The European Commission has ordered Apple to pay a whopping €13 Billion in taxes – Flavible
As of today, Apple is in a lot of trouble. The European Commission released a press release, stating that a deal between the Irish government and Apple, granted undue tax worth up to €13 billion. Under EU state aid rules, the setup between Apple and Ireland is illegal and is allowing Apple to pay substantially less tax than other businesses. In the report, Apple is said to have only paid 1% tax on profits made in Europe from 2003-2014 and 0.005% in 2014. Of all the corporation tax rates in the Europe, Ireland has one of the lowest; with a tax rate of 12.5%.
According to the BBC, the US Treasury said: “We believe that retroactive tax assessments by the Commission are unfair, contrary to well-established legal principles, and call into question the tax rules of individual member states.”
The outcome of the investigation prompted an angry response from Apple’s CEO, Tim Cook, who wrote a letter to Apple customers. In the letter, he mentions how Apple has been in business with Ireland and proudly following all corporate laws for over 20 years; helping create over 1.5 million jobs across Europe. He further went on to state how Apple was not only the largest paying tax payer in Ireland, but the largest taxpayer in the world. Apple is of course standing their ground and stating that the claim made in the European Commissions report is false and has no basis in fact or in law. The outcome of this report is one which is likely to cause a divide between the US and the EU, as the money which will be paid to Ireland could have been used to aid the US economy.
How has Apple managed to get away with paying minuscule amounts of tax?
Under EU law, Member states cannot give tax benefits to selected companies. The investigation into Apple’s lack of tax-paying was launched in 2014. Apple (Ireland), along with Starbucks (Netherlands), Fiat Finance and Trade (Luxembourg), were being investigated for arranging corporation tax deals; which violates EU State aid rules. According to the report, the agreement between Ireland and Apple between 1991-2015 had allowed the US company to create a ‘Head Office’ which only existed on paper and therefore could not generate any profits. This, along with Apple’s decision to record all product sales in Ireland rather than the separate countries within the EU’s single market; meant that Apple did not have to pay any tax on products sold within the EU.
The Apple group is made up of two Irish incorporated companies, Apple Sales International and Apple Operations Europe. These are in turn run by Apple Inc. in the United States. Both companies in Ireland hold the intellectual property and rights to selling Apple products outside North and South America under the cost-sharing agreement with Apple Inc. Apple Sales International is the main driver for capital outside of North America. It is responsible for the buying of Apple products from manufacturers and selling them in Europe. The system is set up in such a way that all products sold within stores are contractually bound to Apple Sales International, allowing the profits from the sales to stem directly Ireland.The profits made by Apple Sales International were split between the ‘Head Office’ and the Irish branch. Only the profits made by the Irish branch were subject to standard Irish corporation tax. Since the ‘Head Office’ has no registered employees, premises or country; the profits there remained untaxed. The tax bill €13 Billion is 40 times larger than any other for such, making it the largest on record.
Cook 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.”
Apple should have no problems paying off the tax bill, as they have a massive $250 billion in reserves. Though most of this is held offshore it doesn’t mean they dont have enough within their own US reserves to sort out this mess.
Apple and the Irish government are both appealing the decision made by the European Commission. Even though Ireland could benefit from the additional income, they don’t want there relationship with other major corporations, who are based in there, to deteriorate. The amount of money Apple supposedly owes is equivalent to Ireland’s entire health budget.
This report could not have come out at a worse time for Apple. As they are currently busy preparing themselves for their annual keynote event where they are expected to unveil their next generation flagship products. With the glimpse of a new iPhone and Apple Watch on the horizon, Apple is under a lot of public pressure to deliver products which boast more than just the usual camera upgrade. The scepticism over the removal of the headphone jack has already made some people believe Apple is loosing touch with its customer base.
The €13 Billion tax bill is the equivalent to approximately 25% of the profits Apple made in 2015. So if Apple is able to deliver some new innovative products in their upcoming keynote event, they may be able to push this report under the rug.