the UK.

The PAC also said it wanted to see multinational companies such as Apple, Google and Amazon paying more tax in the countries where their customers are located.

The 34 OECD nations have since proposed new international measures aimed at forcing companies to report their profits and holdings country by country to stop them shielding profits from tax.

Google stumps up

In January 2016, Google agreed to pay £130m in back taxes to the UK government after insisting for years that it had been fully compliant with UK tax laws.

However, Matt Brittin, head of Google Europe, said the January deal did not prove that the company had avoided paying tax in the past.

“We were applying the rules as they were, and that was then, and now we are going to be applying the new rules, which means we will be paying more tax,” he said.

According to Google, the settlement with HMRC reflects changes in the international tax system as a result of a long-running debate on the way multinational companies are taxed, and is in line with guidance by the OECD. 

Read more on IT legislation and regulation

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Illegal tax benefit way few big companies made good money. Unbelievable that Apple made a very big mistake.
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Will the Irish cry all the way to bank - or rather be able to begin to repay their debts. And how much is the UK share? and will those who route their tax avoidance through Luxembourg come next - will the Fiat precedent apply?
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