Today, the European Commission has concluded that Ireland granted unfair tax benefits in the range of €13 billion (US$14.5 billion) to Apple from 2003-2014. This benefit allowed Apple to pay significantly less tax than other business which is illegal in the EU, of which Ireland is a member.
The European Commission’s investigation, which began in June 2014, saw that Apple was granted two tax rulings by the Irish Government which “substantially and artificially lowered the tax paid by Apple in Ireland since 1991” stated the press release. The report claims that Apple took advantage of the ruling by funneling profits into two non-existent “head offices” which could not have generated such profits. These profits were not subject to tax by any country under specific provisions of the Irish tax law.
“Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” said the EC’s Commissioner Margrethe Vestager, “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.”
Though this activity appears to extend back to 1991, The Commission can order recovery of illegal state aid for only a ten-year period prior to the Commission’s first request for information which took place 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” read the statement.
The report claims that Apple leveraged this exemption by recording nearly all profits generated by sales of Apple products in the entire EU Single Market in Ireland. Though this structure is not within the control of EU state aid, if other countries were to seek out tax profits from European sales it would reduce the total amount to be recovered by Ireland.
Update: As a response, Apple’s CEO Tim Cook released an open letter to his European customers base.
“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 opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. 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.”
The letter is an appeal to both the history of the company’s involvement in Ireland and Cook’s opinion of the decision: “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.”
Cook claims that Ireland plans to appeal the Commission’s ruling, as will Apple. “We are confident that the Commission’s order will be reversed.”
Apple is expected to announce the next iPhone and Apple Watch products on September 7th.