The European Commission on Tuesday brought the hammer down on Apple’s tax arrangements with Ireland, ordering the Irish government to recover a record $14.5 billion in taxes from the company.
Concluding a two-year investigation, the EU’s antitrust regulator said Ireland granted Apple tax benefits that amounted to “state aid” and enabled it to pay substantially less tax than other businesses between 2003 and 2014. During that time, the commission said, Apple paid around 1% to almost zero tax on its European profits.
Ireland’s corporate tax rate, at 12.5%, is one of the lowest in the developed world but incentives and breaks allow companies to cut their bill even further.
“Member states cannot give tax benefits to selected companies — this is illegal under EU state aid rules,” Commissioner Margrethe Vestager said in a statement.
The decision, however, may be only the opening move in a lengthy legal battle, with Apple and Ireland both saying they would appeal.
“Apple follows the law and we pay all the taxes we owe,” Apple CEO Tim Cook said in a letter to customers, adding that the decision was “unprecedented” and would “strike a devastating blow to the sovereignty of EU member states over their own tax matters.”
The New York Times noted there is a growing conflict between the U.S. and the European Union over “who has the right to regulate tax payments by some of the world’s largest companies … American officials have warned that the commission is overstepping its power.”
But Richard Murphy, a professor in international political economy at City University in London, told The Guardian: “This is a great day for the sovereignty of the EU’s nations when it comes to tax … The Irish state has for too long been committed to tax abuse, unfair competition, and secrecy.”
The commission ordered Ireland to recover unpaid taxes from Apple of up to 13 billion euros, plus interest, finding that its tax rulings allowed the company to attribute profits to a “head office” that existed on paper only and could not have generated such profits.
“In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU single market,” the commission said.