Apple has vowed to overturn a record €13bn bill after European chiefs found it had a sweetheart tax deal in Ireland.
In a landmark ruling following a three-year investigation, competition commissioner Margrethe Vestager said the maker of iPads and iPhones paid just 1% tax on its European profits in 2003 and 0.005% in 2014.
The Brussels watchdog found the arrangements dating to the early 1990s were illegal under state aid rules and gave Apple favourable treatment over other businesses. Ms Vestager said Apple was paying €50 in tax on every €1m of profit it made in 2014.
Defending its tax planning and corporate structure, Apple warned of the ramifications for investment in the EU, where it employs 22,000 people.
“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and up-end the international tax system in the process,” Apple said.
“The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe.
“Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned.”
The tax bill covers a 10-year period, the longest the commissioner could enforce, for the years 2003 to 2014 of up to €13bn, plus interest.
The inquiry found Ireland’s treatment of Apple allowed the global brand to avoid taxation on almost all profits generated by sales of Apple products in the entire European single market. It said this was because Apple recorded all its sales in Ireland rather than in the countries where the products were sold. “Member states cannot give tax benefits to selected companies. This is illegal under EU state aid rules,” said Ms Vestager.
The case is one of the most high-profile in the fight to redraw boundaries on aggressive tax avoidance, an issue which has put the EU at odds with the US government.
Ms Vestager found two tax rulings issued by Ireland to Apple which she said substantially and artificially lowered the tax paid by the multinational.
She said the arrangements to establish the taxable profits for two Irish incorporated companies of the Apple group — Apple Sales International and Apple Operations Europe — did not reflect economic reality.
She said almost all sales profits recorded by the two companies were internally attributed to a “head office” which only existed on paper and could not have generated such profits. Her inquiry found the profits were not subject to tax anywhere.
Apple has had a base in Ireland since 1980, long before it became the global brand it is today, thanks to its iPhones, iPads, and App Store. It employs 5,500 people in the country, with its biggest operations in Cork.
The findings could hamper the Government’s pursuit of foreign investment through its much-maligned corporation tax rate of 12.5% for business profits.
Niall Cody, chairman of the Revenue Commissioners, insisted it collected the full amount of tax due from Apple under Irish law.
“Under Irish tax law, non-resident companies are chargeable to Irish corporation tax only on the profits attributable to their Irish branches by reference to the facts and circumstances,” he said.
“The profits of non-resident companies that are not generated by their Irish branches — such as profits from technology, design, and marketing that are generated outside Ireland — cannot be charged with Irish tax under Irish tax law.”
Yesterday’s ruling comes a week before Apple’s launch of the iPhone 7 and a new version of the Apple Watch.
Ms Vestager’s office has also targeted Starbucks and Fiat, which are appealing rulings ordering them to pay back taxes to the Netherlands and Luxembourg.
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