Apple Faces $14.5bn Tax Bill After EU Commission Decision

The European Commission has ruled that Apple must pay back up to €13 billion ($14.5 billion) to the Irish government in unpaid taxes after the commission found that the tax benefits being extended to the company were illegal.

Commissioner Margrethe Vestager highlighted in the ruling that member states cannot provide special tax arrangements to selected companies as it was not legal under European Union (EU) laws. She said that the Commission carried out an investigation which revealed that the tax benefits provided to Apple was not legal since it enabled the company to pay taxes that were significantly less that that paid by other companies.

The Commission stated that in effect the company was paying a corporate tax of 1 percent on profits earned in Europe in 2003 and 0.005 percent in 2014. The standard rate of corporate tax in Ireland is 12.5 percent.

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Vestager pointed out that the tax rates paid by Apple were far from economic reality and amounted to state aid. Apple reacted by warning that the ruling would be harmful to Ireland and has said that it will appeal.

In a statement, Apple said,

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, 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 company has asserted that it has followed all the tax rules. The Irish government has also reacted similarly, stating that it would appeal the ruling. The Finance Minister of Ireland, Michael Noonan was also unhappy with the Commission’s decision and has stated that he will appeal the decision in order to protect the integrity of the country’s tax system and challenge the Commission’s encroachment.

According to reports, around 90 percent of Apple’s foreign profits are through its Irish subsidiaries and the $187 billion it holds in Ireland is the largest foreign cash holding by any U.S multinational. This is not the first time that the Commission has demanded that companies pay back taxes. The Commission had also instructed the Netherlands to collect €30 million from Starbucks and Luxembourg to collect a similar amount from Fiat. This latest ruling is 40 times bigger than any of the previous amounts and is a new record fine.

The U.S. Treasury criticized the decision, calling it unfair. It had earlier warned that the European Commission was fast becoming a supranational tax authority which could damage tax agreements between countries.

An interesting consequence of this ruling is that Britain could attract Apple, and many others due to ‘Brexit’. A spokeperson for downing street declared ‘Britain is open for business’. This would put the UK government at odds with the rest of Europe who have previously warned of cutting corporation tax to boost the Britain’s growth.