European Commission regulators on Tuesday ruled the Apple’s tax arrangements with Ireland are illegal, and is demanding that the Cupertino firm pay back up to 13 billion euros, (around $14.5 billion US) in back taxes, plus interest. It was expected by many the amount would be much lower, somewhere in the neighborhood of $1.1 billion dollars, so the final ruling comes as a surprise.
The European Commission statement said:
This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission’s first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.
The ruling is subject to appeal, and unsurprisingly, Apple has said that it will indeed appeal the decision. The company posted “A Message to the Apple Community in Europe” on its website, penned by company CEO Tim Cook:
The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same. We are confident that the Commission’s order will be reversed.
The $15 billion amount covers a period from 2003 to 2014, when, according to the judgement, Ireland improperly allowed Apple to pay a much smaller amount of tax than other businesses. The report claims the company’s effective tax rate on international sales was 0.005% by 2014. The iPhone maker funnels all of its European sales through an Irish subsidiary.
Commissioner Margrethe Vestager, in charge of competition policy, said: “Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.”
Ireland Finance Minister Noonan said the country “disagrees profoundly” with the back tax ruling by the European Commission. “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.
Apple shares fell more than 2% in pre-market trading following the ruling.